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SNFs: Five Issues and Trends to Watch…NOW!

The beautiful, fascinating thing about health policy in the U.S. is its cycle of evolution.  It evolves, sometimes slowly and other times quickly but always, in a progressive (not in the political sense) direction.  Providers today can be lulled to sleep (quickly) by the vacuum drone of big policy lectures, webinars, etc., easily thinking for example, PDPM is the two-ton gorilla in the room (we need to deal with).  Perhaps because reimbursement and survey/certification issues are so large that they shadow, seemingly eclipse, other trends and issues.  Yet, think of these other trends and issues like mosquitoes (the state “summer” bird in Wisconsin where I am from); omnipresent, annoying, nipping, but not large enough to cause much damage.  Still, mosquito bites can be a real nuisance and in rare cases, rather debilitating.

None of the following trends/issues weigh-out like PDPM but each has a potential impact for the post-acute sector, namely SNFs.

  1. QRP and VBP: Both can, with poor performance or lackadaisical compliance, reduce Medicare reimbursement.  Today, 73% of the SNFs are feeling some kind of Medicare reimbursement reduction due to VBP performance (lack thereof) in terms of readmissions.  Come October 1, the penalty for non-QRP reporting at a certain threshold kicks-in with a penalty/reduction equal to 2% of Medicare payments  Combine the two and the reduction can mount to 4% of Medicare payments (fee-for-service) to an SNF.
  2. Medicare Advantage and Readmissions: Tying one to the other for VBP is an interesting proposition.  Here’s how this works.  While VBP only positively or negatively impacts fee-for-service Medicare payments, the Medicare Advantage impact that the SNF market is seeing with respect to readmission rates, encompasses Medicare Advantage patients.  Convoluted, I know.  In short-hand: All Medicare patient days count toward the readmission (avoidable) calculation, fee-for-service and/or Advantage.  Based on a recent study published in the Annals of Internal Medicine, Medicare Advantage patients have a higher  readmission experience than their fee-for-service counterparts.  To be clear, the readmission contrast was for patient diagnostic categories of acute myocardial infarction, congestive heart failure and pneumonia. Still, the issue here is that facilities with a high percentage of Medicare Advantage patients need to be aggressive with these payers in terms of care coordination; particularly as the same intersects with length of stay.  Medicare Advantage plans often look to aggressively shorten lengths of stay, perhaps too aggressively.  Similarly, their networks may not coordinate post-inpatient care via home health agencies as well as one would expect.  They simply don’t have the best agencies in network or they don’t work to consistently integrate the post-acute providers in collaborative coordination efforts.
  3. More SNF VBP?: In a bill recently proposed in the House (bipartisan sponsors) known as the BETTER Act (Beneficiary Education Tools Tele-health Extender Reauthorization), Section 204 includes direction to the Secretary to adopt additional performance measures for reimbursement purposes beginning on or after, October 2021.  The language implies the categories (“additional measures determined appropriate”) to include functional status, patient safety, care coordination and/or patient experience.  As I have written before: Quality and revenue are directly connected today and more is coming.  SNFs better be “on” their Quality Measures and laser-focused on their outcomes or suffer the reimbursement (reduction) consequences.
  4. Quality Measures: Any SNF that hasn’t looked for a while at their Five Start report and specifically, their Quality Measures section is literally, asleep at the wheel.  The numbers now are broken down between long-stay and short-stay measures, with applicable detail.  It isn’t the aggregate rating any more that matters. The reality is the categorical ratings matter most and for SNFs hoping to play “big” in the post-acute arena, the short-stay ratings are KEY.  Today, referral networks are reshaping how and where patients go, post-hospitalization.  Not a day goes by that I don’t hear from hospital and health system folks about their current reviews of SNF QMs, and in particular, the short-stay measure performance.  In a recent discussion with a convener for a Bundled Payment project, she relayed how one SNF was beside itself when she said basically, “no inclusion in their preferred network”.  The SNF was unaware that their short-stay QM rating was only two stars.  The convener was only interested in SNFs with short-stay measures rating four and five stars.
  5. Phase 3 Conditions of Participation Requirements: Though not as impactful as Phase 2 requirements, there are a few here that could bite facilities surveyed post November 28 of this year.  The inspection star ratings are unfrozen now so survey performance  will impact star ratings again…no hiatus.  The biggies?  Infection control with a designated, trained preventionist is required.  Remember, infection control citations tend to be widespread in scope. A compliance and ethics program is required after November 28.  Staff need to be trained on the program and infection control.  The facility assessment is required to tie with the facility’s QAPI program. The facility must develop a person-centered, baseline care plan within 48 hours of admission. With respect to dietary/food service, the facility must designate a director of food service who will have training/certification as a certified dietary manager, certified food service manager, a dietitian, or some other equivalent certification and training in food service management or hospitality from an accredited institution.  A good resource that covers all Phase 3 requirements (as well as Phases 1 and 2) is available (download) here: 3-RoP-Checklist-overview-FINAL.101416

June 26, 2019 Posted by | Uncategorized | , , , , , , , , , | Leave a comment

SNF Proposed Rule for 2020

Spring is the time when CMS starts dropping Proposed Rules for various health care provider segments.  This past week or so saw update drops for IRFs, Hospice and SNFs.  Recall, Proposed Rules are administrative law changes that CMS makes to existing provider regulations, typically covering reimbursement and some programmatic policy changes that tie to reimbursement.  Congress does not have to approve or weigh-in other than through the appropriation function, defining the amount of spending globally, allowed under Medicare. The translation thereof to rates, payments, programs, etc. is via CMS rule making authority.  I’ll summarize other industry segments in a follow-up post later in the week.

The SNF proposed rule is best characterized as “mostly” good news.  The best news is the proposed market-basket (rate inflation) update of 3%. Subtracting the productivity factor of .5% from the update, SNFs will see a rate increase of 2.5% starting on October 1 (assuming the rate remains as proposed once the Final Rule is issued).  How this will exactly map to revenue however, is where the “mostly” qualifier is required.

A rate increase is merely an inflationary adjustment to the payment categories under Medicare. In the case of SNFs, the translation will take place in PDPM.  Under RUGs IV, the SNF rates would inflate by the applicable percentage, applied to each of the 66 groups.  Under PDPM, the base rate corresponds to one of six case-mix categories (PT, OT, Speech, Nursing, Non-Therapy Ancillary and Non-Case Mix), multiplied by the applicable case-mix value in each category (excluding non-case mix which is a flat per diem). There are ten clinical categories under PDPM that correspond to the reason that patient is admitted to the SNF (Major Joint Replacement or Spinal Surgery; Cancer; Non‐Surgical Orthopedic/Musculoskeletal; Pulmonary; Orthopedic Surgery (Except Major Joint Replacement or Spinal Surgery); Cardiovascular and Coagulations; Acute Infections; Acute Neurologic; Medical Management; Non‐Orthopedic Surgery).  Using the diagnosis code and patient functional status from Section GG on the MDS, a case-mix value is determined for each of the five categories (not non-case mix).  In the end, it will be difficult for the SNF to see a direct relationship, as in years past, with a rate adjustment and the current (soon to be former RUGs) payment model.  PDPM, even with the best modeling, is an unknown element for the SNF industry.  In short, there is no correlation between this proposed 2.5% increase and what a SNF will see in terms of revenue come October 1.  It is quite possible that some will see, even with the rate increase, a decrease in Medicare total revenue compared to current experience.

