Friday Feature: Back to the Future and Care Rounds
TGIF! A frequent reader sent me a note earlier in the week and asked if I would drop in more clinically oriented stuff from time to time. I asked for details, and she said stuff “that is germane to patient care and operational improvements – QA/QI stuff”. So, today’s post is by request, sort of.
I ran across a little case study piece from Sound Physicians about their work in a North Texas teaching hospital to improve patient satisfaction or HCAHPS. HCAHPS are patient surveys about their care that translate into scores. The acronym stands for Hospital Consumer Assessment of Healthcare Providers and Systems. The post-acute cousin is found in Home Health and Hospice as they use a similar survey methodology known CAHPS (Home Health Consumer Assessment, Hospice Consumer Assessment…). The data gathered is publicly posted for each provider (Medicare participating).
CAHPS surveys follow specific principles in their design. The surveys are designed to assess the experiences of large patient samples. Experience surveys focus on what and how patients experienced or perceived key aspects of care, not whether they were satisfied with their care. “Patient experience surveys focus on asking patients whether or how often they experienced critical aspects of health care, including communication with their doctors, understanding their medication instructions, and the coordination of their healthcare needs“, per the CMS CAHPS website ( https://www.cms.gov/data-research/research/consumer-assessment-healthcare-providers-systems ). Some surveys (home health, hospital, hospice) can impact reimbursement, typically as a VBP (Value Based Purchasing) measure.
In this case study and at this hospital in Texas, Sound was the hospitalist group (https://soundphysicians.com/). Sound and the hospital were apparently interested in improving their HCAHPS scores. For whatever reason, patient participation and provider engagement with the survey process was low.
To improve the HCAHPS scores via increased participation and patient engagement, Sound implemented Multi-Disciplinary Rounding (MDR). This acronym, MDR, is the cause of the Back to the Future title of this post. From their presser, “Sound’s medical director and clinical performance nurse (CPN) implemented leadership discharge rounding with patients. They visited patients nearing discharge to ask them a series of questions about their care and experience during their stay. Two months after implementing leadership rounding, the team also implemented a more formalized approach to multidisciplinary rounds (MDRs), coordinating care and discharge for patients who were ready to go home”. Sound’s press release/case study piece is available here: 202306_HM_MDR_HCAHPS_Case_Study
Per Sound, within a month of the rounding program, HCAHPS scores improved. By using the rounding approach, the team was able to connect with 85 to 90 percent of their patients which, prior to the rounding process, only 25 percent of patients were seen. Not too surprising, over a six-month period, HCAHPS score showed an 8.4% improvement and lengths of stay for patients decreased by almost a day (.8). According to Sound and their experience, “seeing these patients on or near their date of discharge as part of their rounding process, the team was able to uncover barriers to a timely discharge, such as whether the patient had called their family to let them know they’d been cleared to leave, needed transportation,
or had received their medication and dosage instructions“.
Heading ‘back in time’, last year I wrote a post about care coordination. It is available here: https://rhislop3.com/2023/05/08/major-upgrade-needed-care-coordination/ Within that post is a presentation I was part of in 2017 on care coordination. The presentation is also available on the Presentations page, titled care-coordination-updated. The program was presented at LeadingAge’s Annual Meeting and Convention in New Orleans that year.
My point is this. Care rounds are not new and, in some cases, were being effectively used to improve outcomes, reduce lengths of stay, reduce rehospitalizations, and improve patient experience many, many years ago (almost a decade ago). It’s great that Sound used this approach to improve experience and ultimately, improve outcomes (it seems) as well. More providers should try it.
Care coordination, as I have done it and watched it integrated at a high level, can produce significant improvements in patient experience and care outcomes, particularly at the discharge point. When cost matters, reducing redundancies and improving rehospitalization rates can produce important savings. Reputationally, patients that have a good experience and great outcomes, become ambassadors and more important, are less likely to be litigants (or their families and significant others). Feel free to grab the presentation and adapt the tools that are in it! TGIF and enjoy the weekend! I know I certainly will.
Medicare, DOJ, Fraud and the Eclipse?
Happy Eclipse Monday! The post title is meant as a bit of fun but there is a bit of relevancy as well. Billing fraud occurs via a process of hiding what actually has transpired (or should have) with the care of a patient. The most typical fraud is overbilling or charging the government for care not necessary or not actually provided.
