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Senior and Post-Acute Healthcare News and Topics

Hospice and the Medicare Choices Program: A Follow-Up

Below is a link to an article from Bloomberg Business Week regarding the Hospice industry and the Medicare Choices Program.  My last post covered the elements of this CMS demonstration project.  The link comes from the original piece written by Charles Elmore and published in the Palm Beach Post this weekend.  Readers will note my interview comments appear on pages 2 and 3.

http://investing.businessweek.com/research/markets/news/article.asp?docKey=600-201405091340KRTRIB__BUSNEWS_9682_48750-1

 

 

May 14, 2014 Posted by | Hospice | , , , , , | Leave a comment

Hospice and the Medicare Care Choices Model: A Progressive Approach?

About a month ago (mid-March), CMS introduced a pilot program called the Medicare Care Choices Model.  Basically, this pilot program will allow Medicare beneficiaries to access, via certain participating hospice organizations, dual benefits; hospice and curative treatments, concurrently.  Under the current Medicare Hospice Benefit, a patient with a terminal illness or condition, certified likely to die in 6 months or less by a physician, can enroll into the Hospice Benefit but in doing so, forgoes the traditional coverage for curative treatments under traditional Part A.  Essentially, by electing the Medicare Hospice Benefit, the patient has decided not to pursue an aggressive path of cure or curative interventions or treatment (chemotherapy, radiation therapy, artificial hydration/nutrition, etc.) opting instead for palliative care, symptom management, and a progressive path toward natural death.

In the Medicare Care Choices Model, Hospices that apply and are selected to participate in the program will provide services available under the Medicare hospice benefit for routine home care and inpatient respite levels of care that are not separately billable under Medicare Parts A, B, and D.  The services must be available 24 hours per day and across all calendar days per year.  CMS will pay a $400 per beneficiary per month fee to the participating hospices for these services.  Providers and suppliers furnishing curative services to beneficiaries participating in Medicare Care Choices Model will  continue to bill Medicare for the reasonable and necessary services they furnish.  Per CMS, the ideal hospice applicants for program participation can demonstrate a history of providing care/case coordination to patients, across a continuum of providers and suppliers.

Returning to the title of this post: Is this progressive on the part of CMS?  The truth  is best answered – “not really”.  There are a number of current issues with regard to the Medicare Hospice benefit, care utilization, end-of-life care in general, and yes, the ACA at play.  Under the ACA/Obamacare, the Secretary of HHS has a mandate to implement changes to the Medicare Hospice benefit no earlier than October 1, 2013. Abt and Associates (consultants) has been gathering and analyzing data on lengths of stay, place of care, length of stays in hospice by diagnosis, costs of care, etc.  The Medicare Care Choices Model is in certain respects, a trial balloon element in the process of overhaul for the Medicare Hospice benefit.

Another operative element or issue and one that hospices are all too familiar with of late is the utilization pattern changes that are occurring across the spectrum of end-of-life care.  Hospice referral patterns haven’t changed much but the nature of the referral has.  Additionally, census trends for most hospices are flat and when viewed with/against lengths of stay, the trends are actually “down”.  In short, an evolving dichotomy for hospice referrals is occurring.  The referrals are modestly increasing in many urban/suburban regions but at the expense of the length of stay.  The patient is finally referred at the end of his/her life, after all curative options are exhausted.  Per CMS, 44 percent of Medicare patients use the hospice benefit at end-of-life but in a continuing pattern, at the end of life resulting in shorter and shorter stay increments.

Back to the question in the title of the post, this initiative is less about promoting or integrating hospice earlier, though the outcome of earlier intervention could occur.  What CMS is tinkering with or intending to impact, is the continued growth of very expensive medical care in the last months of life.  The two greatest drivers for Medicare spending in the U.S. are the cost of caring for “lifestyle” diseases (chronic diseases such as Type II diabetes) and care provided within the last six months of a person’s life.  The latter is the target for this program.  The premise is as such.  If, by integrating hospice into the equation sooner, having removed the curative or interventional obstacle, patients will transition earlier to palliative care, foregoing certain last rounds of inpatient, interventionist care and thereby, save the government money.  The patient and the curative care team (the physician, hospitals, etc.) will be less loathe to refer to hospice and address the prospect of treatment futility (even though that prospect is real) since, under this program, the patient may continue to pursue as much interventional and curative approaches as desired.

