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Senior and Post-Acute Healthcare News and Topics

Medicare Advantage Plans and HIPPS (SNF PPS) Codes

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

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

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

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

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

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

Post-Acute Issues Worth Watching

In my recent work and across recent discussions, phone conferences, etc., I’ve encountered a thematic trend; a circle of issues or as in reference to geese, perhaps a gaggle. Doing a bit of research and sifting through notes written over the past few weeks, here is what is trending.

Pharmacy: In October of last year, CMS issued a proposed rule with a provision inserted which, if published within a final rule, would prohibit consulting pharmacists in SNFs to be employed by or contracted with, the dispensing pharmacy.  The theory is that when consultations are performed by pharmacists employed by or affiliated with, the dispensing pharmacy, there exists a greater potential for SNF residents to have as part of their medication regime, higher levels of anti-psychotic drugs, psychoactive drugs, and an increased level of unnecessary or unwarranted drugs.  Of concern to most of us working in the post-acute/healthcare arena is that CMS can point to no specific data or research to support this theory, save a well-known fact (historically) that seniors in SNFs use far more anti-psychotic and psychoactive medications that seniors in non-instiutional settings.  Drawing a bright-line conclusion that consulting pharmacists related to dispensing pharmacies are the cause is boneheaded to say the least. 

Despite this flawed view on the part of CMS and the comments generated during the comment period, my sources inside the D.C. beltway are saying that CMS will publish a final rule soon including a provision requiring SNFs to use independent consultant pharmacists, effective January 1, 2013.  Assuming this does occur as I am hearing, SNFs today should begin to work to develop a plan to source possible options ASAP.  The inherent difficulty of course is;

  • Insufficient supplies of pharmacists, particularly those that have current clinical consulting experience.
  • In light of the point above, pharmacists with access to clinical consultation software applications.
  • Knowledge – Geriatrics and chronic disease is a specialized field.
  • Time and efficiency – getting to know the residents and their respective drug regimens will take a non-affiliated consultant longer.
  • Cost – finding a source will not come cheap.

Some options do exist for SNFs in the right market areas.  My best advice is to approach hospital systems, work with universities with pharmacy schools, band together with other SNFs, and start now to build a consultant’s package with your current consulting pharmacist, assuming he/she is working with your dispensing pharmacy.  It is likely the dispensing pharmacy will work with its SNF clients to a great degree, trying as best possible not to lose the current dispensing business as a result of being a barrier in a transition period.

Hospice and Fraud: Most people who are close to the hospice industry either foresaw or should have seen, the current investigative and crack-down activity from OIG and CMS. The industry in terms of providers and benefit utilization, grew substantially over the past decade, despite overall health care utilization remaining on a relatively slow-growth to no-growth plane. For people like me who watch the industry closely, it was illogical to assume that a growth of terminally ill individuals suddenly sprouted and maintained the growth rate recently evident.  The same logic concerns were expressed by Medpac and the OIG with the OIG specifically warning of forthcoming investigations where the bulk of a hospice’s patient encounters arose from nursing home contracts.  Just last July, the HHS OIG indicated that it found that hundreds of hospice agencies relied on nursing homes for over two-thirds of their case load. Other reports from Medpac and the OIG found that literally half if not more of these proto-typical nursing home patients under the hospice benefit, did not meet one or more of the qualifying criteria for coverage/certification.

While the large agencies, predominantly investor-owned will be on the radar, even smaller and regional agencies are coming under scrutiny. CMS reports, and I have encountered this first-hand, that claim denials are up, particularly at re-cert periods.  Diagnoses are being scrutinized carefully, with CMS looking at re-certs and probing for some evidence of deterioration or movement toward death.  CMS knows that certain diagnoses and patient locations correlate to longer stays and as such, the audit focus is squarely on this relationship.

For hospices, the direction is clear – be wary and cautious of certain patient types and the “nursing home/assisted living” patient flow.  Nursing homes and assisted living facilities are not necessarily gold-mines of potential referrals,  In fact, the true number of organically terminal patients that would/will fit the hospice benefit criteria is not much greater from an overall ratio perspective, than the number found in the general population.  While the business relationships between a hospice and a SNF or assisted living facility appear attractive, it is the attractiveness that also makes the same perilous today unless smartly coordinated and managed.

For the past couple of years or so, the hospice growth trend in terms of referrals has been slow to flat.  Nothing regarding the recent fraud cases in the industry suggests this trend to arrest.  If anything, I expect to see the trend marginally down for a period with the industry actually contracting in terms of the number of providers.  Some will simply call it quits while others will sell or merge.  Either way, expect fewer total providers and a stable to decreasing referral pattern shift.

Qui Tam, Me Too: The latest round of major fraud actions and False Claims Act identified violations arose out of Qui Tam actions or more commonly, Whistleblower actions.  While the Federal government is clearly targeting certain post-acute segments (see OIG 2012 workplan), equally as profound an impact on the industry is the proliferation of former employees and/or contractors willing to disclose less than scrupulous provider behavior.  While this element of the law always existed (enforcement and recovery via a private citizen for a portion of the recovery settlement), it has clearly grown to a new level in recent years. The reasons?  First, down economies bring forth certain behaviors on the part of businesses pressured to generate earnings and revenue growth.  If no organic growth exists within the business sector or market(s) a business occupies, it is incumbent upon the business to find new ways to mine potential market niches.  This is very apparent within the hospice sector and in the Medicare component of the SNF industry.  The pressure to build revenues in non-growth periods inherently leads to some corner-cutting or machinations that run afoul of the False Claims Act.  Shrinking or saving to a profit while a short-run strategy, is nearly impossible to maintain over a longer term horizon without shedding fixed costs as well; very difficult.

The problem inherent with manipulation of Medicare coding, billing, referral requirements, etc., is that what seems good or plausible at a 20,000 foot level must also seem good and plausible at the ten foot level; a level where multiple people must buy-in to the same structural arguments, beliefs and incentives.  As the folks existing at the ten foot level rarely see the same level of incentive nor have perhaps, the same level of “skin” in the game, any level of apprehension arising on their part or disgruntlement can be quickly structured into a Qui Tam action. Mix equal parts news coverage with employees disgruntled by certain practices with a growing element of the bar (lawyers) seeking Qui Tam actions with a government willing to pursue these actions and you have a fairly fertile tract of ground for more Qui Tam events.

The moral of this story is that organizations need to be very vigilant concerning their compliance activity, removing any incentives tied to new revenue growth without some counter-balance of audit and scrutiny.  Too many times I have heard providers tout abnormally good results in segments or sectors that are flat to under-performing.  This is a red flag simply from the standpoint of “why you and not everyone else” logic.  If for example, an SNF has an inordinately strong, high paying rehab case-mix and therapy productivity, my counsel is always around “red flag”.  Any facility’s profile should match close to the national case-mix distribution and when it doesn’t, either abnormally low or high, its time to delve deeper.  The same is true with hospice growth, nursing home days, length of stay and percentage of continuous care designations.  Remember the age-old economic axiom – “what gets rewarded or paid for, gets done”.  Incentives perversely aligned within the boundaries of False Claims Act risk areas are ripe for peril and thus, someone within the organization or tangentially connected to this process, to cry foul with today, the expectation of a decent future pay-day.

Revenue and Earnings Cautions: In light of some of my comments regarding Qui Tam above, certain post-acute sectors are seeing revenue reductions and thus, earnings shortfalls resulting from Medicare payment reductions and fraud/probe activity.  Hospice is a segment that I predict will continue to under-perform as growth is truly non-existent and where growth was attainable via SNF relationships, clearly constrained by federal oversight. Additionally, the SNF industry will suffer as well.  Kindred’s recent earnings announcement showed this quite clearly.  Medicare cuts impacting therapy RUGs primarily will impact SNF organizations that relied on “mining” certain RUG categories for revenue and margin.  Without a more streamlined and balanced revenue model, the Medicare reduction comes faster than the trailing operational improvements possible via rebalancing the business enterprise. Kindred announced as much as it intends to shrink its facility holdings via non-lease renewals and concentrate on building a more efficient revenue/expense equation. Remember, fixed costs are the most difficult to shed and variable costs, tough to align in tight labor markets and markets where patient populations flux daily.  In short, only so much can be gained via trimming variable expenses and typically, the amounts are less than adequate to offset revenue reductions and protect margin.

Quality or Quit: The final issue and one that has been lurking in the shadows and unfortunately, ignored by too many providers, is the issue building around “quality”.  The frank reality is that from all my sources in Washington and around the various policy arenas is that quality is what matters.  There is a prevailing and growing belief that payment must be tied to quality and that government must do everything within its power, regulatory and otherwise, to push providers to deliver better outcomes, more efficiently.  This is the genesis of the ACO movement.  I have heard directly from important policy and political figures, directed at provider organizations and industry segments, produce “Quality or Quit” the business.  Providers have longed believed that quality was the furthest thing linked directly to payment, even though lip service was given to the subject.  For post-acute providers and industry segments, the recent release of proposed outcome measures by the National Quality Forum (anyone wishing a copy, e-mail me and I will forward) is a good place to start grasping what is coming, and in a big hurry.  Providers across the post-acute spectrum that are not presently, directly and seriously engaged in measuring key care outcomes, need to get up to speed quickly.  Reimbursement will be tied to quality measures and more important, providers that are not jointly participating up-stream and down-stream in quality improvement across industry segments, will not see the level or quality of referrals necessary to stay in business.