Recently, the case of Phillip Esformes reached final settlement. He must pay $5.5 million in restitution to the Medicare program. Additionally, he must pledge at least $14 million in assets towards an outstanding forfeiture penalty of $38.7 million. This represents the amount received from Medicare through fraudulent billing at his Miami-Dade chain of assisted-living and skilled-nursing facilities between 2010 and 2016. Esformes co-owned numerous skilled nursing facilities and assisted living facilities in Illinois, Missouri, and Florida. He also owned a hospital in the Miami area, which he strategically utilized to meet the hospital stay (3 overnights for SNF coverage) requirement.
Esformes was previously convicted in 2019 for his involvement in a billion-dollar Medicare fraud scheme. He had his 20-year prison sentence commuted by former President Donald Trump in 2020 but did not receive a full pardon.
In pursuit of sustaining occupancy at 100%, Esformes ignored the coverage criteria for Medicare-covered SNF stays, including the 100 consecutive days coverage limit, specific discharge regulations, and the prior requirement of a three-day hospital stay. He often circumvented these regulations by offering bribes to doctors for their approval. A good background piece from Law 360 is here: Nursing Facilities and DOJ Fraud Settlement
For years now, a dozen plus, I have written about various issues regarding Medicare fraud. I’ve connected below, a number of relevant posts on this topic.
What I see routinely, are two types of possible sources of fraud. One I attribute to laziness or ineptitude (inadequate systems) and the other, to a desire to push the envelope for increased revenue, sometimes under the guise of revenue maximization via enhanced coding, etc. Since RUGS ended, the latter category seems less prevalent, though it still exists. Remember, for Medicare, fraud can exist without specific intent if the same occurred as a result of non-compliance or systemic failure. Providers today are expected to have compliance programs that mitigate billing abnormalities, etc.
- Failure to properly audit claims and train staff members in assessment and documentation practices that mitigate claim inaccuracy. The number one Medicare claim problem is care that is provided or not provided, according to an assessment and/or care plan. The source of this issue is typically less about the actual care delivery but more about documentation which does not demonstrate the proper level and amount of care as assessed. In other words, for an SNF, the MDS, the care plans, and the patient record don’t jive. MAC engagement on these claims can turn the same to errors, eliminating the presumption of payment (clean claim), and push a provider into a probe.
- Every provider seeks to maximize revenue. I’ve helped providers with this process. The correct way to do this is to understand how the Medicare program pays, for what, under what conditions, and then make certain that assessment and coding, paint a complete picture of the care the patient requires (and then of course, provide the care). Really good MDS people can make sure a facility captures all of the revenue available. Upcoding however, is not the same and can lead to probes which, can lead to a fraud situation. Upcoding means painting a picture of a patient as more complex and billing categories for care that compensate the provider for the complexity. The disconnect occurs when the patient does not actually require the care (not necessary), or the care isn’t provided as it wasn’t necessary to begin with.
More posts on fraud, Medicare, and the laws pertaining to fraud are below.
- https://rhislop3.com/2012/01/05/medicare-fraud-and-why-perspectives-on-the-post-acute-industry/
- https://rhislop3.com/2012/01/14/medicare-fraud-and-why-part-ii/
- https://rhislop3.com/2014/11/12/therapy-medicare-fraud-extendicare-lessons-for-snfs/
- https://rhislop3.com/2015/03/05/snfs-therapy-contracts-and-fraud-another-warning-and-example/
- https://rhislop3.com/2015/04/07/snfs-therapy-contracts-and-fraud-redux/
- https://rhislop3.com/2016/01/17/rehabcare-therapy-fraud-and-lessons-not-quite-learned/
- https://rhislop3.com/2023/11/20/compliance-update-fraud-and-abuse/
Analyzing the 2023 Cost of Care Survey: Trends in Long-Term Care Rate Increases
On Tuesday, the Genworth 2023 Cost of Care Survey was released. Year-over-year rate increases in long-term care/senior living ranged from 1% to 10%, depending on the setting (SNF, Assisted Living, etc.). The report is available here: Genworth Cost of Care 2023
The report is interesting though in some ways, a bit misleading as data is nationalized yet, experientially, each state and each region is different. In response to the generalization of information, Genworth does provide a website where a user can access the data compiled on a state level. The site URL is here: https://www.genworth.com/aging-and-you/finances/cost-of-care.html/
Key findings from the report are,
- Assisted Living (ALF) costs increased an average of 19% between 2021 and 2023 but only 1.4% between 2022 and 2023. The national median cost (annual) for a one-bedroom unit in an ALF is $64,200.
- The national median annual cost for a nursing home private room is $116,800 and for a semi-private room, the annual cost is $104,025. That’s an increase since 2022 of 4.92% and 4.40%, respectively.
