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Senior and Post-Acute Healthcare News and Topics

SNFs and the Medicaid Conundrum

What do Morningside Ministries in San Antonio, Genesis Healthcare, Signature Healthcare, HCR ManorCare, and Syverson Health and Rehab in Wisconsin have in common?  Answer: A terminal relationship with Medicaid. While Genesis isn’t “dead” yet, it is fundamentally on life support with a stock price of $1.50 per share and a Medicaid payer mix averaging 73%.  HCR ManorCare is in bankruptcy. Morningside Ministries closed a facility in San Antonio as it simply could not survive on the Texas Medicaid payment at its Chandler Estate facility.  Syverson in Wisconsin is among a slow growing list of SNFs that cannot financially exist under Wisconsin’s Medicaid system – the poorest payer in relation to cost in the nation.

For the vast majority of SNFs nationwide, Medicaid is a conundrum; a Catch 22 of epic proportion.  It is by far, the dominant payer source for LTC among the elderly and thus, the largest payment source for SNF residents when they enter an SNF or fall back on, shortly (typically within 6 months) after their admission.  For the average SNF (and majority of the universe), an unwillingness to openly accept a Medicaid resident equates to an empty bed and no (zero) revenue.  This phenomenon is the Medicaid conundrum – damned if you do, damned if you don’t scenario.

Few SNFs have the reputational excellence, the referral base, capacity limitation and payer source alternatives to minimize or limit, their Medicaid admissions.  Those that do typically are less than 75 beds in capacity and all private rooms, located within an affluent or fairly affluent community, are attached or part of a referral source such as a retirement community or a hospital system, have high star ratings and a good survey/compliance history, and have strong amenity features and equally strong customer reviews/experiences to market.  In such rare or atypical circumstances, the facility is able to control its Medicaid exposure to less than a third of its payer mix.

At greater than a third or so of its payer mix, the SNF is forced to undertake operational strategies and approaches anathema to resident interests and thus, business stability.  First, the SNF must minimize its fixed expenses if possible.  In organizations/facilities where rent payments and debt payments were high comparatively and no opportunity to reduce these payments available, the SNF was vulnerable to any vacancy and to any substantive changes in other payer sources.  This is the demise scenario for HCR ManorCare, Signature and Genesis. Too much of their revenue component was allocated to fixed rent/occupancy costs.

Second, with high Medicaid census, the SNF is forced to be vigilant on variable expenses, predominantly staffing hours and staff mix (professional licensed to unlicensed).  While expense vigilance is good in any business, SNF staff to resident ratios (gross) and by acuity adjusted, are corollary to good care results.  Too few staff, care suffers.  Too few licensed staff and care really suffers.  Today, the regulatory/compliance environment is keenly focused on staff numbers, compliments by license, and competency levels.  In fact, the Phase II implementation of the new(er) COPs for SNFs (new since fall 2016) require facilities to conduct an assessment of resident care needs and conditions and to assure that the same are matched with staff adequate in number and competence to provide care for identified needs and conditions.  Citations today, classified as jeopardy or actual harm, come with instant fines/forfeitures attached, starting at the date of the violation.  It does not take long for an Immediate Jeopardy citation to accumulate a fine of tens of thousands of dollars.

Third, higher Medicaid census requires revenue offsets via other payers such as private insurance, private pay (resident funds), and/or Medicare and Medicare replacement.  The Catch 22 is that the higher the Medicaid census, the greater the reliance the facility has on these other payers.  A facility thus, experiencing any kind of quality or reputation problems, will experience difficulty attracting these higher payers, in sufficient number, to offset the Medicaid “payment effect”.  Vacancies increase and feeling pressure that any occupant is better than none, Medicaid census slowly increases.  Depending on the fixed cost level for the facility, coverage of rent or debt may become problematic (Signature, Genesis, etc.) whereby the attainable EBITDAR is less than the rent or occupancy payment due (coverage below 1).