March 6, 2012 Posted by | Home Health, Hospice, Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , | 3 Comments

Medicare SNF Rate Outlook

Literally fresh off of a significant rate adjustment/reduction in October (2011), Medpac (the Medicare Payment Advisory Commission) releases a recommendation for complete SNF payment overhaul.  In their assessment of the SNF payment system under Medicare, Medpac concludes the following;

  • Medicare payments to SNFs represent 23% of all revenues.  Medicare (payer) as a share of SNF patient days averages 12%.
  • Provider supply and occupancy rates remain essentially flat year-over-year (2009-2010).
  • Quality as determined through survey and other indicators remains unchanged.
  • Average Medicare margin is 18.5%.  The average margin for for-profit SNFs is 20.7% and for non-profits, 9.5%.

The crux of the Medpac argument is that efficient providers have lower costs (about 10%) and higher quality as evidenced by higher rates of community discharges (38% higher) and lower rates of rehospitalizations (17% lower).  Accordingly, Medpac believes that the current system, inclusive of recent adjustments to rates (October) is set to produce the same level of behavior and outcomes, plus account for a 14.6% average margin in 2012.  The argument put forth by Medpac is that the Medicare SNF system must be re-based, principally due to the fact that margins have run consistently above 10% since 2000 and the correlation between margins and patient case-mix is non-existent.  In summary, the Medpac recommendation, which will head to Congress in the upcoming months, is to revise the PPS system now and begin rebasing rates in 2014, in phases.  In addition, Medpac is calling for a rehospitalization impact (negative) to rates for poor performing SNFs.

Ordinarily, Medpac recommendations such as this have more of a “frame the argument” impact than a real implementation objective.  Congress has been reluctant to take steps this drastic to any Medicare provider group for fear of industry fall-out and political damage.  Yet, as we have seen with the home health industry, greater movement is possible where rate cuts are concerned, particularly if the general tone is that the industry is too profitable and said profit is coming from gaming the system.  Double digit margins seem to get even Congressional types’ attention.

Looking at the industry, how the rate reductions in 2011 transpired, the initial report/recommendations from Medpac, and the current public policy environment in Washington, my near term rate outlook for SNFs is as follows.

  • All the evidence suggests PPS refinement is forthcoming.  The system simply isn’t working adequately in terms of tying payment rates to care costs and rewarding quality.  The “behavior” effect that CMS is looking for, namely a movement away from “rate ramping” focused on rehab case-mixes to rate equalization focused on a balanced book of Medicare patients (balanced case-mix) isn’t happening and apparently, isn’t properly incented in the current system. 
  • Rebasing isn’t far-fetched but it is aways off.  CMS is prone to be exceptionally slow at devising payment systems and of course, equally inept at getting the infrastructure to work properly.  If as I believe, the first step is PPS refinement, given the likely horizon of implementation, rebasing is farther away; certainly farther than 2014.
  • There is no question that payments will become tied to certain quality indicators, especially rehospitalizations.  This trend is foretold in the PPACA (Reform) and regardless of the law’s future (life or death or limbo), the payment tied to quality trend is here to stay.
  • Politically, the will to champion what will be viewed as over-payments is far less than the will to find ways to rein in excess (or perceived excess).  All this means, regardless of the upcoming political cycle and elections, is that lobbying for a system that continues to produce average margins north of 14% will fall on principally deaf ears on the Hill. 
  • Rates are trending down and I suspect another round of flat to modest decreases in rates forthcoming in October.  The push will be system revision as opposed to just rate reductions, feeling that the best approach is to revamp the existing PPS and in so doing, create lower spending overall.
  • Time tested arguments against cuts that won’t work or have run their course are as follows;
    • Medicare margins are necessary to offset Medicaid losses.  This one is good on its face but in reality, its tough to make the case for margins that have run in the 20% range and earnings that have been solid among the for-profit companies.  The publicly traded guys need to show pain (in the form of earnings) before Congress will relent on the lack of merit for this argument (publicly traded SNFs tend to have higher MA census and higher Medicare census).
    • Access will become an issue and facilities will close.  Per Medpac and most industry observers, the supply today is adequate and slightly surplus so some continued shrinkage isn’t a big concern.
    • Job losses will certainly occur.  The latest cuts from October don’t support this argument by any magnitude.  Additionally, the overall health care industry is growing so worker displacement isn’t really a grave concern – movement is easy between providers in most markets.
    • Capital will be even more difficult to access with future negative rate outlooks.  Again, this is a decent argument but in reality, capital access is provider specific and CMS and policy makers realize that well run, profitable providers will continue to have access to capital, even if the industry outlook is negative.  A better argument is that negative industry outlooks make capital marginally more expensive and the number of outlets fewer.  This is true only in the short-run however.

So in conclusion, here’s the take-away: Medicare rates are headed down in the near term and in the intermediate term.  It is a virtual certainty that the present PPS system will be revised over the next three to five years.  The future of the PPACA will impact this process as elements of reform shift the landscape for all providers.  The debt discussions in Washington will have literally no direct impact on the future of Medicare SNF payments; the industry share of the overall spending pie is negligible enough to not be overly impacted by automatic cuts in federal spending.  The future is one where providers must learn to balance their overall Medicare book/case-mix and focus on quality.  Quality incentives/penalties are a certainty and there is no longer any room left to ignore outcomes such as discharges and rehospitalizations.  Likewise, I believe bundled payments are forthcoming and the further development of ACOs will continue to shift SNFs to align their care and product/service offerings toward outcome oriented, bundled payments.  Medicare as a payer source will remain profitable for many SNFs although not at the same margin levels seen over the past decade.  Profitability ranges will trend into the high single digits or perhaps slightly more but only for providers with a well-balanced case-mix.  As always however, the key to making money in this declining reimbursement environment stems from solid management, a well-balanced payer mix, and an operating infrastructure that is aligned with the incentives remaining in the industry.

January 31, 2012 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , , | Leave a comment

SNFs: What to do Now for October 1

As known by now, a lot of change is occurring with Medicare effective 10/1.  Daily, I field questions from around the country regarding what exactly is happening and what if anything an SNF should do to “minimize” the impact.  To a certain extent, at least as far as reimbursement reductions go, it is difficult and ill-advised to adjust too hastily or rapidly.  Longer-term planning is required to fundamentally, re-balance a payer mix.  This said however, all SNFs should be looking at their business models realizing that the long-term rate outlook on Medicare is best case flat, most probable declining.

Below I’ve accumulated and summarized, my top five recommendations/answers to the most common “what do we do next” questions.  For reality purposes, I assume (as it will happen) that rate reductions as called-for in the CMS final PPS rule will occur.  I understand that Congress may choose to intercede but given my sense of the current political climate and the economic issues at hand, I think it ill-conceived not to assume reduction and bet on “lobbying” to reinvent higher rates.