My quick analysis is that this program, while a novel approach, doesn’t really achieve any of the objectives intended (savings, better care, easier transitions, earlier transitions, more appropriate care, etc.). My reasons and conclusions are as follows;

  • The issue of when a patient chooses to opt for end-of-life care versus curative care is more an American cultural/social issue than a public policy issue.  As Americans, we are inculcated that death is bad, life is premiere.  Our health insurance, especially now with ACA reforms, has virtually no limits on the treatment we can access (no lifetime minimums and no pre-existing condition limitations).  Our media (television, print, other) is full of advertisements of procedures, drugs, providers that offer hope and cure.  Watch a Cancer Treatment Center of America spot – a prime example.  Physician specialists aren’t trained to forego what may clearly be futile care but instead, to press forward and to convey options and hope.  In fact, the number of physician specialty groups that I have spoken with over the years validates this point emphatically: “Hospice is futility. We provide hope”. This element is the leading cause of late stage referrals when in validation, futility is truly evident as the patient is nearly dead or the final rounds of whatever treatment have shown no result.
  • There is no financial incentive to change or alter the care provided.  In the Choices model, the patient may access curative care and receive hospice services.  The hospice receives $400 more per month (for care coordination) and all other provides bill Medicare for their interventions, services, etc.  If CMS is relying on the care coordination skills of the hospice to facilitate better choices by the patient, his/’her family and/or the other providers, they are truly foolish.  These groups have no financial incentive to partner on best choices and unless, CMS provides regulatory boundaries or payment incentives aligned to certain behavior, the savings will be minimal.
  • There isn’t a real incentive for patients to enroll in this pilot project, other than they can get routine home care, respite, etc. benefits from the hospice.  In reality, patients who are going to pursue curative options aren’t thinking hospice options.  Likewise, the providers offering the curative interventions aren’t talking hospice options at this point.  Our current healthcare system doesn’t function on this integrate plane.  Thus, there truly is no motivation across the actors (hospice, curative providers, patients, families) to change current behavior.  In fact, I see a risk for new avenues of improper utilization, qualification and abuse.  Enrollment in hospice under this program is going to be challenging to qualify and quantify as in theory, where is the point of terminality (without intervention, death is likely in 6 months).

It will be interesting to watch how this program rolls-out and how CMS addresses or attempt to address the nuanced and overt regulatory issues that today, are separate and distinct by benefit programs.  Likewise, it will be interesting to see how patient utilize, if they do to any extent, this hybrid model. The economist in me tells me that the concept and programmatic approach makes financial sense but operatively, this isn’t a slam-dunk in terms of ever working in the real world.  There are simply too many behavioral impediments today for this to be a truly successful model.

 

 

 

April 16, 2014 Posted by | Hospice, Policy and Politics - Wisconsin | , , , , , , , , , | Leave a comment

Medicaid Case-Mix States: A Reader Question

Recently, a reader asked me a question regarding which states still use RUGs III for their Medicaid case-mix payments. At the time, I honestly didn’t know the answer completely. Based on a little research, I’ve outlined the RUGs status as I currently know it, across the states that utilize Medicaid case-mix. Note: Not all states use a case-mix reimbursement methodology for their Medicaid SNF payments (eighteen don’t). Any readers that know more specifics about any of the states and their status as listed below, are free to comment with additional information.

RUGs IV

  1. Washington
  2. Minnesota

Transitioning to RUGs IV (either upcoming, very recent or at this point in time)

  1. Vermont
  2. Wisconsin
  3. Illinois
  4. Maryland (last cost based state in the country, transition in July of 2014)
  5. Indiana (2015)

RUGs III (some may be in the process of developing a transition)

  1. Montana
  2. Idaho
  3. Nevada
  4. Utah
  5. Colorado
  6. North Dakota
  7. South Dakota
  8. Nebraska
  9. Kansas
  10. Texas
  11. Iowa
  12. Louisiana
  13. Mississippi
  14. Kentucky
  15. Ohio
  16. Maine
  17. New Hampshire
  18. New York
  19. Pennsylvania
  20. West Virginia
  21. Virginia
  22. North Carolina
  23. Georgia

Again, if anyone knows more specifics about any of the above mentioned states, please feel free to comment to this post.

April 7, 2014 Posted by | Skilled Nursing | , , , , , , , | Leave a comment

SNF Caution: Medicare and End of Life Billing

While this isn’t a de novo trend, it is one that I am seeing again with frequency and thus, it bears/requires CAUTION. This trend is commonly referred to as Skilled until Death or End-of-Life Skilled.  The reference in “skilled” is Medicare; delivering qualified skilled nursing or skilled therapy services (or combination thereof) with sufficient frequency and intensity to qualify the resident for Medicare coverage, post a three-day qualifying hospital inpatient stay.  The genesis of this trend lies in the differences between the Medicare benefits found in the SNF/traditional Part A program and the Medicare Hospice benefit. The logic for families/residents is as follows (why or why not hospice, etc.).