Another subtle but important element to consider, one that falls outside of this Medicare policy, is Medicare Advantage.  This Proposed Rule only impacts the fee-for-service side of Medicare, not translating to Medicare Advantage rates paid by plans to SNFs.  Such is the same concerning PDPM.  Medicare Advantage plans do not need to implement rate increases, PDPM or follow CMS reimbursement protocols for any provider segment.  For SNFs that have a high percentage of Medicare Advantage patients as part of their routine census, the impact of this proposed rate increase must be factored against the Medicare Advantage patient volume (e.g., 50% Medicare census that is Med Advantage reduces the rate increase realizable by the SNF, by half).  I am not seeing much rate increase activity on the part of the Medicare Advantage plans in any major market.  The supply of willing SNFs to take their patients exceeds by a large amount, the demand within these plans, for SNF access.  In other words, prices don’t need to increase to gain access, when needed.

Other programmatic updates/changes within the Proposed Rule for SNFs are as follows.

  1. CMS is proposing to align the “Group Therapy” definition for SNFs to the one used for IRFs.  Presently, the SNF definition for group is “four patients”; exactly.  The change will allow “group” to be any number between two and six.  Important Note of Caution: Assuming this definitional change remains, SNFs must not adopt a group therapy practice that immediately accommodates the maximum.  Group is an appropriate therapy treatment option when and only when, clinically warranted by the patients being treated in this setting.  I am hearing way too many therapy companies tout cost control, productivity management, etc. under PDPM via a sweeping expansion of group therapy (not readily usable under the current RUGs system).  Remember, if the SNF patient needs and clinical requirements prior to October 1 were for individual therapy, those same needs will apply post-October 1 and PDPM. CMS has warned providers against wholesale shifts in therapy treatment methodologies and time/minutes (reductions).  Facilities need to be very careful as it is unlikely that their census mix (case mix, acuity, etc.) will change after October 1 and thus, the provision of therapy should be fundamentally the same under PDPM.
  2. The Value-Based Purchasing measurement model for readmissions is shifting from “all cause” to “potentially preventable” as the metric.  As before, CMS is using a two percent withhold in SNF Medicare payments to build a pool for performance incentives under the program.  Sixty percent of the funds withheld will be distributed to high-performing facilities as “a bonus percentage” going forward.  In the first realization of incentives/penalties under VBP, 73% of all SNFs failed to perform at the standardized readmission benchmark and are presently, having their reimbursement reduced on a penalty basis.
  3. The SNF QRP (quality reporting program) is gaining two additional measures: Transfer of health information from the SNF to another provider, and; Transfer of health information from the SNF to the patient.  Both measures are interoperability related designed to impact the flow of information between providers and patients to encourage enhanced productivity and safety.  In addition, CMS proposes to add a number of standardized patient assessment data elements that assess cognitive function and/or mental status, special services, treatments and interventions, medical conditions and comorbidities, impairments, or social determinants of health (race and ethnicity, etc.).  Recall, the SNF QRP imputes a two percent reduction in rate inflation to facilities that don’t report data or stay current.  This means that for this year, a facility can see the rate increase of 2.5% proposed, reduced to .5% for non-reporting.

The full proposed rule is available at this link : https://www.federalregister.gov/documents/2019/04/25/2019-08108/medicare-program-prospective-payment-system-and-consolidated-billing-for-skilled-nursing-facilities

April 22, 2019 Posted by | Uncategorized | , , , , , , , , , , | Leave a comment

Medicaid Reform: Hope for Taming the Gorilla?

A few weeks back, I wrote a piece regarding Medicaid and its ties to the fortunes (lack thereof ) of some the largest SNF provider groups. Today a high percentage of resident census connected to Medicaid as a payer source is the largest contributor to the flagging financial condition of Genesis, HCR/ManorCare, Signature, and others.  With large losses stemming from inadequate Medicaid payments and shrinking sources of offset via Medicare (for a number of reasons), these organizations are perilously close to bankruptcy (or are fundamentally there as is the case with HCR/ManorCare).  For reference, see the previous post at  http://wp.me/ptUlY-mC

As I talk with investors across the nation (and internationally in some cases) interested in the fortunes of the REITs that hold a ton of the Genesis, HCR/ManorCare, et.al., assets (buildings) and or the fortunes of the companies themselves (Genesis is publicly traded with a stock value current, hovering just above $1 per share), I field the same question(s) repeatedly.  How did we get here and what needs to change for these companies to survive, or can they?  Quickly, allow me to recap where the SNF industry and particularly the groups aforementioned and others like them, is at.

  • First and most crippling, their dominant payer source is Medicaid. In the case of Genesis and HCR/ManorCare, above 66% on average in each SNF.
  • Medicare Advantage is a growing piece of the Medicare payer equation. In some markets, Medicare Advantage plans account for more than 50% of the Medicare patient days in a SNF referral stream.  These payers (the Advantage plans) are paying at Medicare MINUS levels.  Medicare minus 10% is phenomenal, if attainable. In most markets the discount is greater.
  • Most markets have a surplus of available SNF beds (nationally too).  Competition among providers is fierce for quality mix (better payers).  Because of this, the Advantage plans do not (yet) need to negotiate favorable terms as someone, somewhere will accept the discount; preferable to the vacant bed.
  • The policy landscape is adjusting to a new reality in which Stars matter.  Higher rated (Five Star) providers are now favored by payers, providers and consumers alike.  The steerage has started and it won’t subside.   Hospitals to physicians to consumer groups and payers preference is toward providers rated 4 Stars or higher.  While this pressure is yet overt, its subtle and growing and I hear it constantly as hospitals for example, won’t abide readmission risk and if they are in bundled or other at-risk payment projects (physicians too), they seek better partners (quality ratings) to handle their referrals.
  • There is a distinct preference shift among physicians, consumers and payers (bundled for example as well Medicare Advantage) to minimize inpatient stays both by length or by necessity.  Certain orthopedic profiles that once were a SNF staple (joint replacements) good for a 20 plus day Part A stay at high therapy RUGs either don’t last 20 days or don’t get referred at all.  I am seeing a wholesale shift of these patients to home health and outpatient primarily, followed by short (demanded) stays, 40 to 50% fewer in days, on an inpatient basis.  This volume change has demonstrably hurt certain SNF provides formerly reliant on it to offset Medicaid losses.
  • The physical plant assets are old, oversized, and dated.  The new, successful SNF model is smaller buildings, all private rooms, nicely appointed.  Genesis, et.al., represent some of the largest and oldest plant assets in the industry.  They are inefficient, institutional, and in many cases, burdened by high rent payments and comparably, high levels of deferred upkeep and maintenance (particularly interiors and movable equipment). Wholesale renovation is impractical as the investment is greater than the return on assets attainable now and across the near-horizon.
  • The regulations, especially the newly updated Federal Conditions of Participation for SNFs, phasing in as I write, are crippling to these providers.  These new regulations are coming with increasing cost while reimbursement options are flat to decreasing (Missouri and Kansas just had Medicaid rate cuts).  The Medicare increase for FY 2018 is 1%.  These new regulations require in some cases, wholesale changes to how SNFs operate when it comes to analyzing staffing needs, resident preferences, food and cultural issues, etc., all concurrent to REDUCTIONS in Medicaid rates.