  1. Begin Balancing Your Payer Mix: Out of all of the SNFs I have analyzed recently, those that have a truly balanced payer mix with appropriate revenue sources will fare well to fairly well, even with the pending Medicare cuts.  Balanced looks different to different SNFs but in reality, they all share common traits.  First, Medicare isn’t their sole source of margin.  Second, their Medicare case-mix is well mixed with rehab and clinical qualifiers, perhaps a shade more clinically complex than rehab only.  Third, they have strong overall clinical competencies and thus, attract patients with other payer sources such as private insurance.  Finally, Medicaid is equal to or less than a third (no more) of their payer mix.  To balance an SNF payer mix, the facility/organization must undertake a strategy to define service/product mix, add clinical competency, build referral sources for different patients, and improve overall operating efficiencies aligning staffing and service delivery with effective care outcomes.  This strategy is not about optimizing Medicare reimbursement (though it does that), it’s about building a care engine that performs across payer sources.
  2. Develop a Solid Understanding of Medicare Reimbursement: Many providers I talk with have only a rudimentary understanding of the current PPS system and most of what they have learned comes from the wrong sources; sources that are partial to a particular bent or issue.  Even with the cuts, providers who understand how to take advantage of caring for a more clinically complex patient profile and get reimbursed for their work, aren’t horribly at-risk for major revenue swings.  They have developed internal core competency in coding, in managing the length of stay, and in capturing the true care needs of the patient.  They bring in the necessary training resources and have staff resources that help maximize their productivity and care delivery.  They know how the system works, don’t try to deny the changes, and develop the systems and the people necessary to be current, use the MDS effectively and capture the dollars in the form of reimbursement, correctly.
  3. Analyze the Impact: If reimbursement cuts are forthcoming, and they are, I hear too many vague generalities about how much and “the sky is falling” rhetoric.  Frankly, most providers I talk with haven’t modeled the financial impact as of yet and as the old adage goes, “you can’t begin to fix what you don’t know is broken”.  In some cases, simple tweaks to operations can improve the actual impact.  In other cases, changes to internal delivery systems, coding, etc. can improve the revenue impact (positively).  Suffice to say, knowing what the impact is today can help a provider hone in on what options are available to mitigate the “pending” damage.
  4. Understand the Totality of What is Changing: It is easy to reflect solely on one element of the Medicare equation that is changing in October; revenue or reimbursement.  The problem most providers also face is that certain systemic changes are occurring such as the allocation of treatment time for group therapy, the requirements for End of Therapy OMRAs and the Assessment Reference Date windows.  As October 1 is 30 days away, providers should have already gotten up-to-speed on these changes and begun implementing policy, procedure and systemic internal changes to address the new requirements.  As change requires education, adjustment, audits and then additional education and/or adjustments, starting too late equates to getting claims wrong.  Ask any provider that has gone through a probe or had claims rejected what that revenue impact is; far worse and impactful than a rate cut.
  5. Focus on Therapy: When I encounter SNFs with major Medicare issues, I see three common problematic themes.  First, for facilities that use outside therapy or contract therapy providers, the facility has “washed” their hands of the Medicare therapy issues.  This is a problem on so many levels.  As I have written before, the therapy company is not the  provider, the SNF is.  Under Part A, the SNF is always the provider and as a result, any problems caused by incorrect billing, improper care, improper coding, etc., perpetuated by a contractor is a problem for the Part A provider.  Basically, the liability cannot be ceded to a contractor.  The SNF must know as much about the provision of therapy under Part A as it does the provision of nursing care or any other discipline.  And most important, while therapy companies claim that they develop partnerships with SNFs, the reality is far from a true partnership.  For a partnership to actually occur, the risks and benefits must be equally shared.  Such is not the case in these relationships.  In this relationship,  each (the SNF and the therapy company) have different business and profit motivations such that at times, the interests may compete in ways deleterious to the SNF, left unabated.  Second, if a provider has its own program and staff, the therapy component is rarely fully integrated with all other care disciplines.  In short, all too often therapy is looked at as purely a profit center rather than an integral part of the clinical care delivery an SNF provides.  Therapy involvement, assessment, and integration into the total care plan of all residents/patients prevents problems in terms of care outcomes, helps capture additional revenue via reimbursement, and improves the overall clinical competency of the care team.  Third, all too many administrators have no idea the role therapy provides in their Medicare or general care delivery.  Suffice to say that if an Administrator wants higher per diems, better care outcomes, better compliance results, its time to learn the overall MDS and understand where therapy integrates in Medicare, how this system works (not just the revenue generated) and how therapy can improve the overall operating performance of an SNF (revenue and expense).

Before I conclude, I have three remaining suggestions to issues that I commonly address in the SNF world.  These suggestions are pertinent at all times for an SNF that is seeking to improve its operations, regardless of the reimbursement issues that are “at-play”.

  1. Develop Centers of Excellence: Trying to be all things to all patient types, etc. in an industry segment as wide as the SNF arena is a recipe for failure or at best, average to below average results (operating and other).  Not every SNF will excel in a post-acute, transitional care environment.  Markets are different, referral source needs are different, etc.  By developing an acute awareness of market needs, referral source needs, etc., an SNF can focus-in and develop, centers or “lines’ of care excellence.  Three things happen or should with this approach.  First, occupancy issues are less prevalent.  The SNF knows its flow of patients and can set aside the right amount of capacity for the length of stay and volume requirements dictated by a group of patients.  Second, efficiency in terms of staffing, supplies, programs, care plans, etc. can truly be developed.  Third, building a true revenue model is far easier.  A revenue model is driven by an expectation of certain occupancy, revenue streams from each patient type, and pricing/reimbursement models that accentuate revenue.  Expenses can then be matched accordingly.
  2. Suppress and Evaporate “Stupid Money”: Stupid money is dollars that are spent on things that can be controlled by an SNF or any business.  It saps resources and margin.  Common locations of stupid money are Worker’s Comp, agency use, over-time, supply waste, improper coding, fines, forfeitures, billing errors, staff turnover, and compliance/legal issues.  Minimizing the dollar flow and/or eliminating it for “stupid money” immediately improves the bottom-line.  I don’t know how many dollars over the years I have seen across all of the facilities I have been in that get wasted repeatedly, on stupid money issues.
  3. Develop Care Systems/Algorithms: SNFs that really excel financially and from a care/outcome perspective, have gotten very good at developing common protocols and algorithms for common admission diagnoses.  They have become efficient and effective at delivering high quality, lower cost care by reducing the variances and treatment fluctuations that arise when care is unplanned or uncoordinated.  They have developed formularies, treatment protocols, and outcome-based algorithms for the most common types of admissions and issues faced by patients within their settings.  Some have gone as far as to coordinate this work within their upstream and downstream referral networks (home health on discharge, hospital on admission/re-admission).  These SNFs make solid, repeat margins, have balanced payer mixes and are positioned appropriately for the next foray into healthcare reform; namely bundled payments, competitive bidding, ACOs and quality-based incentive payments.

September 1, 2011 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , | 3 Comments

Post-Acute Outlook Post Debt Ceiling, Post Medicare Rate Adjustments, Etc.

OK, the title is a bit wordy and trust me, I could have included more “posts” but I think I got the point across.  First, I’ll admit to having a crystal ball however, the picture I see is a bit like the first (and only) television set I remember having as a kid: Not in color, lines running vertically and horizontally, snow, and an antenna that required frequent manipulation and tin foil to get any kind of reception.  And of course, there were only three channels available.  The same today is true about my crystal ball on health policy and what to expect in the post-acute industry. 

My crystal ball’s three channels are Medicare, Medicaid and the Economy.  Reviewing each, here’s the programming I see for the fall lineup or if you prefer, the period post October 1 (fiscal year 2012) through early next year.

The Economy: The debt ceiling discussion and the actions taken by S&P and the Fed in the last couple of weeks are a reminder via a cold slap, of how mired in dysfunction Washington remains and how moribund the economy truly is.  While technically not in a recession, the economy is not really growing either; a growth rate of less than 2% in GDP is like treading water.  For unemployment to change, consumers to return and capital to re-enter the business investment side, GDP growth needs to be above 2% and ideally north of 4% for a sustained period.  Unfortunately, in order for this to occur, fiscal policy in Washington needs to develop some semblance of coherency and consistency.

What I know from my economics training and background and my last twenty-five years plus in the healthcare industry boils down to some fairly simple concepts.  These concepts are I believe, a solid framework for providers to use in terms of planning for the near future and even somewhat beyond.

  • The U.S. debt level is fueled to a great degree by entitlement spending, less so by discretionary spending.  If the prevailing wind is about debt reduction and balance in the federal budget (or getting closer to balance), two things must occur.  First, spending constraint where spending primarily occurs, namely entitlements.  Second, revenue increases in some fashion, namely taxes.  The devil as we know it today, is how and where on both sides of the ledger (revenue and expenses).  Spending reductions alone are insufficient, unless dramatic, to significantly lower the debt level or balance the budget; particularly in a period of near zero economic growth.  Dramatic spending reductions are clearly unwise and potentially, deleterious to an industry sector (healthcare) that continues to provide steady employment.  Similarly, for spending reductions on entitlements to truly have a positive impact and make sense, program reform must be at the forefront of “why” less spending is needed or warranted.  Program reform, ala the health care reform bill which didn’t really reform Medicare or Medicaid but added new layers of entitlements, is far from the answer.  For providers, there is no immediate or for that matter, longer-range future that doesn’t entail less spending on Medicare or Medicaid.  As the only “trick” in Washington’s bag or the bags contained in the statehouses is rate cuts, anticipate and plan for the same.
  • A lackluster, no growth economy with high unemployment levels fuels provider competition wars over paying patients.  As fewer paying patients are available and/or fewer “good” paying patients are available, providers will compete for the same market share within and across the industry levels.  What this means is that providers will seek to acquire market share within industry segments (home health, hospice, SNF, etc.) and across industry levels (hospitals seeking to maintain patient days versus referring to post-acute providers).  The end result is more or similar levels of M&A activity, if capital remains available, and thus, consolidation that is driven primarily by market share motives.
  • According to a recent healthcare expenditure outlook released by CMS, healthcare spending is projected to reach $4.6 trillion by the end of the decade, representing nearly 20% of GDP.  The primary contributor to this projected level of growth is the Affordable Care Act, principally due to the expansion of Medicaid and the requirements for private insurance coverage (Medicaid growth of 20.3%).  While CMS notes that Medicare spending may slow somewhat, this assumption is predicated upon the continuation of spending cuts and a 29.4% reduction in physician payment rates required under the current Sustainable Growth Rate (SGR) formula.  Assuming, as has historically occurred, Congress evacuates the cuts called for under the SGR and as has been discussed, moves to a formula tying payment to the Medicare Economic Index, Medicare spending accelerates to a 6.6% growth rate (1.7% projected for 2012 with continuation of the SGR).  Summarized, health spending is the two ton gorilla in the room and it will continue to have a heavy, significant influence on economic policy discussions at the federal level and beyond.  Though I don’t agree with the recent rating action taken by S&P, it is impossible to ignore the consensus opinions of allof the rating agencies: Entitlement spending, namely driven by healthcare spending, is unsustainable at its present level with the present level of income support (taxation) and as long as the status quo remains fundamentally unchanged, the U.S. economy is not fundamentally stable.
  • Current economic realities and the rating agencies actions and statements foreshadow a stormy, near term future for the healthcare industry.  As is always the case, there will be winners and losers or more on-point, those more directly impacted and those less so. On the post-acute side, excluding reimbursement impacts, I’ve summarized my views on what I see in terms of economic impacts for the near term (below).
    • The credit rating side will remain pessimistic for most of the industry “brick and mortar” providers.  Moody’s, Fitch, et.al. will continue to have negative outlooks on CCRCs, SNFs, etc. primarily due to the economic realities of the housing market, investment markets, and reimbursement outlook.  Within this group of brick and mortar providers, Assisted Living Facilities will fair the best as they are the least impacted by the housing market and for all intents and purposes, minimally impacted by reimbursement issues (save the providers that choose to play in the HCBS/Medicaid-waiver arena).
    • The publicly traded companies (primarily SNFs but home health and LTACHs as well) will continue to see stock price suppression due to the unfavorable outlooks and credit downgrades provided by the rating agencies.  This will occur regardless of the favorable earnings posted by some of the companies.  Reimbursement trends (down) are the primary driver combined with the hard reality that Medicaid is in serious financial trouble, even more so going forward as enrollment jumps due to continued healthcare reform phase-in schedules.
    • Capital market access will continue to be tight to inaccessible for some providers.  Reimbursement, negative rating agency outlooks, lending/banking reform, above historic levels of failures/bankruptcies, etc. all continue and will remain as an overhang to the lending environment.  Problems with potential continued stable to increasing funding levels at Fannie, HUD, etc. create additional credit negativity and tighter funding flow.  Capital access, when available, will continue to have a credit premium attached, in-spite of low base rates.  I expect to see continued development and demand for private equity participation.
    • Given the above, financially driven mergers and acquisitions will remain somewhat higher as organizations seek to use the M&A arena to create financially stable partnerships and bigger or larger platforms from which to derive credit/capital access.