A patient in a hospital, likely terminal in a short time period and incapable (for a myriad of reasons) of returning home, is approaching discharge.  The inpatient stay length in the hospital is sufficient to meet the three-day rule for Medicare A coverage in the nursing home.  The patient’s condition likewise is such, that he/she will meet the eligibility test for coverage under the Medicare Hospice benefit.  Here’s the nuance.   If the patient elects the Medicare Hospice benefit and requires an inpatient stay in an institutional setting, such as an SNF, prior to his/her death, the patient must pay the prevailing cost of the room and board component. The caveat is unless the patient is eligible or qualified for Medicaid and then, the Medicaid program would pay the SNF for the room and board cost.  The Hospice benefit does not cover such a cost unless the inpatient stay was respite or qualified as General Inpatient for advanced symptom management, etc.  Under the Medicare Part A SNF benefit, the patient may discharge to the SNF, receive the first 20 days of covered care essentially free and then, if still qualified, pay a lower cost per diem co-pay for any covered days past the initial 20.  In this simplistic fashion, it seems logical for most parties that unless the patient was Medicaid eligible, the best route is to remain on traditional Medicare and access the Part A SNF benefit.  For families and patients, this makes sense but for providers; SLOW DOWN!  Showing my age and “borrowing” from a TV favorite in my past, “Danger Will Robinson … Danger”.

The Medicare Part A SNF benefit does not contain any RUG related to End of Life or Palliative Care.  In fact, there is no presumption of payment for any end of life care under the Part A SNF benefit as the same was never meant to be used for any reason other than a post-acute transfer style payment up and until, the patient could re-transition to his/her permanent residence, off of the Medicare coverage.  Thus, the only aspects of coverage determination/eligibility (sans the 3 day prior rule) is the medical necessity of daily skilled services defined as professional nursing (RN), rehabilitative therapies (PT, OT, ST) or some combination between nursing and other related skilled disciplines such as respiratory therapy, dietitians, etc.  Many of the traditional end-of-life hospice/palliative type services would not, meet any of the Medicare Part A SNF “skilled” coverage criteria.  Simple management of pain or symptoms without necessitating routine RN assessment and dosage changes isn’t a skilled SNF service.  IV’s in and of themselves, don’t engender lots of skilled nursing coverage.  If someone is likely to die in a reasonably short time, therapies are unwarranted for any length of time, save perhaps a day or two to develop other care plans for swallowing, positioning, etc.

How  this subject rises to the CAUTION level is driven by two separate but inter-operative elements in government today.  First, the heightened focus from the OIG on SNF care, its appropriateness, its billing issues, etc.  The industry is watched closer today than ever and RAC and Other audits are heating up.  Second, the government’s vigilance and determination today in finding fraud, particularly acts/violations of the False Claim Act.  Now, lest anyone thinks I am being too alarmist, I have a long list of clients within my consulting practice work that are using us to help with post-payment reviews and claims denials for SNF Part A claims.

The take-away here is very simple….if it walks like a duck, quacks and has feathers, call it a duck.  If the patient’s prognosis and plan is death, even if one can gin-up Part A coverage, don’t do it.  First, the act of providing non-medically necessary care or care not warranted (inverse coding) is an act of fraud and a violation under the False Claims Act.  Similarly, over-treatment and unnecessary care may bring professional sanctions for licensed individuals as well.  Essentially, an ethical problem of a large degree is present.  Of course, if the patient has consented to a course of curative  or interventional care as a last shot at improvement or in an effort to re-build strength/stamina prior to a wedding, family event, etc., the services are warranted and should be properly billed to the Part A SNF benefit.  Quite honestly, what I see routinely is the latter is the outlier. The “skilled until death” driven by cost is the norm and this one is perilous for those who play the game.  Auditors are out there and this “phenomenon” is known to the OIG and as it grows, scrutinized.  Remember, coverage is determined by the legitimate medical needs of the patient, as determined by assessment and framed by the goal/determination and consent of the patient (and/or his legal surrogate).  If this does not warrant the use of daily skilled services/interventions to achieve the goal of the patient and meet his/her legitimate care needs as assessed, no coverage is available under Part A.  Going beyond this prior point in search of coverage is an act of achieving payment for non-warranted, non-necessary services and as such, a violation of the False Claims Act.