- The median daily cost for adult day care increased by 5.56% since from 2022 to $95 per day.
- Non-Medicare (non-medical) home care services saw large jumps from 2022 to 2023. A homemaker (cooking, cleaning, errands) jumped 7.14%, from $28 to $30 per hour. A home health aide (hands-on care such as dressing, hygiene, bathing but no medical services) increased by 10% from $30 to $33 per hour. This reflects costs from a non-Medicare licensed agency. Note: These costs are typically higher in urban regions and accessing agencies with sufficient staff for consistent engagement is quite difficult today.
Per Genworth and the report’s survey respondents, labor scarcity (costs) and supply cost increases via inflation were equal contributors to the increases. Worker shortages drove more inflation in home care, adult day care and nursing homes (more reliant on numbers of caregivers) where supply and commodity inflation (energy, food, etc.) drove more increases in Assisted Living.
Back in January, I wrote a related post partially titled “Dying Broke”. The post was about the rising costs of senior living and senior care. Anyone who wants to reference the data in that post, including the Genworth 2021 Cost of Care Survey (accessible in the post), the link is here: https://rhislop3.com/2024/01/03/wednesday-feature-dying-broke/ Putting the data from both reports, side-by-side is an interesting exercise.
The Hidden Factor Impacting Consumer Sentiment: Exploring Borrowing Costs
Today’s post is rather short by comparison to others. It is an adjunct to yesterday’s post regarding the credit market status for senior living and post-acute providers. Readers/followers that read the post will note that I included a fair amount of economic discussion, including some Federal Reserve minutes, to frame where I think rates and credit markets are likely to head. Lending trends are directly tied to economic conditions and of course, connected tightly to Federal Reserve monetary policy. For reference, yesterday’s post link is here: https://rhislop3.com/2024/02/28/wednesday-feature-lending-trends-still-reflecting-a-tight-capital-environment/
A key data point or indicator that I follow, among many such as CPI, PCE (mentioned in yesterday’s post that it would come in a bit hotter and today’s release, it did. Core (minus food and energy) came in at .4% for January. Annualized, that is a bit over 5%), is consumer confidence or consumer sentiment. Consumer behavior or consumption equates to approximately 60 to 66% of the economic activity in the U.S. (measured via GDP). Consumption decisions are heavily influenced by the cost of money as larger item spending including buying homes, is a function of the cost of money (interest cost). If consumers are sour on their consumption due to rising costs of money, purchases of cars, household appliances, home improvements, etc., fall off or are delayed. Instead, consumption shifts toward services and in some cases, simply to necessities. The housing market is an example of how consumers react to rising money costs. Sales are way down yet prices are up (scarcity).
OK, so some (or maybe many) readers are thinking, “what does this have to do with health care?” Simple, as goes the economy, so goes health care to a certain extent. Yesterday’s post was indicative of how interest rates and capital access impacts senior living/senior health care providers. Hospitals face similar circumstances. Consumers also face challenges and in turn, will consume less care if forced to make financial decisions and/or, pay more slowly or in some cases, not at all. Worse, consumers with health plans with higher deductibles and co-pays, tend to avoid care, especially preventative care, until shear medical necessity kicks in, typically at the point, where higher cost care is required. Choices are made, and arguably, influenced by the cost of money (interest rates).
Yesterday, doing some sorting and reading, I ran across a fascinating article primarily written by Larry Summers. Summers is an economist, a past president at Harvard, former Secretary of the Treasury (Clinton) and former head of the National Economic Council (Obama). The piece he co-wrote with Marijn A. Bolhuis (International Monetary Fund), Karl Oskar Schulz (Harvard), and Judd N. L. Cramer (Harvard) was published by the National Bureau of Economic Research. The title is “THE COST OF MONEY IS PART OF THE COST OF LIVING: NEW EVIDENCE ON THE CONSUMER SENTIMENT ANOMALY”.
The core of the paper is about the influence, in the opinion of the authors, of borrowing costs on consumer sentiment and ultimately, consumer behavior. The paper is here: w32163_240228_140313
Unemployment is low and inflation is falling, but consumer sentiment remains depressed. This
has confounded economists, who historically rely on these two variables to gauge how consumers
feel about the economy. We propose that borrowing costs, which have grown at rates they had
not reached in decades, do much to explain this gap. The cost of money is not currently included
in traditional price indexes, indicating a disconnect between the measures favored by economists
and the effective costs borne by consumers. We show that the lows in US consumer sentiment
that cannot be explained by unemployment and official inflation are strongly correlated with
borrowing costs and consumer credit supply. Concerns over borrowing costs, which have
historically tracked the cost of money, are at their highest levels since the Volcker-era. We then
develop alternative measures of inflation that include borrowing costs and can account for almost
three quarters of the gap in US consumer sentiment in 2023. Global evidence shows that
consumer sentiment gaps across countries are also strongly correlated with changes in interest
rates.