Medicare: The problems with Medicare are too deep and lengthy to rehash here and thus, I’ll move to brevity.  Medicare is, as I have written before, horribly inefficient, bureaucratic, and inadequately funded to remain or be, viable.  As a result, only two real scenarios exist today: Cut outlays or increase revenues.  Arguably, a third that involves portions of each scenario is the most probable solution.  Real reform is light-years away as the current and forseeable political future foretells no scenario that includes a Ryanesque option (Paul Ryan plan from the Republican Congressional Budget and/or Roadmap for America).  Viewed in this light, the Medicare outlook for post-acute providers is as follows.

  • For SNFs and Home Health Agencies, reimbursement levels are on the decline.  The OIG for CMS and MedPac have each weighed-in that providers are being overpaid.  Profit margins as a result of Medicare payments or attributable to Medicare, are deemed too high (mid to upper teens) and as such, the prevailing wind is payment or outlay reductions.  The bright-side if such exists, and as I have written before, this “cutting” trend will impact some providers far more than others.  The providers that have relied heavily and primarily on certain patient types for reimbursement gains will be more negatively impacted than providers with a more “balanced” book – a more diverse clinical case mix.  The movement is toward a more balanced level and thus lower level, of reimbursement theoretically closer aligned with the actual clinical care needs of patients.  Providers with more diverse revenue streams and more overall case-mix balance will not be as adversely impacted although, the Medicare revenue stream will be lower or less profitable.
  • Hospice has remained relatively unharmed, principally due to its lower overall outlay from the program.  It remains a less-costly level of care than other institutional alternatives.  A note of caution here is important.  While rates have not been cut, program reform is occurring on the fringes and I suspect a wholesale re-design of the Medicare Hospice benefit is forthcoming.  In such a fashion, payment reform rather than rate reform or reduction will occur.  The obvious trend is to restructure payments away from a reward for lengthier stays and to require more precise determinations of terminality, tied to a tighter or imminent expectation of death.  OIG and MedPac have issued a number of papers and memos regarding the relationships between Hospice and SNFs that correlate to longer stays for certain diagnoses.  Summarized, payment reductions via rate are less of an issue but utilization reform is forthcoming via additional regulation designed to reduce overall payments to Hospices or as CMS would say, to more closely align payments to the real necessity of care for qualified, terminally ill patients.  Without question, the largest impact (negative) going forward will be on hospices that have sizable revenue flows tied to nursing home patients.
  • LTACHs are in a similar reimbursement boat as hospice; small overall outlay within the program and for the past few years, minimal expenditure growth.  The industry is from a cost perspective, fundamentally flat.  What will be interesting to watch is whether under certain aspects of healthcare reform, this niche’ takes on a growth spurt.  Bundled payments, ACOs (Accountable Care Organizations), and shifts in SNF reimbursement away from higher acuity, rehab patients may lead toward more utilization of the LTACH product.  This being said, the prevailing Medicare reimbursement profile is fundamentally flat.  Given a bit more creativity on the part of the LTACH provider community, this segment may be poised for some growth, although not directly via increasing payments.
  • The most uncertainty lies on the Part B provider side, particularly providers that are reimbursement “connected” to the Physician Fee Schedule (therapy for example).  As of today, the required change to the fee schedule as a result of the Sustainable Growth Rate formula is a fee cut of 29.4%.  It is quite possible, due to the current negative or flat growth trajectory of the economy, and sans any change in the law, for fees to be cut again in 2013, barring Congressional action.  Most acutely impacted in this scenario are physicians and predominantly, primary care physicians.  I have yet to see a Congress that fails to intercede and repair cuts this draconian but the political times and the budget deficit debates are markedly different than during any prior period.  Critical to whether this cut or some level less than this is implemented is the issue of access, already a hot topic for physicians.  Physicians, particularly primary care specialists, are already in short-supply nationally, woefully short in certain markets.  If cuts of this magnitude or perhaps any magnitude roll forward, I suspect many physicians will curtail or close their practice to new Medicare patients.  On the other side represented by non-physician providers, Part B cuts of this magnitude will no doubt limit service and access.  Fixing the formula and the law has been difficult for Congress as the dollar implications are substantial.  I foresee another round of patches, etc., occurring close to the “cut” date, especially since 2012 is an election year.

 Medicaid: For as many reasons as Medicare is a mess, Medicaid is as well, though magnified by a factor of two or more.  Medicaid’s biggest problem now is rapid growing enrollment, primarily due to high unemployment and upcoming federal eligibility changes mandated via the Accountable Care Act (healthcare reform). Given Medicaid’s current funding structure, this issue poses huge problems in flat to negative growth economies.  States simply due not have the revenue to create a higher matching threshold or level, necessary to achieve more federal dollars.  In July, the enhanced federal match provided via the Recovery Act (stimulus) sunsetted leaving states with huge structural deficits and the prospect of deficit growth due to increasing enrollment.  In virtually every state, rate cuts have been discussed and in half-again as many, implemented.  States continue to move to the federal government seeking relief from required or imputed service provision requirements and/or relief from eligibility requirements (waivers).  The inherent difficulty with balancing Medicaid funding is that the same is directly tied to stable to growing state revenues and a clear picture of population risk or need.  Changing (increasing) populations often present adverse-risk scenarios, creating higher than normative utilization.  For obvious reasons, lower than market reimbursement levels, access is a big issue.  Not all providers willingly and openly desire Medicaid patients and those that do are not on the increase. Without additional funding assistance at a level beyond what is called for in the Accountable Care Act, regulatory relief and an improving economy, the reimbursement prospects under Medicaid are all bleak.

  • In the post-acute environment, the biggest impact of this continued ugly Medicaid scenario will fall directly on SNFs.  Matching prospective or real Medicaid cuts with Medicare cuts forthcoming is a true “negative” Perfect Storm.  For most SNFs, Medicaid is the largest payer source and until recent, Medicare was used as a make-up funding source for Medicaid reimbursement shortfalls.  Adding fuel to an already smoldering fire, the suppressed earnings available to seniors, no growth in Social Security payments, and a stock market that presently produces only a flat return trajectory limits the pool of private paying and privately insured patients.  In short, there is no additional room on the revenue side to make-up an SNFs Medicaid losses.  For SNFs, only the few that have limited leverage, high occupancy, an extremely balanced payer mix, and stable staffing will weather the Medicaid near term future; a future of no rate increases or likely cuts.
  • While not a huge segment of the post-acute environment, HCBs providers will feel the Medicaid pinch as well.  As a result of needing to reign in Medicaid spending, states are rapidly curtailing their funding and payment levels for HCBs programs.  While most states still claim that HCBs expansion would help soften their Medicaid deficit, states that bit a big bullet in this arena early on (California for one), now realize that waiver programs produce massive new levels of beneficiaries who want and need access to community support services.  SNF access was already somewhat limited as the industry has truly shrunk but the demand for services in this growing eligibility pool has expanded.  Funding these services is becoming a real problem for states and as such, support payments will remain flat, decline and program growth will be capped.
  • Home Health will also feel a bite from declining Medicaid funding although its Medicaid utilization levels are modest at best.  For Home Health, Medicare is the big dog and Medicaid a minor element.  Staffing costs are on the rise for Home Health as the competition for home health aides in many markets is brutal or getting rough.  Competition, even in a high unemployment environment, for certain categories of employees, raises wages and benefit costs.  Staffing is the largest expense for a home health agency and as such, a scenario with rising employment costs and flat to declining reimbursement negatively impacts margins.  I don’t see this scenario changing any time soon.