 

 

 

April 2, 2014 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , | 2 Comments

Doc Patch in the Works

Yesterday, the Speaker of the House (John Boehner) announced that a compromise is forthcoming to alleviate, for one year, the pending 24% payment reduction to the Physician Fee Schedule arising out of the current SGR formula. Ten days or so ago I wrote a post regarding a House bill that repealed the SGR but contained a “poison-pill” provision assuring its death in the Senate ( http://wp.me/ptUlY-gm ). As is the common methodology in Congress today, this initiative is a “patch”; another extension of the current status quo, delaying any SGR implications for one year.  Alas, while the SGR demands fixing, permanently, no traction is available among the parties to resolve the issue.

What the compromise does and doesn’t do is as much the center of debate as any efforts to replace the SGR with a more permanent formula.  In summary, the compromise;

  • Staves off the 24% cut but doesn’t restore any cuts related to sequestration.
  • It delays the implementation for hospitals of the 2 midnight rule for another six months.  The 2 midnight rule essentially reduces Medicare payments to hospitals for short in-patient stays.  It requires admitting physicians to have justification for the inpatient stay and if the same is lacking, the stay could be deemed (by RAC auditors) outpatient observation and thus, paid under Part B  at a lower rate.  The Bill would delay RAC auditors ability to review such stays until March of 2015 and give CMS authority in the interim and beyond, the ability to probe and educate but not re-classify stays.
  • It extends the implementation of ICD-10 for one more year.
  •  It extends certain programs that provide additional funding for rural hospitals.

While no one wins under these compromises, the Patch is likely to pass both houses quickly, viewed as a better alternative than the SGR cuts.  For post-acute providers, this is good enough news as the therapy fee schedule was subject to the same 24% reduction.

Interesting to note is that while the Bill extends the implementation of the 2 midnight rule, it doesn’t address the backlog of Administrative Appeals that continues to mount due to the Medicare RAC initiative.  This backlog is enormous and growing and it is the sole source initially, for providers to appeal RAC decisions.  I know of multiple providers today in the appeal queue waiting for a review of what appears to be, many erroneous determinations and shabby reviews of claims.   More on this in another post – later.

March 27, 2014 Posted by | Policy and Politics - Federal | , , , , , , , , , , | Leave a comment

House Passes Doc-Fix Bill Destined for Nowhere

Earlier today, the House passed a bill that repeals the SGR formula used to derive physician reimbursement under Medicare.  For more specifics on the SGR, see a previous post I wrote at http://wp.me/ptUlY-ae .  The legislation is title SGR Repeal and Medicare Payment Modernization Act.

Unfortunately, the fate of the legislation is predestined as the bill includes an amendment from the Ways and Means Chairman (Rep. Dave Camp) that delays implementation of the tax/fee penalties concurrent with the Individual Mandate. It does not repeal or delay the mandate, simply the punitive measures for those that don’t comply.  Recall, the Affordable Care Acts requires all individuals above a certain income limit (tax filing limit) or without expressed hardship, to obtain health insurance by April of this year or face a penalty.  The penalty embedded within the act is a flat dollar floor with amounts increasing based on gross income.  With certainty, the inclusion of the amendment in the legislation spells a death sentence in the Senate where Senate Democrats hold a majority and Leader Reid, controls the flow of legislation for vote.  The bill will never see a vote in the Senate due to the Camp amendment.

The sticking point on repeal of the SGR is cost.  The Congressional Budget Office estimates that a repeal of the SGR, shifting to an indexed option with market baskets and productivity adjustments, will cost $138 billion over 10 years.  The dollars would need to come from an already shaky Medicare program that today, doesn’t really have another source of revenue save tax increases or contra-revenue infusions via reduced provider payments elsewhere in the industry.  The funding dilemma that occurs with the Camp amendment is that such an amendment actually saves the government $169 billion.  The savings is achieved by a projection of fewer people, sans the mandate penalty, having health insurance including under Medicaid and SCHIP (or CHIP).  With fewer people accessing the government-funded entitlement programs, the outflow is less, savings in amounts greater than the SGR repeal costs.

Once again, a fascinating insight into current federal health policy and the economics at play…

March 14, 2014 Posted by | Policy and Politics - Federal | , , , , , , , , | Leave a comment

Amedisys Today: A Cautionary Tale

Rarely do I write about a specific company as my work doesn’t focus on individual companies per se, more on industries and the policy/economics of health care industry segments.  Occasionally, a company’s story typifies an industry flaw or trend or the same is illustrative of an endemic issue (Vitas for example).  Amedisys’ continued saga of decline is an exception where a company’s story is illustrative of a series of missteps and failures in vision and leadership.  The latter is a trend I see altogether too often.