Back to healthcare stuff, health policy stuff, etc., tomorrow. Happy TGIF eve!
Unlocking the Potential: Overcoming Challenges for LTPAC Providers in ACO Participation
Yesterday, the American Health Care Association and the National Center for Assisted Living plus the National Assocation of ACOs released a white paper that includes a set of recommendations for CMS, designed to increase the participation of long term and post-acute care (LTPAC) providers in accountable care organizations (ACOs). The white paper is available here: AHCA NAACOS White Paper_Final_240222_111242
CMS has a goal of getting all Medicare beneficiaries involved in an ACO at some level, by 2030. Today, less than 2,000 SNFs participate in an ACO and fully 70% of all ACOs have no SNF engagement at all. Per the release, “current program policies in ACO models do not align well with LTPAC providers, including those that determine which patients ACOs are accountable for, setting financial benchmarks, and quality measures. But as one of the highest-cost and most complex patient populations, LTPAC presents a significant opportunity for improved resident outcomes and reduced costs to the Medicare program.”
The concept of an ACO at the core is a shared savings approach or more simplistically, a global payment program whereby, providers that participate within the ACO, are incentivized to become more efficient in care delivery and more effective in the care provided (improved outcomes). Assumptively, care provided that is more cost-effective and in turn, produces a better outcome, creates savings. The savings are then available to the ACO members as a “bonus”. As post-acute providers are typically, less expensive for certain kinds of care, opportunities exist to leverage these cost efficiencies in ACO models.
Post acute care has played an important role in the success of value-based care models, with significant savings and care improvements in ACO and episodic payment models generated by the post-acute care partnerships. In a review of 21 CMS Innovation Center models, 14 models (or 66 percent) had reductions in spending driven by post-acute care utilization.
One of the largest stumbling blocks in achieving greater post-acute participation in ACOs is the financial considerations which, generate payments on a direct and shared basis. Participating in a value-based care model requires accurate benchmarking, risk adjustments, and quality measures. Financial benchmarks, the spending targets for models, are currently sensitized by historical spending. Under current policy, the benchmarks are not likely appropriate for the long
term nursing home/assisted living population, as the historic data understates the actual cost of care in the facility. Risk adjustment models are also likely to under predict SNF patient costs for similar reasons.
In terms of quality, the number one issue that requires increased emphasis and definitional clarity is around care coordination and the opportunity to avoid unnecessary transitions, typically to higher levels of care. Historically, this challenge can only be overcome by participants being willing to practice across settings. Today, physician care for example, is more compartmentalized than ever. Intensivists don’t migrate between care settings and primary care physicians by virtue of current payment models, rarely see patients outside of an office or clinic setting. This fragmentation significantly contributes to care redundancy (repetition of tests), polypharmacy, and unnecessary care transitions (hospitalizations, ED transfers, rehospitalizations).
Another significant challenge for post-acute expansion in ACOs is information system interoperability. Few post-acute software systems have integration with hospital systems. Data set definitions, cross providers, don’t really exist. Full interoperability such that each provider can freely exchange data, review medical record information including medication lists, treatments, diagnostics, etc., does not yet, exist, even among affiliated providers in a health system. Again, this gap produces delays in care, repetition of care, polypharmacy, unnecessary care transitions, etc. Solving this issue is far from inexpensive and would require a funding commitment from the ACO partners.
The report concludes that opportunities exist for CMS to more meaningfully engage SNF providers in broader delivery system transformation efforts via adjustments to existing accountable care arrangements. Additional development of future models should include the needs of SNF populations as part of the process. More accountable care development and integration of provider types should provide SNF residents with improved care coordination, and more efficient, patient-centered care.
This past fall, November, I wrote a post on value-based care models that provides additional information on various models including Accountable Care Organizations, Bundled Payment Plans, etc. The post is here: https://rhislop3.com/2023/11/28/value-based-care-what-it-is-and-how-it-can-work-for-post-acute-providers/
Readers that want more information on interoperability and the HITECH Act (data sharing between providers), a post I did on that subject is available here: https://rhislop3.com/2018/06/27/interoperability-and-post-acute-implications/
Wednesday Feature: Navigating the Evolving Landscape – Enhancing Ethics and Compliance Programs for Risk Mitigation
Happy Hump Day! Long title for what is going to be, a rather brief post.