Concluding, this may be one of my most depressing posts, if for no other reason than the current external view is dreary and nothing foreshadows improving weather.  For brick and mortar providers, capital access is critical, especially for SNFs who have as a profile, some of the oldest physical plants.  SNFs are capital-intensive operations and without an ability to fluidly and reasonably, access modest cost funds, deferred maintenance (already high) will increase.  With so much revenue tied to reimbursement and a reimbursement outlook that is negative, it is unlikely that capital will flood back to the post-acute industry.  Critically important to the viability of this sector is an improving economy combined with regulatory reform that, if reimbursement remains flat, allows providers to become truly more efficient. In short, increased program revenues under Medicare and Medicaid due to economic growth, will ease a lot of the immediate crunch and perhaps, buy sufficient time for absolutely critical, health policy reform.

August 26, 2011 Posted by | Assisted Living, Home Health, Hospice, Policy and Politics - Federal, Senior Housing, Skilled Nursing | , , , , , , , , , , , , , , , , , , , , | 4 Comments

CMS Announces Medicare SNF Cuts: The Implication

On Friday, CMS released its Final Rule regarding FY 2012 SNF PPS reimbursement.  The Final Rule implements a reduction or “cut” in SNF PPS payments equal to 11.1% or $3.87 billion.  The 11.1% reduction is based on 2011 rates and spending/outlays.  In their proposed final rule published in May, CMS alluded to the real possibility that it would seek to reduce SNF payments via some element of program/technical correction as well as rate reductions.  Their reasoning stemmed from claim and resulting outlay experience that was significantly greater in dollar amounts than originally forecasted when MDS 3.0 and RUGs IV was devised and implemented.  Summarized, CMS had intended the conversion from RUGs III to RUGs IV to be expenditure neutral for Medicare.  Per recent figures and analysis from the OIG, expenditures under RUGs IV are running 16% higher than the “neutral” target.  For more information, see my recent post on this same topic at http://wp.me/ptUlY-8Q .

Given that the text of the Final Rule won’t be published until August 8 and as of Friday, CMS was still working on recalibrating the CMIs under RUGs IV, it isn’t possible to provide direct analysis of the actual rate scenario for FY 2012.  What I do know however, is that the “bark” in this case is definitely worse than the “bite”.  While overall spending is set for reduction, this doesn’t necessarily correlate directly to rate.  Briefly, here’s why:

  • CMS has factored into their projections of lower spending levels, a series of technical corrections such as changes in how minutes are allocated among participants in group therapy.  This change closes a loophole or as I have said, an area of oversight in the transition from III to IV.  Going forward, group therapy minutes must be divided in equal increments among all participants (e.g., one hour of therapy provided to a group of four equals four 15 minute therapy sessions; not an hour allocated to each participant as the system presently allows).  Additionally, CMS is tightening the Change of Therapy assessment requirements to more specifically, capture any changes in a patient’s therapy needs that would preclude re-classification to a different (presumably lower) RUG category.  This change is separate from any Change of Condition assessment.
  • Recalibration of RUGs categories via adjustment to the CMIs will occur based-off of 2011 utilization and projections.  The net result is change in category payments that will remain higher than experienced under RUGs III levels.  In short, the net “cut” will not be 11% across the board.  SNFs need to be astute as to how the CMIs work and translate into payments under each RUG.  Recalibration is designed to restore parity to the overall expenditure profile.  In order for CMS to do this, it will overlay utilization trends and patterns across the CMI continuum and adjust rates within the scope of its technical corrections, to forecast an overall program expenditure target that agrees (theoretically) with its original intentions in converting to RUGs IV.  In short, this doesn’t mean an 11% direct rate reduction.  If CMS were to impose and 11% cut to each category, overall outlays would reduce by more than 30% – that is not the target.
  • Based on what I see from most providers with a fairly balanced Medicare book of business (mix of clinical/nursing and rehab cases on par with 40% clinical, 60% therapy), the net to their per diem will be flat to a reduction of 2 to 5%.  This means that a facility with an average per diem today of $450 per day will see a 2012 per diem between $425 and $450 per day.  Providers that took advantage of the group therapy option to escalate or maintain their high rehab payments under IV will likely see a greater revenue shock.  In virtually all cases, providers that have a fairly balanced Medicare book should see a 2012 Medicare per diem that falls 6% to 8% higher than their FY 2010 per diem.

I will have a better idea of the actual impact when I see the final CMIs and resulting RUGs IV rates.  In the meantime and until the Final Rule and rates are implemented on 10/1 of this year, I don’t see much in the way of political intercession to change (positively) the rate and spending scenario.  Spending at the Federal level is a toxic subject and even with a potential debt ceiling deal looming, the microscope will remain directly on all areas of federal spending.  Entitlement spending (Medicare, Medicaid, and Social Security) is rising substantially faster than discretionary or military spending and logically, presents a big target for deficit hawks.  Logically, it will be difficult to gain the support of any Congressional industry sympathisers to push more money back into a system that most acknowledge, was unintentionally overpaying for care.  Consider FY 2011 a bit of a windfall and the changes forthcoming, pretty darn modest; all things being equal.

July 31, 2011 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , | 2 Comments

Medicare SNF Cuts: Fact, Fiction, Probability

In early May, CMS released its proposed rule for FY 2012 concerning Medicare PPS reimbursement for SNFs.  As most followers of the industry from investors, to operators to developers know by now, CMS dropped a “bomb” to the industry indicating bluntly, a warning of a parity adjustment (reimbursement or payment reduction) of 11.3% or $3.94 billion.  In typical convoluted CMS fashion, the logic behind this foreboding news is scattered; an analysis of the agency’s inability to adequately anticipate provider behavior, utilization patterns, and to appropriately create a reimbursement mechanism that ties the cost of care required by current SNF patients with the costs and delivery systems necessary to provide the care.

Initially, the interpretation from many inside the industry was that CMS was overreacting, using only one-quarter’s worth of claims data to substantiate a “sky is falling” conclusion.  More recently, six month’s worth of claims data became available and analysis proved the trend correct and even a shade worse or better stated, more prevalent than originally assumed.  In short, the implementation of MDS 3.0 and RUGs IV missed the budget mark (budget or expenditure neutral) by $2.1 billion or 16%.

In the last week to ten days, the OIG (Office of Inspector General) for CMS stepped into the debate, stating its opinion that the overpayments must be stopped immediately.  Interpreting the OIG’s qualification of “immediately”, the timeframe at issue is next fiscal year.  In essence, the core of the problem continues to be the structural flaws within the RUGs system predominantly, that disproportionately pays more for rehabilitation therapy than for other primary care modalities.  A major intent of CMS during the switch from RUGs III to IV was a reallocation of the incentives (higher payments) from therapy to other resident care requirements.  Suffice to state, the methodology failed.  Below is a simple illustration of how on a pure rate basis, the RUGs III to IV therapy categories compare.

Table 1: Average Amount That Medicare Pays SNFs per Diem for Each Level of Therapy, FYs 2010 and 2011
Level of Therapy Number of Therapy Minutes Provided During Assessment Period Average per Diem Payment FY 2010 Average per Diem Payment FY 2011 Percentage Increase From FY 2010 toFY 2011
Low 45 to 149 $288 $430 49%
Medium 150 to 324 $369 $488 32%
High 325 to 499 $364 $532 46%
Very high 500 to 719 $418 $594 42%
Ultra high 720 or more $528 $699 32%
Source: OIG analysis of unadjusted per diem urban rates for FYs 2010 and 2011. See 74 Fed. Reg. 40288, 40298–40299 (Aug. 11, 2009) and 75 Fed. Reg. 42886, 42894–42895 (Jul. 22, 2010).

Reviewed on-the-face, it is logical to see how CMS could miss the targeted expenditure mark by the margin it has, even in-spite of the “methodology” changes that occurred in the conversion from 2.0 to 3.0 and RUGs III to IV.  Providers, being logical creatures of certain habits, moved accordingly to grab the payments at the highest attainable levels or in short, fulfilled the economic axiom of, “what gets rewarded (paid for) gets done”.  The expectation on the part of CMS that utilization trends would fall-off from the higher paying therapy categories, necessitating a higher re-balanced rate to negate a revenue “shock” to the SNFs was poorly thought through.