Yesterday, Amedisys announced its third quarter results (4th quarter 2013). In summary, for the quarter net revenues declined by 13.7%, net loss increased to $2.2 million a decrease of 135% compared to the same period in 2012 and annualized negative changes (from year to year) in EBITDA (negative 49.7%) and net income of 83.8%.  Comparatively, two years ago their margin was 7% (not good but not deplorable), -26% last year and for 2013, -5.6%.  Their aggregated profit margin in “real-time” is -16%.  In spite of any rhetoric from management (new leadership at the helm after the ouster all too late in my opinion of founder Bill Borne) about hitting bottom, improving fundamentals, etc. the future picture is “crystal”.  In fact, analyst surprise over yesterday’s results is illustrative of a lack of generalized understanding about health policy, health care/provider risk concentration, and sustainable operations.  Suffice to say, no surprise looks on my face.

I have written before somewhat on Amedisys and referenced them as a story that others insist on paralleling (Vitas again comes to mind).  So as the title reference applies, below is the cautionary tale.

  • Concentration of Risk: All too many providers get caught-up in following the “shiny object” syndrome.  They mine the reimbursement trend of greatest reward, using the most advantageous coding, and layering their plates with as many patients possible that fit the highest payment profile.  Some do this by stretching the very definitions of medical necessity.  Others do so by overly zealous and questionable referral methods; some overtly fraudulent such as pay-for-referral or incentive-for-referral arrangements with other providers.  The flawed belief is that effective lobbying, smoother lawyers, and a public persona campaign that focuses on “good, ethical, high quality care” imagery will somehow ward off intrusions that could burst the bubble.  All of the aforementioned is the flaw in how health care reimbursement and policy really works. The handwriting was on the wall for Amedisys as its book of business was feverishly high with Medicare patients and patient profiles by margin, concentrated in therapy.  All the signs of a crumble were present and no diversification strategy was even in the works when the OIG stepped-in, Congress following and CMS on the backend re-writing reimbursement rules.  The hey day ended and today, with no ability to re-tool quick enough away from the only business model Amedisys knows but generate visits under Medicare, their financial house is exposed.  They were too big, too reliant on a single element of business and not properly diversified to mitigate the risk exposure that comes with mining government reimbursement programs.
  • Short vs. Long Term: To be certain, publicly traded companies are driven by ever-increasing earnings and thus can lose quickly, the perspective of sustainability of business.  Like in mining, veins tap out quickly and the quest is always to find another “motherload”.  Unfortunately in health care, more of the same even widely diversified by geography doesn’t create sustainability it simply magnifies the concentration of risk.  Creating a sustainable platform of survival and thus success is all about leveraging core competency beyond the simple “how much per eaches can I bill”.  Innovation and multi-level capabilities crossing all lines of business and depth of payer diversification is how long-term earnings are made.  I refer to this, as do others, as system thinking.  Integrating pieces and constantly rolling-forward new lines of innovation allows for a pipeline of other service/product lines to build sustainable growth and profit.
  • Failure to Understand Policy and Economic Implications: Health policy is rarely illogical though it often in final form, is misguided and bureaucratically over-cooked.  Medicare and Medicaid are unsustainable entitlement programs and government’s response to structural funding problems is to reduce “spending” not sustain it or increase it.  Any provider segment today that believes more money for anything is forthcoming truly has suspended reality.  This isn’t to say that in components, Medicare and Medicaid can’t be viable business segments.  It does mean that the world has been changing for quite some time and anyone who pays attention to basic, easily accessible information from source like MedPac can see the change ahead.  The days of disconnect between quality and volume are over.  Excessive margins are eroding from all elements of Medicare.  Payments are heavily scrutinized.  Providers that haven’t been preparing for this shift across many prior years are today, rueing the lack of foresight.  This is true for all provider segments.  Home health fell earliest.
  • The Fraud Peril Disconnect: I lost track years ago of how many providers/executives/boards I have talked to and counseled regarding “too much success”.  There is an inherent disconnect that occurs when profits are rising, volumes the same, and life is “good”.  Instead of asking key questions and doing a little independent analysis around “why so good”, the push goes on to ramp-up even a tad more.  The incentives rise, the fever brews and no one seems willing to ask the pressing question of, “why are we doing so good”?  Instead of analysis to create justification, I counsel the alternative; analysis that questions any justification.  The latter is a discipline that focuses on matching trends elsewhere and demands a clear line of service to billing.  When the trends in any organization are simply so much better than any other organization logic demands inquisition as to why.  If others start following, I get even more nervous.  Conversely, if an organization suddenly finds a swell that arose simply by following an established industry trend, I also get nervous.  Systemic fraud occurs mostly because organizations justify their own results with rhetoric rather than clear analysis.  Any focus on why and how things are truly occurring, particularly via an external, non-invested source will quickly detect where the break-downs lie and the risks run deep.  Unfortunately and all too often, the executive level reaction is the “three monkey reaction”; hear no evil, see no evil, speak no evil.