As followers and regular readers know, my firm (I am the co-founder and part owner) H2 Healthcare, LLC has a practice area uniquely concentrated on clinical compliance and complex litigation support. The practice area is headed by Diane Hislop, RN (yes, we are related – married). Within our organization, we have over 100 years of expertise in clinical and regulatory compliance, including risk management, a new virtual compliance program for providers, litigation expertise (expert witness), due diligence on M&A (claims audits), post-survey support (appeals, IDR, etc.), Medicare claims audit work for probes and claim denials, plus extensive tools and education to assist with compliance issues. Given the complexity and breadth of ethics (corporate) and compliance issues in healthcare, our work continues to transition to identifying more avenues to assist providers on prevention or a proactive basis.
In that vein, I spend a fair amount of time researching issues that relate to compliance. There are multiple posts on this site related to compliance issues from survey to litigation.
In my research work, I often dig through non-healthcare information to qualify how other industries and trends worldwide are likely to impact healthcare. For today, I grabbed a report from LRN on Ethics and Compliance Programs and their effectiveness. The report is available here: LRN-2024-Ethics-Compliance-Program-Effectiveness-Report_Global
According to the report, the US Department of Justice has articulated that updated, comprehensive risk analyses are the basis for an effective ethics and compliance program in the Criminal Fraud Division’s Evaluation of Corporate Compliance Programs (ECCP). The ECCP is a set of guidelines for DOJ prosecutors to use in evaluating the strength and effectiveness of
corporate E&C programs. The DOJ’s evaluation of corporate E&C programs is a major factor in determining whether to
bring charges, as well as the severity of any fines or penalties imposed because of corporate misconduct. There are three
fundamental topics in the ECCP:
- Is the corporation’s compliance program well designed?
- Is the program being applied earnestly and in good faith? In other words, is the program adequately resourced and to function effectively?
- Does the corporation’s compliance program work in practice?
For healthcare, providers should see the parallel. CMS and the DOJ have directly and forcefully reiterated their belief that billing impropriety and potential fraud are widespread. CMS’ recent initiative to audit five claims (Medicare) from every SNF provider is an indicator of how virulent claims enforcement activity is within the Federal government.
The nexus between poor care, complaints, and ultimate claim recovery activity is more proximal today than ever. CMS has stated that a large percentage of claims, 15%, are paid improperly. The number one cause? Documentation for care and services provided is insufficient to support the claim. While improper payments include underbilling, that is never a trigger for audits or enforcement. More here: https://rhislop3.com/2023/06/01/snfs-get-ready-claims-audits-start-soon/
As in the attached report, and the message for today for providers is get your compliance programs into high gear. Integrate them with your QAPI and Resident Satisfaction programs to cross inform all functions, including survey work. Audits are required and providers should know, self-audits are not the standard by any means – outside audits are basically, required.
Happy Hump Day! I’ll post more on this topic soon. Suffice to say, a really good Ethics and Compliance Program is not a burden and shouldn’t be. It can be highly effective in maintaining billing integrity while enhancing, revenue integrity. It can and should, have a backbone of QAPI and staff education is important. Developing a culture of quality is also important and arguably, the most important factor, starting from the very top of the organization – Board and C-Suite.
There are a bunch of goodies, topically relevant, on this site. Here are a few of my faves!
- https://rhislop3.com/2023/09/07/five-quality-and-compliance-tips/
- https://rhislop3.com/2018/11/16/the-real-impacts-of-poor-quality-inadequate-compliance-and-weak-risk-management/
- https://rhislop3.com/2018/11/29/follow-up-real-impacts-of-poor-quality-and-lax-compliance/
- https://rhislop3.com/2019/06/14/the-connection-between-quality-and-revenue/
Unraveling the Puzzle: Tackling Fragmented Healthcare for Better Patient Outcomes
An issue that I have been interested in for most of my career is coordinated care, especially in terms of older adults who utilize the most care resources and typically, have multiple providers (physicians in particular). Fragmented, uncoordinated care is the primary driver of over-treatment or inefficient treatment. The outcomes of over-treatment include polypharmacy, test redundancy, unnecessary diagnostics, and rehospitalization/readmissions.