Quickly reviewing “what” occurred to produce such a variance from assumption to actual is easy. Getting to the core takes a bit more thought and digging.  In summary fashion; CMS assumed that by restructuring how therapy minutes were calculated for concurrent therapy (therapy provided to two individuals) from a two-equals one basis to an equal half, would reduce the ability of providers to meet the higher per minute category qualifications, necessitating more one to one therapy sessions (the previous concurrent therapy rules allowed providers to have two people in the same therapy session with the total session time allocated to both participants equally).  Similarly, CMS assumed that ending the look-back provision to establish reference dates and care requirements would more accurately stage the resident’s acuity and care needs to the point of admission (or proximally forward from admission) to the SNF.  Additional tightening of the extensive services qualifier rules would also, as assumed, reduce higher RUG scores and thus, payments.  Of these changes and assumptions, only the look-back period changes combined with the changes in qualification for extensive services provided any material classification changes (lower payments) though such changes were far less in total dollars than the dollar increase CMS imputed on the corresponding RUGs III to RUGs IV therapy payments. Providers however, merely switched to the remaining “open ground”, providing more therapy on an individual basis and most noticeably, on a group basis.  On a group basis, minutes are counted collectively, not split in equal parts among the participants – a provision CMS did not change from RUGs III to RUGs IV.  While the modifications made to the extensive services qualifier and the look-back period provision did impact providers, CMS completely misunderstood the application and prevalence within the provider community of these two provisions under RUGs III and as played-out, found that providers could still code residents into higher payment groups/categories in spite of the changes.

To understand what might happen next, one needs to look at how this mess occurred.  As I’ve typically found, the answer lies in both camps; providers and CMS.  In my recent work, its clear that many providers don’t understand the transition from RUGs III to RUGs IV and as I have looked at “oodles” of Medicare claims, I dare say a large number are still frought with “up-coding” and questionable therapy-minute counting practices.  This is not to say that the whole of the industry has behaved in this fashion but arguably, and CMS understands this as do both major trade associations, providers have not totally changed their business models to reflect the changes in payment systems.  One needs only to look at how claims trended under RUGs III and how they now are trending under RUGs IV.  The trend is too consistent to support an assumption of SNFs; a) staffing substantially more therapy personnel to capture the minute requirements via individual treatment or, b) SNFs moved a sizable share of their Medicare case-load into group therapy.  The latter, while I’m certain it has occurred on a broad basis as the OIG report suggests, is problematic from a care delivery perspective for a large range of diagnoses that truly require individual therapy sessions.

CMS continues to remain fundamentally inept at developing reimbursement systems that provide adequate payment for the care and services required by SNF residents.  I have yet to see, across my 25 years in the industry, any period or any system devised by CMS that didn’t under-support or over-support, one type or category of patient versus others.  It is also illogical that CMS cannot develop the audit tools and claims management infrastructure that both educates providers and pre-emptively kicks-back claims clearly evidencing up-coding.  I am consistently amazed at “what” gets paid and for how long.  In short, CMS is apparently willing to consistently miss the mark, make wholesale adjustments and reallocation of dollars, only to over-correct past inconsistencies while producing new ones.  Such will not doubt occur with this latest blunder.

While I won’t claim to have a crystal ball in terms of forecasting “what happens” next, experience and ongoing dialogue with individuals on Capital Hill and within CMS gives me some decent insights.  With debt ceiling/deficit reduction talks mired in politics, it is unlikely any substantial cuts to entitlement spending are forthcoming.  Senate Democrats and the President are sufficiently dug-in on cutting Medicare spending by any measurable amount thus the target on this issue (Medicare SNF spending) has moved away from the current political fracas.  The remaining Washington impetus for cutting SNF reimbursement  resides within CMS.  In spite of the OIG’s report,  enacting cuts of the magnitude suggested is a political issue.  CMS can propose all the spending cuts its desires but Congress has the final say.  Rarely if ever, although given today’s climate an exception may be possible, has Congress sustained reimbursement cuts of this magnitude.  Synthesized, my view of what happens next, based on what I know to date, is:

  • Providers and their trade association are willing to capitulate to a modest adjustment in the therapy categories.  This symbolic give-back will play well politically.  Net of a market-basket/inflation update, cuts of 2% to 4% are possible in a “cut scenario”.
  • In a scenario that involves no real cuts, rates will be flat.  CMS will institute additional refinements and perhaps, even re-calibrate or fine tune payments by RUGs category, moving dollars within the RUGs system, without reducing payments.  In this scenario, the attempt on the part of CMS to is to “patch the potholes” and let the system itself reduce payments via tightening the requirements and re-allocating dollars within the RUGs categories.
  • A most probable scenario involves, as is typical, a bit of both.  CMS will cut the therapy rates using some language about re-basing.  At the same time, a series of corrections will be made regarding the counting of minutes for group therapy, assessment windows, etc.  Overall, payments to SNFs across all RUGs IV categories will be flat or targeted as a reduction equaling 2-4%.  The pull-back on the therapy RUGs rates could be as steep as 8% to 10%.  Even at this level, the remaining rate will be higher than the former RUG III rate.

July 24, 2011 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , , | Leave a comment

MedPac Report to Congress: 2012 Recommendations

MedPac (Medicare Payment Advisory Commission) just released its March report to the Congress on Medicare program and rate recommendations for the FY 2012 (beginning October 1, 2011).  The full report is available in PDF form on the Reports and Other Documents page on this site.  Below I’ve provided a summary of the key recommendations contained in the report.

Important to note about this year’s report and the recommendations contained therein is the political context in which this report will be received.  Congress has often been politically unmotivated to take MedPac’s recommendations fully to heart as the same often involves program and payment reform following a path of curtailed spending.  As MedPac was officially created/established as part of the Balanced Budget Act of 1997, a critical element of its charge is to monitor payment adequacy in light of Medicare’s beneficiary’s access to care and the quality of care delivered.  Most notably, MedPac has gradually evolved to an organization that advocates for more aggressive programmatic reforms combined with rate reduction and/or spending reduction.  For routine readers of the annual payment reports (issued in March), the opening tone within the Executive Summary section has grown more pointed regarding Medicare’s solvency issues (lack of sustainability) and the Commission’s view of Medicare and the broader economic impact it has on the global U.S. economy.  Today (presently) within a House that is demonstrably pushing spending reforms and reductions and an overall Congressional environment stuck in debate regarding fiscal reforms that include entitlement reform, MedPac’s report certainly will receive more review and deliberation than in other years.  Similarly, health care is a front burner issue given the politics (anti-reform) that surround the recently passed PPACA, effectively producing a wholesale shift in political power in Washington.  Wrap the Washington political issues with a moribund economy that hasn’t yet established its recovery footing, significant Medicaid deficits across the States, and local political wars focused on labor unions, contracts and unfunded and/or expensive benefit packages (including health care).  Summarized: The ancient Chinese proverb applies, “It is better to be a dog in a peaceful time than to be a man in a chaotic period”.

Opening, MedPac provides a quick context for their recommendations noting that Medicare’s share of the total GDP is expected to rise from 3.5% to 5.5% by 2035.  More important and a point too often missed by economists and analysts is that Medicare’s cost growth is not separate from the larger health care economy as it is directly linked to other cost drivers within the health care system that today, are rising far faster than GDP growth (especially given the current and recent pace of GDP growth).  Overall, including the payroll tax funded Part A, Medicare consumes 18 percent of all income tax revenue.  The CMS Office of the Actuary, taking into account the purported Medicare spending reductions contained in the PPACA (see my last post on the Unraveling of the PPACA for more on Medicare and the PPACA) forecast a slower rate of spending growth – 6% vs. 9% under current law.  Critical to this assumption is the realization of spending reductions totaling $575 billion as well as a more stabilized, normative GDP growth pattern combined with historic levels of employment.

Key to this year’s payment recommendations (FY 2012) is MedPac’s philosophy and charge of balancing equitable payments that maintain or improve access, redistribute payments within a particular PPS sector to improve equity among providers and/or adjust for biases in patient selection and service (the term “cherry picking” applies), correct unusual patterns of utilization (over incentivizing) and to attempt to tie payments to quality outcomes and efficient practices (pay-for-performance).  The report covers 10 PPS sectors of which, I follow and work within 6 primarily.  As a result, I won’t summarize or comment on MedPac’s recommendations for hospital inpatient, hospital outpatient, ambulatory surgery centers, and outpatient dialysis.  Readers with interest in these sectors can download the report from my site page titled “Reports and Other Documents”.