The cautionary tale?  Amedisys exemplifies all of the above.  Today, Vitas the same and I fear Gentiva is on their heels.  Each has too much reimbursement concentration of risk, a business model that solely exists to gather certain types of patients and a cavalier regard for health policy and economic trends.  Their models are unsustainable without complete overhaul and an overhaul is not in the cards as doing so would require a planned shrinkage and a death spiral for their share price.  Oddly enough, their share prices will still hit the death spiral, as did Amedisys but not because of the prior comment.  This spiral will occur as a result of not having read the cautionary tale sooner.

Next for Amedisys?  Non-existence as a public company is my forecast and continued acquisition of their shares on behalf of KKR is the harbinger.  I predict, as I have in other posts, that Vitas is on the same path as Amedisys and nothing to date has eroded this opinion; its only stronger.  Vitas has enormous risk concentration, a disregard in operating philosophy from the real reimbursement and policy climate operative today and a focus almost entirely on reinvigorating volume and thus earnings.  The latter is anathema to where they sit on the Feds radar.

March 14, 2014 Posted by | Home Health, Hospice, Policy and Politics - Federal | , , , , , , , , | Leave a comment

Home Health Focus: Gentiva/Harden and More

A couple of weeks ago, I wrote a post covering the Home Health PPS Final Rule for 2014.  As I was writing that post, I simultaneously reviewed the Gentiva/Harden deal plus the recent quarterly earnings of Amedisys and Almost Family (plus their acquisition of SunCrest HealthCare).  The earnings reports plus the analytics from these two recent transactions paint and interesting picture of where the Home Health industry is headed.

Starting with Gentiva/Harden, and analogous to the Almost Family/SunCrest deal, the transactions are not due to growth or really expansion; rather each is about creating defensive scale.  Gentiva/Harden is a bit of an oddity in so much that Harden has a brick and mortar component via ownership of a small portfolio of skilled nursing facilities in Texas. This element however, is not a complimentary piece for Gentiva and as such, my prediction is these facilities will divest from Gentiva post a final roll-up period.  The SNF piece is not what they do nor does it really provide a significant source of additional volume or revenue, net of the risk and asset holding cost.  Harden grew out from the facility ownership side and thus, the SNF component was in their “wheelhouse”.  The same is not true with Gentiva.  Regardless of the rhetoric from Gentiva regarding keeping all management, integrating all components, etc., transactions of this scale don’t work that way – they never do.  The outlet pieces and the home health book of business is what Gentiva is after.

The same is true in the Almost Family/SunCrest deal with one exception – it’s a home health – home health deal.  Almost Family is looking for outlets and the home health book of business to create scale and volume insulation.  To a certain extent, both transactions are also about “book of business” diversification; more so in the Harden deal.  Almost Family and Gentiva have a risk concentration in their home health revenue models known as Medicare.  As my post on the Home Health Final Rule covered, Medicare is a payment source that is shrinking via overall outlay and directed payments per episode. The belief among Gentiva and Almost Family is that mass, ideally scalable via more outlets and more efficient infrastructure will insulate the revenue and thus, earnings impact.  In short, even if the margin per each case falls, if more cases are attainable and the incremental expense in doing so is proportionately less than the incremental revenue gain (ideally by a factor of greater than 20%), then it makes sense to increase volume.  That’s the theory at least.

Looking at where Gentiva and Almost Family started in terms of earnings reports prior to or concurrent with the referenced transactions, each had their share of performance issues. Almost Family posted an earnings surprise (per share) positive (11% up over consensus) but delving into the numbers shows a continuing performance problem.  Additionally, the net impact of additional Medicare cuts foreshadows more negativity in the upcoming quarters, even in spite of the SunCrest deal.  It will take Almost Family all of 2014 to absorb and re-define the benefits or difficulties of the SunCrest deal,  In the meantime, their risk concentration in skilled nursing and Medicare remains high.  Their savior in the interim is a steady growth outlook for their non-Medicare personal care business. Volume growth remains attainable but in order for a continued bright earnings outlook, the growth in personal care, a less revenue rich source than skilled home care, must be equal to or greater than the revenue reductions forthcoming under Medicare.  My view is that in the interim, pending absorption of SunCrest, net income and revenues will flatten or trend slightly down.