So, to the point of this piece and the question that bears: What needs to change with respect to Medicaid to abate the problems present?  Secondarily, is there a survival/revival scenario for Genesis, Signature, HCR, et.al.?  I’ll answer the second question first as the first, is harder to sort through.

  • The business model of Genesis, Signature, etc. today is misaligned to the industry revenue/payer and market incentives.  There simply is no quick fix to repurpose the assets and to change the quality ratings and payer-mix, to make many of the facilities viable.
  • Their fixed costs are too high in terms of rent payments.  The REITs have a valuation problem as their books hold an asset today at a value that is by all definitions, impaired.  The valuation is based on cash flow which simply, in terms of rent payments, is no longer attainable.  Think about it: Rent coverage levels below 1 aren’t sufficient today to keep payments current.   A few articles back on this site, I wrote a piece regarding “Stranded Assets”.  This covers these concepts in-depth: http://wp.me/ptUlY-ms
  • Supply exceeds demand in many markets in terms of bed capacity.  Current SNF occupancy runs in the 85 to 88% range in most markets.  This today, is net of beds removed from service in many states to avoid paying (additional) bed tax or getting hit with Medicaid rate reductions and a loss of bed-hold payments for failure to meet occupancy levels (typically 90 plus percent).

The answer: Survival as is not likely and the industry needs to re-base again in terms of valuations, operators and capacity.  The underlying forces that took us to this current paradigm will not shift soon enough or demonstrably favorable (revenue/income), to alter the course for these providers.  I offer that this period is analogous in the incentive changes to the arrival of PPS for the industry in the early 90s.  Rebasing occurred as cost-rate payments disappeared and the rewards tied to “spending” more changed.  During this time, seven of the top 10 SNF organizations went bankrupt, some never to return to publicly traded status.

Turning to the 800 pound gorilla or Medicaid.  Medicaid reform is a significant challenge and without something changing from its present course for SNFs, the fortune for the SNF industry and this payer source is below bleak or grim.  For Medicaid as a payer, SNF care is a small portion of the overall outlay and actually shrinking as other programmatic expansions have consumed growing amounts of resources (Medicaid expansion).  The program drivers are primary physician and hospital care. The primary users of Medicaid today are working poor and their ranks are growing – rural and urban.   As applicable to seniors, Medicaid-waiver benefits have expanded at a far greater rate than SNF care utilization (which has continued to decrease).  Waiver programs, popular for keeping seniors out of institutional settings, have expanded as the needs of an aging society have expanded.

Medicaid is funded principally, by States attaining various levels of revenue, allocating the same toward a Federal funding approach that matches the revenue, and then forwards the Federal share to the state.  As the Feds choose to incent certain Medicaid programmatic initiatives, the Feds may sweeten the pot with enhanced matching dollars or a full (initial ) funding approach such as under Medicaid Expansion.  The flaw in any of these approaches is the temporary nature of the Federal cash subsidy and the limitations imposed to the State that prohibit the State from cutting the outlays conditioned on the Federal incentive.  In other words, the Vegas slot machine effect (just enough payoff to keep you seated and pumping-in dollars anticipating a bigger payoff).  States get hooked and the resort they have to curtailing or balancing their piece of the Medicaid pie (once the Federal piece shrinks) are raising revenue (typically very tough through income taxes hence the bed tax games, tobacco tax games, and the inter-fund related robbery that goes on state to state among schools, highways, gasoline taxes, casino funds, etc.) or cutting provider payments.  It is the latter that has hurt the SNF industry by reference, in this article.

Medicaid in its current form is a broken system and one that was bastardized to break with the ACA.  Expansion hastened its demise, though it was on life support when the ACA was passed and implemented.  It has become a catch-all basket of anything entitlement, non-Medicare and as a result, it is a mess.  The sad reality is every policy analyst with any cred knows it as does all of the House, the Senate, and everyone at DHHS.  The difficulty is how does something like this get fixed.  The prevailing answer: Punt it back to the states and give them flexibility to “innovate” otherwise known as, the Block Grant approach.  Instead, as I conclude this piece with others sure to follow, consider the following.

  • For an SNF, Medicaid is a rate drag – a loser producing daily revenue shortfalls to cost.  It’s not that the rate may be inadequate its that the costs are too high.  The point here is that without wholesale federal regulatory relief from rules and requirements that haven’t shown any evidence of producing better care outcomes, their is no opportunity to reform Medicaid as a payer adequate enough in rate, for a SNF to survive with a majority Medicaid census.  Simple economics apply: Either rate rises to offset cost increases or costs decrease to allow rate to be adequate to produce and sustain, product quality.  The gap between regulatory increases and overreach and rate inadequacy (Medicaid and to a lesser extent, Medicare) is widening.
  • Block grants won’t work as the whole pie is the reference point rather than the programmatic pieces.  Trust me, the parts of Medicaid have considerably different contextual differences and economic and social drivers.  Funding must be de-aggregated and reimagined at the different levels, separately.  The needs of children, families, etc. are so markedly different from the SNF and waiver needs of the elderly as are the economic and social drivers.  Market strategies can and likely will work with the younger groups whereas the elderly, need a social construct (ala Pace approach) model to achieve investment and outcome balance.
  • The benefits need review and re-think.  This is true however, of all federal entitlements.  Here, states given latitude may have some significant advantage in revamping Medicaid.  The Feds, in a Block Grant approach must be the “bank” or the “capital” not also the architect, general contractor, and job-site superintendent.
  • The Medicaid incentives need reversing and a growing emphasis on private initiatives and insurance needs to occur.  The Feds can play an active role by creating avenues for private investment for retirement, accumulation of capital, use of estate and wealth transfer resources, etc. such that over time, the obligations of government to fund large pieces of the social fabric and needs of old age care, shift more in-balance, to each citizen.  The return on investment of tax advantaged, flexible investing for private insurance, private wealth accumulation used for care and service needs after 65, etc. is far greater (positive) than the loss of or revenue offset of the tax advantage.  We know this to be true via HSAs and 401(k)s and IRAs.
  • Finally, reforming health care will reform (significant step forward) Medicaid and the drivers of cost.  Fixing Medicaid is not a stand-alone issue, so to speak.  The challenge in the U.S. today is to REFORM health care, not reform how it is paid for or who has coverage and how does one access the same.  Spending on health care in the U.S. is disproportionately higher than all other world nations and our return in terms of life expectancy and QUALYs, substandard.  We are investing a $1 and losing 20 or so cents on our investment.  We need to focus on “bending the cost-curve” and not the insurance and welfare/entitlement pieces.  Regulatory reform and streamlining payment and program participation would be a great, simple first-step.