  • Physicians and Other Health Professional Services: MedPac dances through this topic without adding any substantive input regarding physician fees, let alone any other allied health professions with fees tied to the physician fee schedule (outpatient therapy for example).  Primarily the avoidance is due to the political “hot potato” that is the SGR (Sustainable Growth Rate) issue. Per MedPac’s analysis, overall beneficiary access to physician care is good, physicians continue to accept Medicare patients, service volume continues to grow, quality is stable, and payments for service run at 80% of the typical PPO payment for similar care (unchanged from last year). MedPac does note however that some regional problems in terms of access to primary care are present, attributable to moderately low levels of reimbursement (in some cases, half as much as payments to specialists) and the inherent flaws of the SGR.  MedPac comments on the need to reform this reimbursement mechanism but offers no insight into what it may propose, merely that projected fee cuts of 25% in 2012 are untenable and as a result, MedPac will continue to work on developing alternative SGR approaches along with other formulaic options for the fee-schedule.  Their overall rate recommendation is a 1% increase in fee-schedule service related payments.
  • Skilled Nursing Facilities: Per MedPac, Medicare spent $26.4 bilion on SNF reimbursement in 2010 and per their analysis, the majority of indicators examined showed payment adequacy.  Prefacing their rate recommendations, the reports notes that the average Medicare margin for a free-standing SNF was 18% in 2009.  Specifically, MedPac notes that facilities with wider Medicare margins have aggregated more days into higher paying PPS groups, particularly rehab focused groups as opposed to the medically complex groups.  Additionally, provider costs remained relatively stable while rate increases paced above cost inflation. Per MedPac, successful facilities have found ways to have costs well below industry averages, high quality and corresponding high Medicare margins.  As a result of these conclusions, MedPac is recommending no rate adjustment for SNFs for 2012 while recommending continued categorical revisions within the PPS to move payment focus away from rehab to clinical care – more focused on patient care needs.  Additionally, they are recommending quality of care modifiers, providing incentives for high quality providers and creating rate reductions (disincentives) for sub-standard quality such as “avoidable” re-hospitalization.  As required under the PPACA, MedPac is also charged with reporting on Medicaid utilization.  Interestingly, their comments are boiled down substantially, indicating that total Medicaid certified beds have decreased while utilization and spending has increased.  They note that Medicaid margins are negative  and fundamentally, that all non-Medicare margins are negative but total margins for the industry are positive. 
  • Home Health Services: As it has in prior reports, MedPac continues to advise that access is adequate (90% of beneficiaries live within a zip code containing a certified agency), the number of agencies continues to grow dominated by for-profit entities within a limited geography, the volume of episodes of care continue to increase (25% over the period 2002 to 2009), quality measures are fundamentally unchanged from previous years, and the major for-profit organizations have sufficient access to capital.  As in the most recent prior year reports, MedPac notes that the PPS system continues to produce high margins for providers (17%), principally because payments exceed costs and growth in cost per episode remains below the assumptions used in the market basket update.  Using these conclusions combined with a cautionary statement regarding discovered fraud in the industry, MedPac recommends that the Secretary be charged with re-basing home health rates over a two year period, starting in 2013 (October of 2012).  Re-basing of rates would target a reduction in the therapy “incentive”, modulating more rate toward medical care while incorporating a revised case-mix system.  Additionally, MedPac recommends the development of a cost-share for home health, thereby instituting a beneficiary payment for services.  MedPac believes, like in other Medicare post-acute payments, that imposition of a cost-share will charge the beneficiary with more consumer awareness of the benefit and the utilization thereof.  Finally, MedPac recommends that the Secretary charge the Office of Inspector General with enforcement responsibility in areas/regions where fraud has been evident, removing payments, reducing enrollment and de-certifying agencies engaged in fraudulent activity.
  • Inpatient Rehab Facilities: Although a relatively small segment in the post-acute continuum ($6 billion), MedPac is recommending a zero percent increase in IRF rates.  They conclude that access is adequate, quality as supported by improvement at discharge is stable to improving, and as most facilities are hospital based, access to capital is not an issue.  They note that the average margin for IRFs is 8.4%.
  • Long-term Care Hospitals (LTACH): As with IRFs, this segment is relatively small – $4.9 billion.  MedPac notes that in spite of the limited moratorium placed on new LTACH and additional beds in existing facilities (July 07 to December 2012), the number of facilities increased by 6.6%; worked through the exceptions provided within the moratorium. LTACHs are not required to submit quality data to CMS though MedPac reports, based on claim reviews, that readmissions and deaths within 30 days of discharge are stable or marginally declining compared to prior years. Per MedPac, payments between 2008 and 2009 increased 6.4% despite costs increases of 2%.  The average Medicare margin in 2009 was 5.7%.  Within the PPACA, LTACHs are subject by 2014 to a pay-for-reporting program, though “reporting of what” is yet defined.  MedPac also believes that a pay-for-performance element should be introduced.  The recommendation for a rate increase or update for 2012 is zero.
  • Hospice: Per MedPac, hospice services received $12 billion in Medicare reimbursement 2009.  In the same year, hospice use increased across virtually all demographic areas and across beneficiary characteristics. Between 2000 and 2009, the supply of hospices increased by 50% with for-profit organizations accounting for virtually the entire amount of growth.  During the same period (2000-2009), the use of hospice increased from 23% of all decedents to 42% of all decedents with average length of stay increasing from 54 days to 86 days. In 2012, CMS is required to publish quality measures and in 2014, hospices are required to report on these quality measures or receive a 2 percentage point reduction in payment.  For 2012, MedPac recommends a 1% rate update. As in previous reports, MedPac recommends that the hospice PPS be altered to create higher payments for days early in the stay and late (near death) in the stay with lower payments applicable during the middle of the stay.  As stays continue to move slightly longer, this payment system is supposed to reflect more accurately, the intensity and cost of services provided to the typical hospice patient.  MedPac also recommends that the Secretary of HHS investigate the relationships between hospices and nursing homes and the differences in patterns of referrals between nursing homes and hospices. MedPac also calls for an investigation into agency enrollment practices where lengths of stay are unusually long as well as an investigation into the marketing and referral development practices of these agencies, particularly as they pertain to length of stay. This recommendation is unchanged from last year.

March 27, 2011 Posted by | Policy and Politics - Federal | , , , , , , , , , , , , , , | Leave a comment

The Unraveling of the PPACA

OK readers and requesters, I haven’t gone, as Robert Frost wrote, into the “woods lovely, dark and deep” but I have been preoccupied by work and things familial.  Sadly, energy wanes as one focuses intently on the delicate balance that is juggling a frenetic work schedule, a mile of other professional commitments, travel, and family.  Returning slowly to regularity in life will allow me to re-connect and be once again, more “informationally” fluid.

A major emphasis of my work has been translating health policy into actionable strategies for clients.  Some efforts are rather profound and deep and others are rather functional and tactile.  The latter was the case with the Medicare RUGs III, MDS 3.0, RUGs Hybrid, RUGs IV debacle, partially created by the PPACA and partially due to the lack of foresight on the part of Congress.  In the end, this mess evolved to where it should have been all along – a grouper and an assessment tool that actually matched.  Today, we are simply left gazing forward at what might be once CMS figures out how the RUGs IV payments are flowing and whether providers are using the system correctly.  I fully expect CMS, as they historically have, to go through a series of gyrations to fine tune the payment categories, equating the new system to that which was originally intended – something that is expense neutral (or close to) for the Medicare program.  History being what it is (a reasonably good predictor of future behavior), we saw and lived through a similar dance with previous PPS system versions.

Turning to the title of this post and topically, a question(s) I am asked all too often: What can we expect or not expect to happen next under the current phase-in process of the PPACA?  Following the law as written would provide an answer but clearly, the law as written is unraveling as we move seemingly, day by day.  Consider the following events of recent weeks/months.