In 2017, I did a presentation (with a number of colleagues) at a Leading Age Annual Meeting on care coordination. The primary focus of the presentation then was on post-acute patients in skilled facilities, principally for a short stay for rehabilitation. The presentation focused on achieving high quality outcomes and shorter, more efficient stays via the implementation of coordinated care processes, algorithms, and interdisciplinary care teams. That presentation is here: https://rhislop3.files.wordpress.com/2023/05/care-coordination-updated.pptx
Yesterday, in my reading “pile” (virtual as it typically is), I am across a JAMA Viewpoint article from JAMA Internal Medicine on the difference between care coordination, care continuity, and care fragmentation. The article approaches analysis of these subjects via physician care yet, the applicability of concepts is highly similar to what I (and my group) spoke about at our Leading Age session in New Orleans. The JAMA article is available here: jamainternal_kern_2024_vp_230019_1706170677.62898
For years, what I have been working on in various capacities, I have labeled care coordination and continuity. The article really sharpens the issues and defines the problem as care fragmentation – a problem that produces errors in treatment, over-treatment (unnecessary tests, drugs, visits), and avoidable hospitalizations. Per the article: “Health care in the US is characterized by fragmentation, with many patients seeing multiple physicians. Indeed, 35% of Medicare beneficiaries saw 5 or more physicians in 2019.1 Having multiple physicians may be appropriate, but it may also lead to medical errors, unnecessary visits, avoidable hospitalizations, and suboptimal care if all of the physicians do not have complete information about the patient and each other’s care plans. Even after widespread dissemination of electronic health records, 34% of primary care physicians in a national study reported that they do not always or most of time receive useful information from specialists about the patients they referred.”
What I found interesting is that the article concludes that improving continuity (fewer physicians or fewer outlets for care for a patient) would necessarily, decrease the number of physicians involved in a person’s care. For an older adult, this is problematic as often, each key comorbidity comes with a treating physician specializing in that disease state (cardiologists, urologists, orthopods, etc.). In short, coordinated care which is the outcome of reduced or eliminated care fragmentation can’t really be achieved until care fragmentation is solved. A conundrum for sure.
“Similarly, there is no consensus on whose responsibility it is to design, fund, implement, or participate in interventions to address fragmented care. National dialogue and more federally funded research on this issue are urgently needed. Patients are experiencing avoidable harm from fragmented care, and they deserve better.”
While I generally agree with the statement above from the article, there are steps or interventions that could significantly reduce care fragmentation and move the system forward, toward a more coordinated approach.
- Achieve the full standards of the HITECH Act and interoperability. More here: https://rhislop3.com/2018/06/27/interoperability-and-post-acute-implications/
- Achieve claim standardization that was the significant goal of HIPAA. One standardized claim for all Medicare, Medicaid, and hopefully, commercial insurance products would reduce coding and documentation errors as well as documentation duplicity to support multiple claims.
- Return to bundled payments and move forward, additional value-based care initiatives.
- Simplify encounter-based coding systems such as Meaningful Measures which, bears little value for patient care. The more time a physician has with a patient that is not redundant, bureaucratic driven paperwork, the more time is spent on coordination.
- Increase primary care physicians via controls on medical school costs or subsidization for education for primary care. The U.S. has a shortage of primary care physicians and thus, more care is being handled by extenders.
Record Bankruptcies in Health Care in 2023
As the economy continued to struggle through a high inflationary cycle with restrictive Federal Reserve policy in-place to curb inflation, providers struggled to stay afloat in the turbulent economic waters. Significant financial headwinds in 2023 have only modestly abated at the start of 2024.
- Labor supply issues (shortages) of direct care staff (other disciplines as well) has driven compensation costs higher, faster than reimbursement increases. Providers in some cases, have had to use significant bonus plans to attract or retain staff or rely on high priced agency staff to fill vacant positions.
- Supply and commodity inflation has increased faster than revenues from occupancy gains or reimbursement. While inflation has moderated as of late, prices have NOT declined, save declines in certain energy elements like fuels. Food, non-medical supplies, medical supplies, and pharmaceuticals have all risen dramatically across the past 18 months, ahead of any reimbursement increases.
- Capital market constraints and lending constraints due to higher rates, bank failures in early 2023, and now, restricted or constricted lending conditions have limited provider capital access. For providers with floating rate, non-hedged debt, rising rates increased debt service costs, again at levels faster than revenue increases for the same period.
A report released last week from Gibbins Advisors, a health care consultancy focused on turnarounds and restructuring engagements, highlights the Chapter 11 (bankruptcy) filings between 2019 and 2023. The report is available here: Gibbins-Advisors-Healthcare-Bankruptcies-Full-Year-2023-Report-FINAL
Some highlights from the report are,
- There were 79 health care bankruptcies in 2023, the highest in five years (51 in 2019). Filing volumes were three times higher than in 2021.