 

 

September 14, 2017 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , , | Leave a comment

The SNF 800 lb. Gorilla – Medicaid

There is an old joke/riddle that goes like this: “Where does an 800 lb. gorilla sit? Answer: Anywhere it wants to”. For SNFs and REITs today, that gorilla is Medicaid.  Sure, there are numerous industry headwinds that SNFs face in terms of financial performance;

  • Rising percentage of Medicare Advantage patients as part of the payer mix with implied discounts to fee-for-service of 10% or more.
  • Additional regulatory costs stemming primarily from the new Conditions of Participation, released in 2016.
  • Value-based purchasing.
  • Five Star system savvy referral managers that are steering volumes to certain providers
  • Rising labor costs, primarily at the lower end of the labor pool (CNA, food service, housekeepers, etc.) representing the 50th or more percentile of the SNF labor budget
  • Bundled payments in certain markets
  • Growing diversion of former non-complicated orthopedic patients away from IRFs and SNFs to home health and outpatient

Yet is spite of this list, not one or even a combination is as crippling as the impact of a high percentage of Medicaid patients within an SNF payer mix.

Take Genesis for example.  Genesis stock trades at just above $1.00 per share.  Genesis’ average payer-mix across its SNFs is 73% Medicaid.  This means that 27% of  the remaining payers must make-up for a negative break-even margin rate of no less than 30% for each Medicaid patient.  In some states, the disparity is greater.  In other states, the disparity might be less but the state budget woes delay payments or issue IOUs (Illinois) causing the SNF to finance its own below-cost receivables.  Recent news that Genesis may be the next significant REIT holding default is far from fantasy.

The seemingly large, formerly well-capitalized SNF chains are in peril.  HCR ManorCare is in default to HCP (its primary REIT) to the extent that HCP is seeking receivership for the HCR holdings.  The portfolio has a rent coverage ratio of .76x at the facility level and less than 1x globally.  Signature is in the same boat.  Both have compliance problems with Signature having so scarce a margin that it cannot adequately staff or provide for residents in certain locations such as Memphis (facility denied payment, residents relocated).  HCR faces federal Medicare fraud action(s) that will likely lead to settlement payments, etc. for over-billing in excess of $100 million.

Among these troubled SNF providers, one common thread persists – high average Medicaid census (above 66%) as the primary payer mix in their buildings.  With this high mix of Medicaid patients comes staggering facility level losses or revenue shortfalls that must be made-up by other payers.  Consider Wisconsin as an example.  Wisconsin is a state that maintains a balanced budget and generally, a surplus.  It has no issues paying its bills so SNFs do receive timely payment.  Wisconsin however, grossly underpays its SNFs for their Medicaid residents to the tune of an average of a daily loss of $60 per day in 2013.  Between 2013 and 2015, Wisconsin provided no Medicaid rate increase.  All tolled, Wisconsin facilities experienced a Medicaid loss in this period exceeding $300 million.  This gap is exceeded only by the states of New York and New Jersey.  In Wisconsin, the Medicaid loss for an average SNF patient is made up (if possible) by other payers.  That amount today is well over $100 per day, excluding the cost of an imputed bed tax.  As the average Medicaid census is 65%, 35% of all other payers must pay $100 more to cover the Medicaid loss, before any other margin is applied.

Doing the math: A 100 bed facility with 100 residents has 65 covered by Medicaid. The State pays $175 per day for each Medicaid resident, on average.  The Facility costs are $60 per day higher or $235 per day.  In total, the Medicaid loss per month then is $60 x 65 x 30 (30 day month) or $117,000.  To break-even for the month, the remaining 35 patients must pay $346.43 per day or $235 per day in facility costs plus and additional $111.43 per day to recoup the loss from the Medicaid census. This of course does not include any additional costs related to a bed tax or account for any margin.

While the example is illustrative, it is not an atypical story state to state, save the unique twists that are part of every state program.  For example, Kansas chose to convert its Medicaid program to a “managed” program (in 2014) believing it could run more efficiently, save dollars on administrative costs and still provide adequate reimbursement.  As most states, Kansas chose to “bid” its program to various third-party administrators (insurers such as United Healthcare).  Unlike most states, Kansas chose to convert its entire Medicaid program rather than take a phased-in approach.  For SNFs, this approach has been a disaster.  The bulk of Kansas Medicaid recipients are rural.  Enrollment has been a nightmare and qualification of eligibility even more so. None of the participating administrators were prepared and had systems in-place to qualify promptly, newly eligible residents.  The net is many SNFs face technical payment delays due to having to manage multiple payers plus, difficulty in getting approval for residents that are Medicaid “pending”.  Receivables in total and days in receivable have skyrocketed and the state has yet to make many facilities current or whole.  And, because rate is an issue as is the state budget, the bed tax was increased by $800 per bed, per year.  In doing so, any facility with less than a 50% Medicaid census loses money on the bed tax (additional rate generated by Medicaid less than the bed tax increase).

Where this issue resolves is not apparent.  Proposals from Congress to block grant Medicaid to the states almost universally conclude with Medicaid rate reductions for SNFs.  For some states such as Kansas and Missouri, the outlook is a nominal reduction of 2 to 3% (though this is hardly nominal for the SNFs) in Medicaid spending/support.  The reason?  Rates and program expenditures are meager and lean to begin with.  In Colorado and New Jersey, overall Medicaid spending would reduce by as much as 20% translating to a crippling rate reduction without any additional state support (added state funding).  Both states were Medicaid expansion states under the ACA.

As for the survival and fortune of the SNF industry, the outlook for certain segments and providers is rather bleak.  The Medicaid story does not come with additional dollars for rate support or spending – just the opposite.  While block grants may give states renewed opportunities for innovation, the costs that drive SNF spending are not within the purview of a state to change – namely regulation, capital and staff.  The greatest flexibility a state may have is to infuse additional dollars and spending into SNF diversion programs – namely Home and Community Based Services.  These programs are wonderful for certain levels of care needs but for those frail seniors that typify the long-term resident in a SNF today, they offer no hope or savings.  Like it or not, SNF care for some is very cost-effective and necessary due to the needs of the resident (multiple chronic health problems, lack of family and social supports, mental/cognitive impairments, etc.).