  • A power-shift in Congress overloaded the House with Republicans and structurally, fiscal conservatives that swept into the majority on a platform of “anti-health care reform and anti-deficit spending”.  As the House fundamentally controls the majority of appropriations and budget policy, funding barriers to continue the roll-out of the PPACA are certain.
  • Over 1,000 waivers to certain elements of the PPACA have been granted, with more forthcoming, principally targeted at giving insurers, major corporations (multi-state businesses) and recently, labor unions relief from the mandated coverage limits imposed under the law.  Secondarily, states have sought relief from various Medicaid provisions that came part and parcel with the enhanced FMAP provided under the Stimulus bill (corollary to additional elements required under th PPACA).  From some vantage points, Medicaid may be the 10 ton gorilla in the room when all is said and done regarding the future of the PPACA.
  • A series of court cases and resulting decisions have established the framework of a constitutional challenge to the law.  Opinions/decisions affirming constitutionality were rendered by Democratic judicial appointees and opinions/decisions affirming unconstitutionally rendered by Republican judicial appointees.  Clearly, the matter of constitutionality of the key requirement of universal insurance purchase/participation for every American will be settled only by the Supreme Court.  The remaining question is “when”. If the key provision of universal (everyone must) purchase/participation is found unconstitutional, the PPACA is functionally dead.
  • Within the past week or so, Secretary Sebelius of HHS publicly went on the “record” in Congressional committee testimony that the financing of the PPACA included effective double-use (double counting) of the projected $500 billion in Medicare savings that is projected within the law.  This, while newsworthy, is not news to anyone who read the CBO scoring, read earlier testimony from Medicare’s Chief Actuary, or fundamentally, could follow basic arithmetic logic and principles.  The Medicare savings argument was flawed when first proffered on so many levels.  First, the savings was phantom money in so much that it required Congress to sustain actual rate cuts while relying on finding and stopping “fraud and abuse” thereby creating savings.  If in fact, the fraud and abuse savings were or are known, a 2,000 page piece of legislation surely wasn’t necessary to end the fraudulent and abusive practices (the same being already illegal) and render the savings.  Similarly, Congress has no known history of sustaining meaningful spending controls on entitlements, particularly Medicare.  Finally, the physician fee-schedule fix was never incorporated into the PPACA or its financial projections regarding Medicare spending – this tally alone evaporates all if not the majority of the projected savings.  Suffice to say, in order to net $500 billion in Medicare savings as foretold by the PPACA and its proponents, a perfect storm unlike any ever seen in Washington would need to occur, not to mention a real current spending reduction of close to $900 billion (adding in the Medicare physician fee schedule “fix” costs of approximately $400 billion as unaccounted spending, netted against the savings to achieve a net savings of $500 billion).  For those who would argue that the physician fee schedule fix won’t cost $400 billion, I humbly reply “do the math”.  Congress continues to avoid this issue in real time by creating temporary patches as the real numbers inclusive of a formulaic change in the law (change away from the sustainable growth algorithm) that prevents significant fee schedule cuts for physicians will require approximately $300 billion in “new” spending.  Add another $100 billion or so for the programs such as outpatient therapies that are tied to the fee schedule and $400 billion is conservatively, a solid figure.  The double-counting occurs as a result of creating the phony $500 billion and using the “dollars” to create new benefits and expanded eligibility levels and programs within the PPACA (primarily Medicaid expansion).  The costs of these new benefits greatly exceeds $500 billion in reality and thus, no savings will occur.
  • President Obama during a speech at the National Governor’s Association publicly announced his willingness to offer states greater flexibility and an accelerated date to file alternative plans to meet the PPACA requirements pertaining to exchanges and Medicaid expansion.  In effect, President Obama stated that the law was still a “work in progress” and states could devise their own alternatives, provided the alternatives were as comprehensive and provided the same level of benefits as required under the PPACA.  Until this revelation, states were operating under the premise that PPACA requirements dictating how Medicaid expansion would work, the exchange plan mandates for coverages, etc. were immovable objects, at least until 2014 by when, each state would have incurred enormous costs associated with implementation.  The conclusion: More unraveling about to occur.
  • Arizona became the first state in what promises to be a growing list, to apply to the federal government for a waiver allowing 300,000 people to be removed from its Medicaid program (disenrolled).  Arizona, like multiple states, saw its Medicaid enrollment explode due to the economic recession and provisions within the Stimulus Bill which provided enhanced Medicaid matches conditioned upon the creation of certain new programs of benefits and coverages under Medicaid.  The “rub” today is the sunset date of June 30 which ends the enhanced Medicaid funding.  By law, the money goes away but the programs and benefits it funded must be maintained by the state; hence, the need for a waiver. The evaporating Medicaid enhancement exposes the enormity of state Medicaid and other budget deficits – in Arizona, $1.1 billion total deficit and potential savings of $541 million if the waiver is granted (fully half of the state’s deficit).  From a PPACA perspective, the next move in Washington regarding a request such as that from Arizona will be fascinating.  A core element within reform used to achieve the coverage objectives is an expansion of Medicaid.  A waiver granted to Arizona is a virtual submission on the part of Washington that state Medicaid plans and budgets are incapable of meeting the financial requirements concurrent with expansion, absent significant cash infusions from Washington (not wholly provided with the PPACA).  For those of us who closely follow health policy, we’ve warned loudly and frequently that Medicaid as presently configured, is the worst vehicle to use to expand coverage.  The PPACA did nothing to alter the maniacal constructs of Medicaid, its funding, and its bureaucratic programmatic tenets.  It further did nothing to allocate sufficient resources to the states to support expansion thus leaving states to bear an enormous primarily unfunded mandate within their existing and growing, bankrupt Medicaid programs.  Aside from a Supreme Court ruling finding the PPACA universal participation/purchase requirements unconstitutional, the Medicaid issues are a strong and close second that could cause the PPACA to completely unravel.

The above notwithstanding, the PPACA gives us a glimpse into the future of health policy and ultimately, health care financing and delivery in the U.S.  Regardless of whether the law survives in whole or in part, certain elements I believe, are new realities and I have counseled clients to begin to plan accordingly.

  • Money is an issue and the goal of the PPACA while inherently flawed in the form finished, was to slow the growth of entitlement spending and “bend the cost curve”.  This need or goal is pressing for the U.S. as entitlement spending cannot be sustained at is present level.  This simply means that Medicare and Medicaid are fundamentally and completely exhausted (financially and programmatically).  Regardless of form and resultant policy, reimbursement levels will remain fundamentally flat to trending down – no other way for them to go unless new tax revenues are allocated to each program (not feasible).  Kicking the issue down the road as Washington and states have done is no longer an option as the “road” has ended or its end is clearly in sight.  The best providers can hope for is flat reimbursement with a recognition on the part of legislators that greater flexibility from overbearing regulations is needed to help offset the revenue loss (if I can’t pay you more I can at least make it cheaper for you to operate).
  • Greater emphasis will be placed on finding and eliminating waste and fraud – already happening but ramped up to an even higher level.  Realize that Medicaid and Medicare are self-wasting disasters by design in terms of how modern health care is delivered and financed but vigilance and enforcement is feel-good activity; results often are minimal in comparison to costs to obtain the results.  Providers thus will contend with more questions, more rules for disclosure, more reporting, more probes and more audits.  Clearly, the costs borne by providers to monitor and justify their billing practices to Medicare and Medicaid will rise.
  • Infrastructure investments in terms of technology will rise as providers will need to justify more directly, their care vs. their bills.  Simultaneous (or at least proximal), PPACA provisions and other federal provisions regarding privacy, electronic billing, health information exchanges, etc., will not evaporate entirely.  Providers will need to be able to communicate across functions and across related and unrelated provider organizations, patient information, quality measures, and care information (treatments plans, history, orders, etc.).
  • Terms and concepts brought forth under the PPACA such as Accountable Care Organizations, Competitive Bidding and Bundled Payments are here to stay, regardless of the life or death of the PPACA.  They make too much sense intuitively even if the same translates poorly in federal policy.  Organizations that take the “conceptual elements and goals” of things like Accountable Care Organizations and begin to develop programs and structural changes in “how” they do business will be far better off than those who believe that these concepts will die as the PPACA continues to unravel.  A future where reimbursement is more closely tied to outcomes and penalties for events such as avoidable re-hospitalization, repeat hospitalizations, avoidable institutional infections, etc. is virtually certain.
  • A renewed focus on primary and community based medical care, prevention, and chronic care management is forthcoming – soon.  Philosophically, although wrongly implemented and structured, the PPACA was Washington’s politicized attempt to create this focus.  There is solid logic behind such a focus as diminution in each of these areas (or in some cases, failure to fully launch) directly correlate to rapidly rising health costs (and correspondingly high rates of expensive, preventable chronic illness such as diabetes, obesity, heart disease, etc.).  Even Washington knows that ultimately, funding and enhanced payment for better primary, community and chronic disease care is necessary and smart.  The problem is, as has always been the case with policy elements measured in the billions or trillions of expenditures, politics gets in the way of functionality – hence the PPACA.

March 9, 2011 Posted by | Policy and Politics - Federal | , , , , , , , , , , | Leave a comment

RUGs IV Here to Stay!

The news we all hoped for came forth this afternoon, wrapped with a big bow just in time for the Holiday season – RUGs IV is here to stay.  The House this afternoon passed a companion version of the bill passed in the Senate yesterday.  President Obama is expected to sign the bill into law shortly.

The legislation calls for $19.2 billion in appropriations to make RUGs IV effective retroactively to October 1, 2010.  In addition, the legislation extends the Medicare Part B therapy cap exception provision presently in place, until the end of 2011.  Without such an extension to the exception process, the Part B therapy caps were set to be automatically reinstated with no exception on January 1, 2011.  As part of the extension of therapy cap exception process, the legislation also staves off pending cuts of approximately 25% in Medicare payments to physicians required by the current sustainable growth formula which drives the physician fee schedule (and related Part B services such as outpatient therapies) under Part B.  Without such a correction to the physician fee schedule, physician fees were set for the significant reduction on December 18 (Congress had already moved the date back to the 18th from the 1st of December).

The implementation of RUGs IV back to October 1 solves significant headaches for SNFs and CMS.  As difficult as it has been for providers to get up to speed on MDS 3.0 and RUGs IV, the process was significantly complicated by the unknown of how the planned RUGs Hybrid would work and whether CMS would seek to recoup potential overpayments from providers as a result of RUGs IV being used temporarily.  Many providers sought to establish liability accounts on their balance sheets for just such an event, even though estimating the liability was somewhat complex due to the lack of solid information regarding the Hybrid groups coming from CMS. 

Having spoken to a number of people within CMS, the implementation of RUGs IV back to October 1 is a true gift.  There were consistent difficulties in getting the Hybrid grouper to function in conjunction with MDS 3.0 and as such, a growing number of inquiries from the industry bombarded the agency expecting more information.  Even more troubling was the prospect of having to deal with payment recapture; a procedural boondoggle CMS was hoping to avoid.  In the end, I am confident that a number of people at CMS are rejoicing this evening.

On a final note, I wish to offer my personal congratulations to my industry colleagues and the trade associations who lobbied for this victory and to my readers, clients and business partners who required that I kept them informed and in many cases, helped me with additional information and of course, thoughtful inquiries that made me stay on top of this important issue.  This policy victory was long overdue but as the saying goes, “better late than never”.

December 9, 2010 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , | 1 Comment