Gentiva is moving on a parallel trend to Almost Family, with one exception – Odyssey.  Gentiva owns the nation-wide hospice provider Odyssey and as such, a  twist that separates or bifurcates its strategy from Almost Family exists. On the home health side, Gentiva is seeking outlet growth and looking to expand its presence in the non-Medicare, personal care world as well as the Medicaid waiver world commonly known as Home and Community Based Services (HCBS).  The Harden acquisition is the jump for Gentiva into this niche.  Prior to Harden, Gentiva was a non to bit player in the non-Medicare, personal and community care environment.

For the nine-months ending September 30, Gentiva lost $197 million.  Not surprising, the company announced, post the Harden disclosure, a consolidation and restructuring plan called One Gentiva.  The intent is to tighten operations, reduce redundancy, and coordinate revenue opportunities more closely between its home health operations and its hospice operations (Odyssey). The Odyssey segment revenue contribution shrunk by 7.5%, year over year.  Hospice clearly is a struggling segment as the overhang of the Vitas suit plus the changes in certification requirements and coding have effectively narrowed or literally closed, resources commonly used by providers like Odyssey to capture patients and attract new business.  The One Gentiva initiative will no doubt, further shrink the Odyssey/hospice component, both in terms of outlet numbers and operational infrastructure components in an attempt to mitigate further revenue and earnings erosion to Gentiva consolidated.

Placing all of the above into context and adding a quick peek at Amedisys, the home health industry is clearly struggling and trying to rebalance. Amedisys, once the biggest player in the home health industry, continues to reel post a series of federal investigations and fraud allegations.  Their recent settlement ($150 million) with the Department of Justice regarding Medicare improper billing allegations added another nail in a coffin that continues to emerge.  Continued losses, closure of outlets, and further Medicare reductions foretell a near future of non-existence.  My prediction is that Amedisys will soon be restructured to a private company via a private equity transaction.  The future for them is bleak and the industry outlook for Medicare home health providers of which Amedisys dominated, is fraught with revenue decline and earnings suppression.

The focus on the near future for companies like Almost Family and Gentiva is about survival.  Can the strategy of creating greater scale and volume in a declining revenue environment continue to produce positive earnings?  If the theory that when the margin per each drops, doing more per “eachs” with a controlled incremental expense element lower than the incremental revenue produced through greater volume is accurate, then at some point earnings improve.  Unfortunately, I have never seen this theory play-out in a home health or health care environment.  By its operational nature, home health is fairly inefficient in terms of staffing productivity and volume efficiency.  Within a volatile landscape, the inefficiencies increase as more variables are operative that can quickly, change referral patterns and volume fortunes.  Revenue always erodes faster than expense particularly since the bulk of the expense is staff that can’t be quickly recruited, trained and then fallowed when volumes decline or stagnate.

The other side of the strategy, diversification away from the Medicare risk concentration via increased volume in the personal care, Medicaid world offers some hope but it is not a silver lining.  True, dual-eligibles (Medicare/Medicaid) provide greater revenue capture opportunity but not without assuming another element of governmental payer risk – Medicaid. Medicaid has its share of problems and in the HCBS world, the providers therein paint a picture of cuts as demonic as in the straight Medicare world.  In virtually every state, Medicaid has a “spend-less” charge not a “spend-more” profile, even with Obamacare.  Medicaid expansion under the ACA drops cash into state coffers but only to address the increased enrollment of folks who are under 65 and uninsured.  This group is not a big user of HCBS or home health.  The 65 plus group that dominates the HCBS world and is the personal care side of the industry does not benefit via Obamacare and thus, states continue to seek ways to limit the financial impact to state funded Medicaid via HCBS.  As more states move to a Managed Medicaid model, the impact of shrinking or constraining Medicaid cash outlays for HCBS and personal care is just now emerging. In short, I just can’t buy the notion that diversification toward a Medicaid component is a salvation or a counter-balance to revenue reductions on the Medicare skilled side.  The impact in my opinion, is nominal in the near-term and perhaps equally or greater negative over the next two to three years.

December 6, 2013 Posted by | Home Health | , , , , , , | 2 Comments

CMS Releases Home Health Final PPS Rules for 2014

Last Friday, CMS issued its final rules for 2014 Home Health PPS.  As is typical within these final rules, earlier proposals are clarified and additional direction for the future becomes clearer.  In this case, most people who follow the Home Health industry trends will find the continuation of prior year themes; rate reduction, episodic rebasing, additional reportable quality measures, etc.

In context, CMS and Medpac had unveiled a plan years ago to reduce the expansive growth in home health spending.  Essentially, as reported profit margins under Medicare rose for the largest agencies to the upper-teens, CMS via direction from Congress took notice.  The net result is a series of revisions to the home health PPS, primarily driven at reducing payments and reallocating resources away (re-basing) from certain highly reimbursed PPS categories.  Additionally, though not a trend unique to home health, CMS has integrated quality measures and a reporting structure as a means to encourage a pay for performance dynamic.