In a recent call with an investment analyst from a private equity group, I was asked if “all was lost” for the sector.  The answer I gave is “no” but for some, the ship is definitely taking on water and it may be too late to avoid sinking.  This is definitely true for HCR ManorCare and perhaps for Genesis.  The question today is the collateral damage that may inure to REITs and other investors.  In brief;

  • Facilities with Medicaid census in excess of 50% will find it exceptionally difficult to generate enough revenue via other sources to cover the Medicaid losses.  Medicare simply is not sufficient in patient volume or rate to offset the losses.
  • Reducing Medicaid occupancy is difficult and not quick.  States do not provide a clear-path for this process and federal regulations don’t allow facilities to simply shed residents because of inadequate payments.
  • Many of the facilities with large (proportionate) Medicaid census are older and typified by bed counts above 75, semi-private rooms, and to a large degree, deferred cosmetic and maintenance issues.  In short: they are below the current market expectation for a paying SNF customer.
  • Taking over the operations or acquiring a number of these facilities with high Medicaid census, doesn’t change the fortunes of the same, directly or quickly.  While fixed costs in the form of rent payments may reduce, the operational headwinds remain the same.  A new operator cannot simply transfer out, Medicaid patients.  Even with a bed reduction plan approved by the State, the SNF is responsible for each resident, relocation, etc.  This process if not fluid or inexpensive.  Changing payer mix is difficult, slow and while occurring, expensive.  Frankly, I have never seen the same done to a facility that was predominantly, Medicaid.
  • The market for these facilities is minimal at best. For REITs, expect valuation changes (negative) as the holding value current is based on acquisition cost and income valuation tied to higher rent multiples.  Clearly, with rent coverage levels below 1, re-basing and re-balancing is next (if not already starting).

August 21, 2017 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , | 4 Comments

Bundled Payment Hiatus….or, Demise?

Within the last few days, CMS/HHS sent a proposed rule to OMB (Office of Management and Budget) that would cancel the planned January 2018 roll-out of the (mandatory) cardiac and traumatic joint repair/replacement bundles.  Specifically, CMS was adding bypass and myocardial infarction DRGs to the BPCI (Bundled Payments for Care Improvement) along with DRGs pertaining to traumatic upper-femur fracture and related joint repair/replacement.  The original implementation date was March, then delayed to May, again delayed to October and then to January 2018.  Additionally, the proposed rule (text yet available) includes refinement proposals for the current mandatory CJR bundles (elective hip and knee replacements).  It is widely suspected that the mandatory nature of the CJR will revert to a voluntary program in 2018.

The question that begs current is this step a sign of hiatus for episodic payments or an all-out demise.  Consider the following;

  • The current head of HHS, Tom Price is a physician who has been anti the CMS Innovation Center’s approach to force-feeding providers, new payment methodologies.  While Price is on the record as favoring payment reform he is also adamant that the same needs to incorporate the industry stakeholders in greater number and length than what CMS has done to date (with the BPCI).
  • Evidence of true savings and care improvement has not occurred, at least to date.  This is definitely true of the large-scale initiatives.  The voluntary programs, in various phases, are demonstrating some success but wholesale success is simply not there or not yet confirmed by data.
  • Providers have railed against bundle complexity and in particular, the short-comings evident for cardiac DRGs which are inherently far more complex than the orthopedic DRGs, at least those that are non-traumatic.

My answer to the question is “hiatus” for quite some time.  While there is no question that value-based care and episodic payments are part of the go-forward reality for Medicare, timing is everything.  There are multiple policy issues at play including the fate of the ACA.  A ripple effect due to whatever occurs with the ACA (repeal, revamp, replace, etc.) will permeate Medicare (to what extent is yet to be determined). I anticipate the current voluntary programs to continue and CMS to return to the drawing board waiting for more data and greater clarity on “where to go” with respect to value-based care programs.

Finally, because bundled payments did have some implications for the post-acute sectors of health care, this possible change in direction will have an impact, albeit small. The cardiac bundles had little to no impact for SNFs or HHAs and only minor impact perhaps, for IRFs (Skilled Nursing, Home Health and Inpatient Rehab respectively).  Traumatic fractures and joint repair/replacement had some impact for inpatient providers, particularly Skilled and IRFs as rarely can these patients transition home or outpatient from the surgical stay.  Some inpatient care is customary and frankly, warranted.

CJR sun-setting may have some broader ramifications.  Right now, CJR has shifted the market dynamic away from a traditional SNF or IRF stay to home health and outpatient.  The results are evidenced by a fairly noticeable referral shift away from SNFs and concomitant Medicare census declines coupled with length of stay pressures (shorter).  Home health and outpatient has benefitted.  Yet to determine is whether this trend is ingrained and evidence of a new paradigm; one that may be permanent.  If the latter is the case, CJR shifting to a voluntary program may not change the current picture much, if any.  My prediction is that the market and the payers have moved to a new normal for voluntary joint replacements and as such, CJR or not, the movement away from inpatient stays and utilization is here to stay.

August 15, 2017 Posted by | Home Health, Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , , | 1 Comment

SNF Fortunes, HCR/Manor Care and Salient Lessons in Health Care

Long title – actually shortened.  In honesty, I clipped it back from: SNF Fortunes, HCR/Manor Care, Five Star, Value-Based Payment, Hospitals Impacted Too, Home Health and Hospice Fortunes Rise, and all Other Salient Lessons for/in Health Care Today. Suffice to say, lots going on but almost all in the category of “should have seen it coming”.  For readers and followers of my site and my articles and presentations/speeches, etc., this theme of what is changing and why as well as the implications for the post-acute and general healthcare industry has been discussed in-depth.  Below is a short list (not exhaustive) of other articles I have written, etc. that might provide a good preface/background for this post.

Maybe a better title for this post is the question (abbreviated) that I am fielding daily (sometimes thrice): “What the Heck is Going On?” The answer that I give to investors, operators, analysts, policy folks, trade association folks, industry watchers, etc. is as follows (in no particular order) HCR/Manor Care: This could just as easily be Kindred or Signature or Genesis or Skilled Healthcare Group…and may very well be in the not too distant future.  It is, any group of facilities, regardless of affiliation, that have been/are reliant on a significant Medicare (fee for service) census, typified by a large Rehab RUG percentage at the Ultra High or Very High level with stable to longer lengths of stay to counterbalance a Medicaid census component that is around 50% of total occupancy.  The Medicaid component of census of course, generates negative margins offset by the Medicare margins.  For this group or sub-set of facilities in the SNF industry, a number of factors have piled-on, changing their fortune.