- Large filings, over $100 million, were 28 in 2023, compared to 7 in 2022, and 8 in 2021.
- The number of filings increased for six consecutive quarters, though there was a decrease in the fourth quarter. This may or may not be indicative of a trend change for 2024.
- Hospital bankruptcies were at their highest level since 2019 – 12 filings compared to 11 (total) for the previous three years.
- Senior care and pharmaceutical related bankruptcies made up nearly half of the cases in 2023, consistent with 2022, though greater in number.
- From the report: “Despite the absence of senior care bankruptcy filings in Q4 2023, based on our knowledge of the market we expect to see senior care bankruptcies return in 2024. As for total case volume, we are seeing a lot of distress in healthcare as the market remains very challenging for providers, so we expect to see continued levels of healthcare bankruptcies in 2024 that we saw last year.”
A breakdown of filings by number and sector is delineated in the chart below.
Heading into 2024, the headwinds and turbulence for providers fundamentally remains, though some outlook optimism is warranted, particularly for the capital markets and lending conditions. If, as seems likely, the Federal Reserve will shift from a restrictive monetary policy to more neutrality or accommodative policy via rate cuts, capital costs will moderate, even if initially minimally, and lending access may gradually improve. Slower inflation is also moderating price increases though price decreases are likely only to occur with a recession.
Reimbursement increases will continue to be less than some of the inflation trends but are likely to at least, marginally be better for the next rate year or so, at least in some sectors. Personally, I never like to bet on the government in terms of reimbursement, to be a revenue hedge against rising costs. Home health is a sector that is struggling mightily with labor challenges yet, reimbursement is on the cusp of a cut vs. an increase for the next fiscal year.
I expect, like most analysts and industry watchers, 2024 to be almost as challenging as 2023. Recession is not off the table by any means and global volatility, especially in the middle east, could shift positive reductions in fossil fuel costs, back to a negative (rising) trend.
Final Independent Contractor Rule: Implications for Health Care
This morning, the Department of Labor issued a final rule interpreting who is and who is not, an independent contractor v. an employee. Contract work in health care has boomed since the pandemic, though even pre-pandemic, the use of contractors (physicians, nurses, therapists, etc.) was on the increase. The final rule is available here: 2024-00067
The new rule makes it harder for companies to classify workers as independent contractors. The rule changes how the Department of Labor (DOL) determines if/when a worker is an employee or an independent contractor under the Fair Labor Standards Act. Contractors in business for themselves don’t qualify for the same minimum wage or overtime pay protections provided to employees.
The rule is controversial in so much that it applies a much wider, specific standard to worker classification (employee v. contractor). The prior Trump administration test relied on how much control workers have over their job duties and their opportunities for profit or loss in determining whether they were contractors or employees. This methodology, considered more flexible for companies, is replaced by a new series of tests; a multi-factor approach.
- The degree to which the employer controls how the work is done.
- The worker’s opportunity for profit or loss.
- The amount of skill and initiative required for the work.
- The degree of permanence of the working relationship.
- The worker’s investment in equipment or materials required for the task.
- The extent to which the service rendered is an integral part of the employer’s business.
Per DOL administrator, Jessica Looman, “N0 factor or set of factors has a predetermined weight, and a totality of the circumstances of the working relationship must be considered. The six factors are not exhaustive, nor are any of them more important than any others.” She indicates that the DOL will provide more guidance to assist employers with implementation.
For health care, the implications of classification, contractor v. employee, can be rather complicated, and if wrong, expensive via penalties. Health care providers often rely on contract staff for one reason or another. Locum Tenens for physician coverage is common, especially in rural settings. Temporary or interim administration and management is also fairly common, particularly in senior living and post-acute care. And, for all providers today, attaining staff (nursing) via staffing agency is a very common, often weekly, occurrence.
For example, platform-based staffing companies for nursing staff utilize two models. One, the staff supplied are W-2 workers of the agency. No potential problems here with the new rule.
Two, the staff are 1099 workers, using the agency to achieve placement options and shift opportunities. Here. the possible conflicts arise. The possible misinterpretation or misapplication of one of the six factors (above), is likely (control over work, skill and initiative required, etc.). For nurses, temporary staff do not exercise significant control over their duties when they work per diem shifts. They do not determine when they will arrive or leave, the shift responsibilities they will have, or what procedures (facility set) they will use. However, just like a healthcare provider’s permanent employees, clinicians are offered set hours, work under management supervision, and follow standard procedures. Complicated.