For the large majority of the industry, the Medicaid Conundrum is worsening as the overall revenue perspective/outlook tightens while operating costs are slowly but steadily increasing, due to:

  • Wage inflation.  An improving economy and employment outlook at the $15 an hour and under labor strata has place wage pressure on SNFs.  The lower to middle end of the SNF workforce is in high demand in many markets meaning that employers are competing for the same basic labor hours across multiple industries.  A typical SNF CNA may find today, equal or better wage opportunities at a Costco or Wal-Mart with “better” working conditions (no customer fannies to wipe, drool to manage, etc.), less physical demanding and more “fun” in terms of atmosphere.  Given the 24 hour/365 labor demands of a SNF, a $.50 increase in hourly compensation can quickly equate to     in a 100 occupied bed facility.  If the facility is in Missouri or Kansas, this increase in operating cost is juxtaposed with a Medicaid rate cut.
  • New Conditions of Participation for SNFs (federal regulations) are phasing in and the cost of compliance is increasing.  Regulatory requirements for facility assessments that drive staff hours and mix plus more emphasis on documentation, training, physician and pharmacy engagement, etc. are adding to operating cost.  Again, this is occurring while rates are flat or in some states, decreasing.

And, while operating costs are slowly increasing, revenue make-up/alternatives to Medicaid are eroding.

  • Other payment sources, particularly Medicare, are not increasing fast enough (if at all), to soak-up the expense increase or Medicaid rate reduction.  In the case of Medicare, an increasing number of SNF days are paid for by Medicare Advantage (replacement) plans.  These plans do not operate EXACTLY like fee-for-service Medicare in so much that they may pay less per diem (and do) and may manage utilization (length of stay) to minimize overall expenditure risk of the plan.  In some markets, the Medicare Advantage beneficiaries are equal to or greater in number for an SNF than the fee-for-service beneficiaries.
  • Shifting care and referral pattern trends have reduced the overall need for a utilization thereto, of SNF beds.  Simply, there is less overall demand for SNF beds than total supply.  Occupancy levels nationally have shrunk year over year for the past decade and additional shrinkage is forecasted until closures reduce supply closer to demand.  In certain areas, the supply may be as much as one-third greater than the demand/need.  Medicaid waiver programs that now pay for community based housing alternatives (Assisted Living and support services) have dented demand along with a shift in post-acute referral to outpatient and home health for non-complicated, orthopedic rehabilitation post surgery.

For the SNF industry, Medicaid has become an addiction no different from nicotine.  Facilities simply cannot survive without it yet it is ruining their health (operationally).  The alternatives to Medicaid are to close shop.  The facilities most reliant, cannot break the cycle as the steps necessary to rebase and retool an SNF revenue and quality model are expensive and long.  Genesis will not get there.  HCR ManorCare couldn’t and didn’t.  The damage of too high of fixed costs and too much reliance on government reimbursement, particularly Medicaid and then an increasing Medicare rate to offset the loss, was a Fools Paradox after all.

Ending this cyclical nightmare is going to require forces and changes to the current paradigm that are yet, on the drawing board.

  • Wholesale changes to the Medicaid funding process are required.  Either more money must flow into the system from the Federal side or the State side (less likely) or the product cost must reduce (see next point).
  • The biggest driver of product cost for an SNF is regulation.  Without wholesale regulatory reform, it is unlikely the system (Medicaid) can find enough funding to adequately compensate an SNF for the cost of care.  The net will be poorer care (calling for thus, more regulation) or more closures leaving service gaps for the most vulnerable older adults.
  • Increasing advances in different product/service options and designs that are cheaper alternatives to institutional care can and will, continue.  Again, speeding the implementation of alternatives requires incentive and regulatory reform but there is no question, certain home and community based options are cheaper than SNF options.
  • Closure of poor performing facilities and constriction on supply is needed.  The industry must shrink and government needs to take an active role to reduce the overall supply and particularly, the supply tied to poor performing facilities.  Fewer beds equal higher occupancy, more efficiencies and enhance funding options (easier to derive funding models tied to actual, organic demand vs. tied to bed capacity and “forecasts” based on flawed assumptions of days of care).

Until these steps are taken, the conundrum will remain entrenched and most facilities, will continue to wrestle with Medicaid addiction problems.  Cold turkey is not an option for nearly all and when no hope remains, facility demise will continue to be the final resort.  Watchers of my home state of Wisconsin will see the most tragic examples as the state has a thriving economy, low unemployment and the worst Medicaid system in the nation.  With paltry additions of funding like 2%, when costs are climbing by double, more closures are certain.

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March 30, 2018 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , | Leave a comment

Health Care Reform Implications: Home Health Care

I’m a tad behind where I hoped to be in terms of getting these posts out.  Its been a bit  busy over the last ten days or so but headed into the Holiday weekend, a break in the schedule affords me the opportunity to “maybe” get caught up.