  • Medicaid rates have stayed stable or shrunk or state to state conversions to Managed Medicaid have slowed payments, added bureaucracy, impacted cash flows, etc.  This latter element in some states, has been cataclysmic (Kansas for example).
  • Managed Medicare has (aka Medicare Advantage plans) increased in terms of market share, shrinking the fee-for-service numbers.  These plans flat-out pay less and dictate which facilities patients use via network contracts.  They also dictate length of stay.  In some markets such as the Milwaukee (WI) metro market, almost 50% of the Medicare volume SNFs get is patients in a Medicare Advantage plan.
  • Value-Based Care/Impact Act/Care Coordination has descended along with bundled payments in and across every major metropolitan market in the U.S. (location of 80 plus percent of all SNFs).  This phenomenon/policy reality is dictating the referral markets, requiring hospitals to shift their volumes to SNFs that rate 4 Stars or higher. The risk of losing funds due to readmissions, etc. is too great and thus, hospitals are referring their volumes to preferred environments – those with the best ratings.  The typical HCR/Manor Care facility is 3 stars or less in most markets.
  •  Overall, institutional use of inpatient stays is declining, particularly for post-acute stays.  Non-complicated surgical procedures or straight-forward procedures (hip and knee replacements, certain cardiac procedures, other orthopedic, etc.) are being done either outpatient or with short inpatient hospital stays and then sent home – with home health or with continuing care scheduled in an outpatient setting.  Medicare Advantage has driven this trend somewhat but in general, the trend is also part of an ongoing cultural and expectation shift.  Patients simply prefer to be at home and the Home Health industry has upped its game accordingly.

Adding all of these factors together the picture is complete.  Summed up: Too much Medicaid, an overall reduction in Medicare volume, an overall reduction in length of stay, and a shift in the referral dynamics due to market forces and policy trends that are rewarding only the facilities with high Star ratings.  That is/will be the epitaph for Manor Care, Signature, etc.

Five Star/Value-Based Care Models, Etc.: While many operators and trade associations will say that the Five Star system is flawed (it is because it is government), doesn’t tell the full story, etc., it is the system that is out there.  And while it is flawed in many ways, it is still uniformly objective and its measures apply uniformly to all providers in the industry (flaws and all).  Today, it is being used to differentiate the players in any industry segment and in ways, many providers fail to realize.  For example, consumers are becoming more savvy and consumer based web-sites are referencing the Five Star ratings as a means for comparison.  Similarly, these same consumer sites are using QM (quality measure) data to illustrate decision-making options for prospective residents.  Medicare Advantage plans are using the Five Star system.  Hospitals and their discharge functions use them.  Narrow networks of providers such as ACOs are using them during and after formation.  Banks and lenders use the system today and I am now seeing insurance companies start to use the ratings as part of underwriting for risk pricing (premiums).  Summed up: Ratings are the harbinger of the future (and the present to a large extent) as a direct result of pay-for-performance and an ongoing shift to payments based on episodes of care and via or connected to, value-based care models (bundled payments, etc.).  Providers that are not rated 4 and 5 stars will see (or are seeing) their referrals change “negatively”.

Home Health and Hospice: The same set of policy and market dynamics that are adversely (for the most part) impacting institutional providers such as SNFs and hospitals is giving rise to the value of home health and hospice.  Both are cheaper and both fit the emerging paradigm of patients wanting options and the same being “home” options.  Hospice may be the most interesting player going forward.  I am starting to see a gentle trend toward hospices becoming extremely creative in their approach to developing non-hospice specific, delivery alternatives.  For example, disease management programs evolving within the home health realm focused on palliative models, including pain and symptom management.  Shifts away for payment specific to providers ala fee-for-service will/should be a boon for hospices.  The more payment systems switch to episode payments, bundled or other, the more opportunity there is for hospices to play in a broader environment, one that embraces their expertise, if they choose to become creative.  Without question, the move toward less institutional care, shorter stays, etc. will give rise to the home care (HHA and hospice) and outpatient segments of the industry.  As fee-for-service slowly dies and payments are less specific (post-acute) to place of care (institutional biased and located), these segments will flourish.

Hospitals Too: The shift to quality providers receiving the best payer mix and volume and payments based on episodes of care, etc. is impacting hospitals too.  This recent Modern Healthcare article highlights a Dallas hospital that is closing as a result of these market and policy dynamics: http://www.modernhealthcare.com/article/20170605/NEWS/170609952?utm_source=modernhealthcare&utm_medium=email&utm_content=20170605-NEWS-170609952&utm_campaign=dose

REITs, Valuations, M&A, and the Investment World: As we have seen with HCR/Manor Care and Signature (likely others soon), REITs that hold significant numbers of these SNF assets have a problem.  These companies (SNF) can no longer make their lease payments.  Renegotiation is an option but in the case of Signature, the coverage levels are already at 1 (EBITDAR is 1 to the lease obligation).  IF and I should say when, the cash pressure mounts just a bit more, the coverage levels will need to fall below 1.  This significantly impacts the REITs earnings AND changes the valuation profile of the assets held.  What is occurring is their portfolio values are being “crammed” down and the Return on Assets negatively impacted.  And for the more troubling news: there is no fluid market today to offload underperforming SNF assets.  Most of the Manor Care portfolio, like the Genesis and Skilled Healthcare and Kindred portfolios, is facilities that are;

  • Older assets – average age of plant greater than 20 years and facilities that were built, 40 years or more ago.  These assets are very institutional, large buildings, some with three and four bed wards, not enough private rooms and even when converted to all private rooms, with occupancy greater than 80 or so beds with still, very inefficient environments.  Because so few of these assets have had major investments over the years and the cash flow from them is nearing negative, their value is negligible.  There are not buyers for these assets or operators today that wish to take over leases within troubled buildings with high Medicaid, low and shrinking Medicare, compliance (negative) history, etc.  Finally, the cost to retrofit these buildings to the new paradigm is so heavy that the Return on Investment (improved cash earnings) is negative.
  • Three Star rated or less with fairly significant compliance challenges in terms of survey history.  Star ratings are not easy to raise especially if the drag is due to survey/compliance history.  This Star (survey) is based on a three-year history.  Raising it just one Star level may take two to three survey cycles (today that is 24 to 36 months).  In that time, the market has settled again and referral patterns concretized – away from the lower rated providers.
  • In the case of Manor Care, too many remain or are embroiled or subject to Federal Fraud investigations.  While no one building is typically (or at all) the center of the issue, the overhang of a Federal investigation based on billing or care impropriety negatively impacts all facilities in terms of reputation, position, etc.

As “deal” volumes have shrunk, valuations on SNF assets are getting funky (very technical term).  The deals that are being done today are for high quality assets with good cash flow, newer buildings or even speculative deals on buildings with no cash flow (developer built) but brand-new buildings in good market locations.  These deals are purchase and operations (lease to operators and/or purchased for owner operation).  Cap rates on these deals are solid and range in the 10 to 12 area.  Virtually all other deals for lesser assets, etc. have dried up.