For physicians and administrative Locum Tenens, the relationship appears a bit more clear, due to the professional nature of the job and the control the individual has over how the work is done, and the independent judgment required. Only broad control exists on the part of the employer when it comes to work performance (location, general times, etc.).
Providers that misclassify workers as contractors can face enforcement actions. The financial and legal risks do not end there. Misclassifying workers can result in unpaid payroll taxes, workers’ compensation liability, and malpractice claims.
In one example cited in a McKnight’s article from February 2023, a “Philadelphia-based healthcare staffing company paid $9.3 million in back wages and liquidated damages to their staff after it was discovered they misclassified employees as independent contractors and failed to provide required overtime pay. The potential to be regarded as a “joint employer” puts healthcare providers served by 1099 companies at their own legal and financial risk”.
JAMA Study: Private Equity Ownership and Hospital Outcomes
Happy 2024! I trust everyone had a blessed and happy holiday season and rang in the New Year with joy and optimism.
Across the last two months of 2023, JAMA (Journal of American Medical Association) has published two studies on private equity ownership in healthcare, specifically in hospitals and SNFs. Not to accuse JAMA of having a bias but the parallel between the two studies/articles is rather distinct. In December, I wrote a post on Federal rules regarding ownership disclosure and SNFs, including how the same tied to concerns about private equity ownership. That post is here: https://rhislop3.com/2023/12/13/wednesday-feature-snf-ownership-transparency/ In addition, within that post is the JAMA piece from November on SNF outcomes with private equity ownership. The JAMA/SNF publication is available here: JAMA Private Equity and Quality in SNFs
As I mentioned, the JAMA hospital feature study is similar to the JAMA SNF piece as both correlate private equity ownership to poorer patient outcomes/poorer quality. In the JAMA hospital piece, the focus is on hospital-acquired conditions namely, events such as infections and falls. The JAMA hospital study is available here: JAMA Private Equity and Hospital Outcomes 12 26 23
The study reviewed 662,095 hospitalizations at 51 private equity-acquired hospitals along with 4,160,720 hospitalizations at 259 private equity-controlled hospitals using 100% Medicare Part A claims data. They analyzed stays between 2009 and 2019, for three years before and three years after acquisition.
Per the study, private equity owned hospitals experienced a 25.4% increase in hospital-acquired conditions. This figure encompassed a 27.3% increase in falls and a 37.7% increase in central line-associated infections. For some reason, private equity-acquired hospitals placed 16.2% fewer central lines than non-private equity hospitals. Surgical site infections doubled after a private equity acquisition, despite the hospitals having an 8.1% reduction in surgical volumes.
Demographically, private equity hospitals treat fewer Medicare patients post-acquisitions and those that they do treat, tend to be younger and have less existing disease comorbidities. This cohort is also less likely to be dual eligible (Medicare and Medicaid). The study suggests that a contributing cause to the poorer outcomes achieved is lower staffing as private equity investment focuses more on margin and returns and less on staffing levels. The implication is that lower clinical staffing levels, number and type, are major contributors to poorer patient outcomes and experience.
The hospital study demographic data is below.
Interesting to note, discharges from private equity hospitals to skilled nursing facilities and acute rehabilitation facilities increased compared with non-private equity hospitals, although this trend had emerged prior to acquisition. In other words, the hospitals acquired by private equity tended to have higher discharges to post-acute providers.
The study noted that no changes in 7- or 30-day readmission rates were observed. Length of stay among private equity hospitals shortened by 3.4% compared with other hospitals though the trend was longer at private equity hospitals prior to acquisition.
The study authors conclude, a theme found in the SNF study, that private equity investment needs attention or to be watched as the trend seems to portend a reduction in quality of care, post private equity involvement. To note, across my thirty plus year career, the same has been said about for-profit investment/involvement in provider ownership. Over time, that trend has not been corroborated.
What will be interesting to watch is whether or not a similar regulatory approach is taken with hospital ownership disclosure as occurred with SNF ownership. The hospital ownership structures across the country are far more homogenized than the SNF ownership structures, mainly because there really isn’t an individual, small corporation or “mom and pop, family” element in the hospital sector anymore. The trend has become more large, consolidated systems and less, regional or even, municipal ownership.
I’ll keep watch on this issue, private equity involvement in healthcare ownership, as I believe it will continue to grow, not reverse.
About: Reg’s Blog: Post-Acute, Senior Healthcare, and General Healthcare Issues
Explore Reg’s Blog for insightful articles on post-acute and senior healthcare, general healthcare issues, economics, federal and state policy, and industry-specific information.
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