Of all of the industry sectors touched by health care reform, the two most dramatically impacted from an operating perspective are DME and home care  (see my earlier post on Medical Devices and DME).  Over the last two years, home care or home health has become the target for payment reform, principally due to MedPac’s reports to Congress and CMS on the rising profitability of the industry, the year-over-year growth in agencies and utilization, and the percentage growth in Medicare spending.  Justifiable or not, the Feds never like to see any sector perform well or grow rapidly whenever Medicare and Medicaid are the dominant payer sources.  To this end, health care reform, those elements focused on home health, focused-in on realigning the trends of growing utilization, Medicare spending, and rising profitability.

  • Beginning in 2011, cap outliers at 2.5% and impose a 10% outlier cap on individual agencies.  The cap per agency is 10% of anticipated current year revenues.
  • Reduce the market basket by 1% for fiscal years 2011, 2012, and 2013.
  • Incorporate a productivity adjustment factor (offset) to the market basket beginning in 2015 (anticipated 1% average reduction).
  • Rebase the PPS starting in 2014, fully phased in by 2017.  Rebasing is meant to take into account the costs of treating more severely ill patients as found typically in efficient, high performing agencies.  In so doing, the Secretary of HHS is charged to look at case mix, the number of visits per episode, the resources used in each visit, the cost of providing care, etc.  The Secretary is also supposed to analyze the differences between agencies such as those that are free-standing, non-profit,  and institution based (hospital typically).  The Bill does provide that the Secretary cannot reduce or adjust (reduction is what is intended) reimbursement by more than 3.5% per year.  MedPac is supposed to monitor this process and issue reports reflecting changes in utilization, changes in the number of agencies, changes in access, etc. NOTE: MedPac is the principal advocate for these changes so anticipate rebasing to mean “cuts” and MedPac to issue only favorable reports on the implications/outcomes of rebasing.
  • Develop a voluntary system that seeks to create a bundled payment for certain post-acute episodes of care (yet unspecified).  Under this system starting in 2013 and continuing for five years, CMS will pay one fee to hospitals, SNFs, physicians and home health agencies (as applicable) per a post-acute discharge, covering the care provided for  a period of up to five days prior to hospital admission through the period ending thirty days post hospital discharge. Participation in the program is “voluntary” and the Secretary is charged with providing an analysis of the program’s impact and effectiveness in creating efficiency and improving care coordination to Congress by January 1, 2016.  At such time, the Secretary shall also determine whether an expansion of the pilot is warranted. NOTE: In this pilot, the goal is to reduce costs nothing more.  Hospitals and physicians are the only potential winners here and for home health agencies, the implications (negative) primarily impact fee-standing, non-hospital affiliated agencies.
  • The Secretary is required to conduct a study and submit a report for possible legislative and administrative action on home health agency costs for providing care to low-income individuals, particularly those in under-served areas with high levels of disease complexity and/or disability.  Medicare may conduct a pilot program worth $500 million to provide incentives to agencies in certain under-served areas, to expand services to care for these “targeted” individuals.
  • 3% add-on for rural visits/episodes occurring during the period beginning April 1, 2010 and ending prior to January 1, 2016.
  • Establish a center for Medicare/Medicaid Innovation in CMS that would provide some funding opportunities to agencies that implement chronic care management programs for targeted individuals.
  • Require face-to-face encounter by the physician (or applicable extender such as NP, advance-practice nurse clinician, physician assistant) within a reasonable time-frame as determined by the Secretary.
  • Physician must keep open records and documentation of Medicare home health referrals.
  • Require that physicians participate in care plan certification.
  • Require background screening and credentialing of provider, suppliers, owners and managers and require compliance plans.  Also gives CMS the authority to place a moratorium on the creation of new agencies.
  • Establishes spousal impoverishment protection for home care eligibility under Medicaid.
  • Removes barriers for access for additional home health care under Home and Community Based waiver programs.
  • Implements the Community First Choice program under Medicaid, expanding access to home care services.

One final note.  The Bill provides for the creation of an Independent Payment Advisory Board tasked with submitting legislative proposals further limiting program growth and spending under Medicare if the per capita growth in Medicare exceeds targeted spending levels.  Beginning in January of 2014, the Board’s proposals become law unless Congress has taken alternative action to curb program growth and spending.  The Board cannot raise taxes, raise Part B premiums, change eligibility standards or increase beneficiary cost-share levels – essentially limiting the Board to relying on spending reductions.  Hospitals and hospices are not subject to any Board proposals through 2019.

April 2, 2010 Posted by | Home Health, Policy and Politics - Federal | , , , , , , , , , , , | 5 Comments