Final Words/Lessons Learned (or for some, Learning the Hard Way): As I have written and said ad nausea, the fee-for-service world is ending and won’t return.  Maximizing revenue via a focal opportunity to expand census by a payer source, disconnected from quality or services required, is a defunct, extinct strategy. That writing was on the wall years ago.  Today is all about efficient, shorter inpatient stay, care coordination, management of outcomes and resources and quality.  The only value provider assets have is if they can or are, corollary to these metrics.  By this I mean, an SNF that is Five Stars with modern assets and a good location within a strong market has value as does the operator of the asset.  An SNF that is Two Stars with an older building, a history of compliance problems, regardless of location, 50 percent Medicaid occupied has virtually no value today…or in the future.  Providers that can network or have an integrated continuum (all of the post-acute pieces) are winning and will win, especially if the pieces are highly rated.  Moreover, providers that can demonstrate high degrees of patient satisfaction, low readmission rates, great outcomes and shorter lengths of stay are and will be prized.  The world today is about tangible, measurable outcomes tied to cost and quality.  There is no point of return or going back.  And here’s the biggest lesson: The train has already left the station so for many, getting on is nearly impossible.

June 14, 2017 Posted by | Home Health, Hospice, Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , , | Leave a comment

Webinar on Preventing Hospitalizations/Re-Hospitalizations

Next week – Wednesday, October 5 – I am conducting a webinar on behalf of HCPro on the subject of preventing unnecessary hospitalizations.  The program will cover all care transitions with a particular emphasis on inpatient admissions.  Below is a quick summary about the program.

The new quality measures are out, and there is a renewed emphasis on reducing the risk of avoidable hospitalizations and readmissions. Across a number of regulatory elements beginning this year, hospitalization and readmission rates from SNFs will be measured and ultimately factored into the SNF landscape via reimbursement penalties and star ratings.

At the conclusion of this program, participants will be able to: 

  • Identify the steps that lead to readmissions and what can be done to lessen or eliminate the risk 
  • Increase their awareness of the tools available to reduce the risk of readmissions 
  • Use best practices to improve care coordination 
  • Know which key elements produce readmissions and how to limit or remove them, including medication reconciliation, care conference structure/strategy, care pathways, disease management programs, and communication tools 

Registrants get the session content plus handouts which include usable QA tools, care pathways, etc.  Any readers interested in this subject area are encouraged to attend and/or share the link with their colleagues. The program link for registration, etc. is below.

http://hcmarketplace.com/avoidable-rehospitalizations

 

September 28, 2016 Posted by | Skilled Nursing | , , , , , , , , | Leave a comment

CMS Announces Final Rule for Hospice Payments for 2015

Yesterday, CMS confirmed the details of an earlier published proposed rule (May) set for publication on August 22, 2014 (final rule) regarding FY 2015 hospice payments.  Anyone wishing a copy of the Federal Register text, please contact me as provided on this site (either via comment or contact info. in Author page).  As is always the case with these final rules, CMS addresses multiple components of the programmatic rules, not just payment.  In other words, the “benefit” (coverage, eligibility, payments, etc.) are often adjusted or modified to codify other legislation (the ACA for example) or recommendations for congressional hearings and Medpac.  Such again is the case for Hospices.

A summary of the key provisions in the final rule are as follows.

  • Payment: Hospices will receive on average, an increase of 1.4% in reimbursement.  This is a function of a 2.1% increase in the market basket (inflation) minus a .7% in overall payments resulting from the 6th year of the 7 year phase-out of the BNAF (Budget Neutrality Adjustment Factor).  The 1.4% is applied to daily home care rate and the resulting rates for GIP and Continuous Home Care are $708 and $930 per day respectively.
  • Quality Reporting: Introduced in 2014, hospices are required to report certain quality measure data to CMS.  Failure to report the data equals a 2% reduction in payments.  For 2015, no new quality measures are forthcoming although CMS is requiring that all hospices participate in the CAHPS (Hospice Survey)/Hospice Quality Reporting Program for one month in the first quarter of 2015 and then monthly for April through December for payment implication in 2017 and then collect survey data Payment implications in 2018 require data collection for every calendar month in 2016.
  • Attending Physicians: Hospices will be required to identify the patient’s attending physician on the Election Form – at the time the patient elects the Hospice Benefit.
  • Notice of Eligibility/Notice of Termination: CMS defines prompt filing as 3 days after election or 3 days post revocation/termination.
  • CAP Determinations: CMS is requiring all hospices to finalize their aggregate cap calculations within 5 months after the CAP year-end (March 31) and re-pay any overages accordingly.  They are not issuing any requirement for such calculations on the inpatient cap.
  • Guidance on Hospice Eligibility: CMS issues further guidance on how a hospice should determine eligibility for hospice; essentially the determination of terminality.  The benefit requires the patient to be terminally ill and death to most probably occur within  6 months or less.  The guidance is that the Hospice Medical Director should consider the terminal diagnosis, the health conditions of the patient related or unrelated to the terminal condition and all other current clinical data relevant to the diagnoses. The point in this provision is CMS stating that physician’s must use clinical relevancy as the means for determining appropriate/inappropriate by “terminal” likelihood.

Finally, the ACA requires the Secretary of DHHS to make recommendations regarding benefit reform and begin the same thereto, no earlier than October 31, 2013.  Nothing in the rule gives any indication of wholesale movement toward payment reform.  The glimpses remain the same in the discussion sections of trends in utilization patterns; primarily declining Continuous Care stays and increasing live discharges.  As before, the outlook appears to be for a payment system that is bell-shaped – higher in the first days of the stay, moderating at stability, and again higher at the end or near death.  CMS shows nothing about how this might work other than to continue to make vague references to a system similar.

August 5, 2014 Posted by | Hospice | , , , , , , | Leave a comment

Observation Stay Relief via Congress?

An issue that continues to confound the hospital and SNF industry is the growing use and thus, referral and coverage (Medicare) ramifications of observation stays.  Fundamentally, and observation stay by current definition is a non-inpatient stay – an extended residence in an outpatient status.  Truly, this a bifurcated problem or issue; hospitals wishing to avoid admission and readmission penalties and SNFs trying to determine the nature of the hospital stay for Medicare coverage purposes.

The observation stay issue at hand is truly the proof of the law of unintended consequences and outgrowth of competing health policy agenda.  For elderly patients and SNFs, it can be exceptionally difficult to sort out a multiple day hospital stay (greater than three days) when many of the days, or all, occurred in what appears as a private room.  In fact, in many hospitals, expanded outpatient areas are easily confused as inpatient environments, with no visible delineation in accommodation, care, etc.  The sole differentiating factor is whether the room and location are defined by the hospital’s license as an “inpatient room”.  As Medicare coverage in an SNF requires a precluding three-day inpatient hospital stay, a stay that does not incorporate an actual admission to the hospital proper (not an outpatient admission) of at least three days in length fails to satisfy the three-day inpatient requirement.

For the hospital, observation stays (and the increase thereof) are a direct outgrowth of aggressive Medicare Recovery Audits. By deeming, via post review, inpatient stays “inappropriate or not medically necessary”, Medicare has recovered hundreds of millions of dollars from hospitals.  Additionally, a growing list of admitting diagnoses (DRGs) are plaguing hospitals in terms of looming reductions in reimbursement if a patient originally admitted and subsequently discharged, is readmitted for any reason within 30 days of the discharge.  To avoid this readmission penalty, hospitals will use an observation stay as an alternative. The most significant observation trend ramification is the growth in the length of stay in this status.  In 2006, only 3% of observation stays lasted longer than 48 hours.  In 2011, the percentage increased to 11%.  In certain regions today, the percentage is as high as 14% of observation stays exceed the 48 hour period.