Below is the synopsis of the final rule.  Readers who wish to see the entire final rule can e-mail me (contact information on the Author page) or comment on this post with a contact e-mail address and will forward accordingly.

  • Overall outlays for home health will reduce year-over-year by $200 million.  To get there, CMS updates home health payments by 2.3% ($440 million), offset by a required rebasing element of $500 million further offset by an additional $120 million in HH PPS Grouper refinements.
  • CMS also plans to begin rebasing the 60 day episodic payment rate (the national per visit standard). This adjustment is mandated by the ACA and must occur over a four-year period during which, no year may adjust by more than 3.5%. The final rule calls for a 2.7% rebase (reduction) though CMS has targeted the amount to a fixed-dollar element of $80.95, rolled through 201.  Oddly enough, when we do the math the amount of $80.95 equates to 3.5% of the 2010 calendar year amount. The CY 2014 60 day episode rate is $2,860.20.
  • The net result of the adjustments above is a 1.5% decrease in Medicare payments to agencies.
  • Two new quality measures are added in the Final Rule – hospital readmissions (during the first 30 days of the home health stay) and preventable emergency room visits.
  • In terms of the HH PPS Grouper refinements, CMS is removing two categories of ICD-9-CM codes.  The first is related to “excess acuity” meaning that the patient’s condition does not warrant care in a home health environment (too acutely ill). The second elimination is regarding codes that would not change the plan of care or adjust the appropriateness of home health case.  CMS plans of converting to ICD-10 on October 1, 2014.

My sole comment on the above relates to “no news”.  CMS had foretold as much and perhaps the only take-away clarity is that more is forthcoming.  Expect no additional spending from Medicare on home health payments for the upcoming years.  Flat will be good but personally, I think 1% to !.5% reductions are the new “norm” for the next four or so years.  In a conference call back mid-summer with some investment folks and industry followers, I and my firm called this result (on the head) when many were saying flat to a positive 2%.  With the ACA impacts and the stated objectives from CMS to realign home health spending, flat was never in the cards.

November 25, 2013 Posted by | Home Health, Policy and Politics - Federal | , , , , , , | Leave a comment

Medicare Advantage Plans and HIPPS (SNF PPS) Codes

A topic that I receive queries about from time to time concerns the payment practices of Medicare Advantage (MA) plans as the same relates to traditional Med A coverage under the PPS system.  Recently (earlier this year and then again in October, CMS issued some fairly vague guidance to the MA world regarding a requirement to include the HIPPS codes (PPS codes) for any SNF stays utilized by enrollees.  The same communication was scare to SNFs.  Initially, CMS targeted implementation for July of this year, then backed-off in October to December implementation.  This week, CMS postponed this requirement until July 2014.

The take-away and caution for SNFs with MA contracts is this.  Regardless of how the contract is structured for payment between the SNF and the MA (groups, levels, per diem, etc.), the CMS requirement for MA plans to report HIPPS will alter the SNF’s billing cycle, now encompassing an assessment schedule (MDS) identical to the cycle for traditional Part A covered residents.  My firm has many SNF clients with MA patients that presently aren’t required via their contracts to follow the traditional PPS/RUG and assessment schedule for this payer type.

On the same theme, this impact is separate from how the MA plan pays the SNF.  It will clearly be less onerous for MA contracts that are paying the SNF per diem rates, though this type is less typical than the group or level payment schedule.  My advice to SNFs is as follows;

  • Open dialogue ASAP with your MA contracts, letting them know you are aware of this upcoming requirement.  You have time as the requirement is now delayed to July of next year.  December implementation was clearly unrealistic.
  • If possible, I recommend working with your MA contract to negotiate a different payment methodology.  My firm has had success in re-negotiating these agreements.  The desire methodology is per diem and going forward, per diem following the RUGs determined via the MDS.  SNFs will have to report this data to the MA plan regardless come July.  It is to the MA’s advantage and the SNF to align payment systems accordingly.
  • For SNFs with therapy contracts (outsourced), make sure your therapy provider is aware of this forthcoming change.  Such a change, especially if the SNF seeks to modify its payment agreement with the MA, will alter how therapy is billed to the SNF.  Further, your therapy contractor will need to know that MA patients must soon be included in your reporting to the MA plan (EOTs, COTs, etc.).

While we know July 2014 seems distant, don’t expect much guidance or heads-up from your MA contractors or CMS.

November 8, 2013 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , | 2 Comments