In May, CMS proposed to alter or modify the observation stay vs. inpatient stay criteria; creating additional clarity for recovery auditors.  The proposal would allow recovery auditors to presume that any inpatient stay equal to or greater than two midnight periods (one Medicare day)  is appropriate.  Stays shorter than this duration (inpatient) are thus classified as outpatient.  CMS has not yet codified this change.

Earlier by a month or so, two bills were introduced (companions) in the House and the Senate.  Both bills proposed modification to Title 18 (Medicare) of the Social Security Act, effectively classifying an observation stay day as equivalent to an inpatient stay day for purposes of satisfying the three-day prior stay requirement for Medicare coverage in an SNF.  The bills are titled “Improving Access to Medicare Coverage Act of 2013”.  Each has achieved a fair number of co-sponsors and today, reside in committee (House sub-committee on health and the Senate).

The likelihood of passage is by my estimate, 50/50 at best. The rub in terms of passage is cost as a change in definition (proposed) will increase the coverage exposure for SNF stays.  No one knows what the exact magnitude is and no CBO score exists for either bill (yet).  Additionally, CMS is likely to balk as simplification as proposed will have a spill-over impact on the “appropriateness” definition presently used to recover hospital payments for “unwarranted” inpatient stays.  There is no question that weighting a day under federal law equivalent to another day for coverage purposes will push hospital lawyers to pose arguments that reclassification of inpatient to outpatient days via recovery auditors is “capricious”.  Such arguments are already in federal courts and administrative courts. Further, a case filed in 2011, Bagnall v. Sebellius argues that the use of observation stays violates federal law.  This case is not yet at trial but will in all likelihood, receive a boost if Congress amends the Social Security Act as proposed.

Regardless of the legislative outcomes, it is clear that movement is in-place for additional clarity around the use and misuse of observation stays.  Even sans legislative success, CMS is now tasked to modify and clarify the use of observation status and thus, re-focus recovery auditors on a more direct course of Medicare payment excess.  This issue needs resolution and frankly, Medicare auditors need to focus more attention where the real abuse and overpayments are occurring.  This is small potatoes by comparison.

September 25, 2013 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , | Leave a comment

Fables, Tales and Job Reports

Before too much rancor sets in among readers, I’ll admit that my content has strayed just a bit lately from health policy, etc. to politics and economics.  This too shall pass and rather quickly.  This post is for a friend and reader who e-mailed me earlier about the ADP job report and what it means for the current political debate regarding the economy.  The following is my brief answer.

For those who don’t typically follow economic data, the ADP report is a monthly barometer tied to private, non-farm, non-governmental payroll data.  ADP is the largest processor of payroll in the U.S.  Their report is the result of accumulating payroll data and arithmetically, modeling the data into employment changes (jobs added, jobs lost).  Today’s report indicates that 158,000 private, non-farm, non-governmental jobs were added in October.  On first blush, this is a plus as most economists were forecasting less than 100,000 new job adds in the month.

Politically spun, this a plus for Obama and while not a total downer for Romney, a shot across the bow.  The report rallied the stock market as expected.  Coming less than a week before election Tuesday, the report will either gain momentum based on tomorrow’s BLS report (federal job and employment data from the Bureau of Labor Statistics) or turn idle if the math doesn’t jive.  I suspect a high degree of alignment.

To the title of the post and the reply to my friend and reader: The accuracy of the ADP number and the BLS numbers is highly suspect.  While their respective releases make prominent news their corrections don’t.  Consistently and over time, the corrections are where the real story is.  Before anyone, including my friend, “jumps the shark” (a reference to Happy Days and Fonzie) and takes today’s report and tomorrow’s report as indicative of anything, let alone a sign to vote one direction of the other, consider the following.

  • Even at 158,000 new jobs for October, the ADP report if accurate only indicates very slow growth.  Job losses for the month were still above 350,000.  Push and pull at the two with fifth grade math skills and a bit of common sense, this is not a sign of robust growth or even a foot-hold on longer term recovery.
  • The ADP report does not cover the “core” of relative job data.  For example, we don’t know “what type of jobs” (part-time, full-time, permanent, etc) or at what rate of pay.  As is typical at this time of the year, seasonal retail is bulking-up and part-time, low to moderate wage jobs are added.  These are not permanent jobs with benefits or for that matter, “game changers” for recovery.  Similar to the last BLS report that dropped the unemployment rate, free-lance, part-time, ad hoc and so forth can be counted a variety of ways and reported as employment or jobs.
  • ADP has recently changed its calculation methodology to “more accurately reflect” real time changes in employment.  Important to note is that ADP’s data is proprietary and only results are shared.  A quick glimpse difference in this report is a rather large shift to job growth among large businesses.  While I won’t state openly that this is troubling from a validity standard, it is outright curious as to this point and through recent periods, large business job growth has been “zip”.  Also somewhat curious to me is the strong results in construction job growth against a decrease in manufacturing.  I buy the manufacturing but I question a 23,000 jump in construction if for no other reason than I’d like to see the type of job, especially at this time of year.  True, new housing construction is up but commercial is flat and government spending for infrastructure is at low tide.
  • Finally, ADP like the BLS data is consistently “wrong” and not just by a little.  Post period revisions are common and rarely, especially of late, are the revisions “up”.  For example, the BLS data and the ADP data are effectively the same in their raw state yet the difference between the two over recent periods (last three years) annualized to 400,000 jobs; ADP overstatement.  The ADP methodology revision I referred to is supposed to correct this gap but as it is new (first month), only time will tell.  I am skeptical at best.  Under the old estimating method, September’s report was 162,000 new jobs later revised to only 88,000.

Economic data like jobs reports, etc. point-in-time or snapshot reminds me of a phrase used by former British Prime Minister Benjamin Disraeli: “There are three types of lies – lies, damn lies and statistics”.  For any of this data to truly become meaningful from a complete economic perspective, it must be consistent over time.  Jobs are only a fraction of the issue with the greater weight of type of job, wage, benefits, sector, etc. all required additions.  Similarly, new jobs as a sole measure must balance out organic labor growth (new workers), existing unemployment levels at the U6 level (the total number of people unemployed and underemployed including those who have given up looking for a job which today remains precariously close to 15%), and rolling job losses.  At 158,000, if accurate, this is approximately a net “gain” of 58,000 jobs as by consensus measures, 100,000 new workers enter the economy monthly.  The truest measures are wages/income and percent of total population capable and willing to work, working/employed on a consistent basis.  Don’t look for this economic measurement to be truly positive and reflective of a go forward change in momentum prior to next Tuesday or for that matter, any time in the near future.

November 1, 2012 Posted by | Policy and Politics - Federal | , , , , , , , | 4 Comments