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Obamacare/ACA: Where it is at, why and where next

A number of my regular readers and clients routinely ask for my thoughts/analysis on where the Reform Act/Affordable Care Act/Obamacare is at, particularly in-light of the recent one-year delay in the employer mandate.  Given the complexity of this subject and the scope of the overall law, a single post won’t cover the subject adequately.  In compiling my notes, research, etc., the logical approach is to address this subject in four posts;

  • The economic, social and political environment
  • The implications for providers
  • The implications for consumers/employers
  • The “best guess” of what happens next, post-the mandate delays, etc.

This first post, not to state the obvious, is focused on the economic, social and political environment that envelopes the legislation and is impacting its course.

Like the legislation or not or like or not its intent,  the ACA is a fascinating window into current social, economic and political realities.  It by its legislative intent, is a governmental attempt to address a number of social, political and economic factors within one large, overarching piece of law.

  • The rate of spending or expenditures relegated to healthcare in the U.S.
  • The cost of and access to, health insurance for a subset of individuals not covered or inadequately covered through traditional entitlement programs (current or former eligibility tests applicable) or traditional health plans (employer sponsored primarily).
  • The government’s role in assessing the adequacy and quality of provider programs.
  • Certain innovations deemed worthy of further exploration that in theory, will improve efficiency, care delivery and thus, quality as measured via outcomes.
  • The legislative mechanics to accomplish the above (authorizations, funding, delegation to various agencies, creation of other governmental entities for implementation and administration, etc.).

Structurally, the ACA is overlaid across existing governmental programs such as Medicare and Medicaid.  It does virtually nothing to change these programs, their benefits, their funding, etc. Arguably, the most the ACA does to these programs is fine-tune certain elements and add some subtle adjustments to payments and disclosure requirements for providers.  The most notable change within the ACA occurs within Medicaid as the ACA expands the definition (financial) of eligibility allowing people with greater financial means (up to 133% of the federal poverty limit effective in 2014) to participate in the program.

Politically, the need for the ACA was expressed (condensed) as an intervention to increase the number of people in the U.S. with health insurance coverage (reduce the number of uninsured) while simultaneously, “bending the cost curve” on Medicare and other entitlement programs (the rate of spending).  Both intents are laudable.  The latter may be somewhat attained but the cost curve bend, not and certainly, not as a result of the ACA.

The primary reason the ACA will have negligible impact or frankly, none at all in changing federal outlays for healthcare is that it doesn’t address, by legislative language or other, any specific funding and benefit elements of current entitlement programs, save to actually expand benefit eligibility (Medicaid).  It further ties the government to enhanced levels of funding in order to effectuate the expansion.  Additionally, the economic and social factors at play in the U.S. don’t coalesce around the legislation and in fact, are polar opposite to the legislation.

The driving elements of increasing expenditures, current and future, under Medicare and Medicaid are economic and social factors that can’t be adjusted by legislation.  Legislation or policy at its best can only respond to these factors via incentive and alignment but essentially, in the U.S., government fiat doesn’t work to adjust economic and social factors.  Our system of government and enterprise, even with greater regulation and oversight, can’t alter certain mercantile and social forces at play.  Principally;

  • An increasing percent of the population, even without changes to eligibility criteria, is eligible for federal entitlement benefits.  This is fundamentally the case for both programs – Medicare and Medicaid.  The aging population alone is the principal driver for increasing Medicare enrollment.  The economic shift in labor and payroll, an increasing driver for Medicaid eligibility.  These factors can’t be changed by policy unless the policy changes the eligibility in such a manner as to constrain growth.  The ACA did not do that.
  • The economy in the U.S. is in a period of adjustment and it has been now for the past twenty plus years.  This period is continuing and will for at least another twenty or thirty years.  The U.S. is no longer a production-based economy in the traditional sense; it is a consumptive, service based economy.  Economic activity is heavily influenced today by consumer behavior (consumptive) and as it has shifted toward an  employment locus in a service sector, the wage profile is different and lower than what was realized in the former production economy.  See the manufacturing industry as an example, particularly the assembly line style.  Today, the overall number of jobs are fewer, demand higher skills, and are slowly replaced by innovation and automation.  The fear is not overseas manufacturing usurping jobs but onshore technology advances eradicating jobs.  Manufacturing will remain a vital portion of the U.S. economy although not as relevant when viewed as a labor source in quantity.
  • Socially, we have come to expect government to be an arbiter in the distribution and production of health care and health benefits. We expect interventionist policy and the government to employ distributive justice for our care.  One only needs to look at the coverage breadth for government programs compared to private programs to see this evolution.  Gone are the days when private, employer sponsored plans can be considered “Cadillac” coverage compared to government entitlement programs.  Today, the inverse is true as employer plans have scaled options, imbedded greater increments of cost-share, and narrowed provider choices.  Oddly enough, the ACA is an evolved governmental effort to reach into the “private sector” and lay-over, a mandate for expanded coverage, benefits, and conditions – very similar to a government run, entitlement based infrastructure (e.g., no pre-existing condition limitations, no lifetime benefit caps, mandated coverage and benefit levels for group plans, etc.).  If government is, and I believe it is, a reflection or mirror if you will. of present-time, social expectations then one can readily conclude that the ACA exists because the dominant social trend current demands government intervention in health care.

Politics in the U.S. has evolved as well.  The political environment is about wins and losses in and across party divisions and sub-interest groups.  Broad consensus is rarely attainable on issues of substance.  The ACA evolved as a result of a point-in-time shift in central governance – a movement toward an ideological trend that government can and should be more involved in social imbalance.  The truth however is that the present wave of social imbalance, the slow decline of a “middle-class” isn’t fixable by government policy and redistribution.  This shift has occurred as a result of a changing world economy and in the opposite, government policy which hasn’t evolved.  In short, the change in social structure has arisen gradually, across multiple administrations and the trends have been present since the mid-70s.  Government can’t fix or legislate a re-balance.

In order to frame the life or death or evolution of the ACA going forward, the environmental factors of politics, economy and social expectations need dissection. For example, the political environment remains fractured so the likely remedy legislative is as we see today; subtle shifts around the edges, delays, and partial recalibration mostly coming via administrative rule-making and executive order rather than legislation.  While party balances in power may shift moderately, a ground-swell shift is unlikely – the electorate too disjointed and divided for this to occur.

Socially, the structures of society continue to shift.  People are more mobile.  Traditional jobs more scarce especially those with benefits.  Education is required but not necessarily in the form of traditional four-year degrees for many new and evolving jobs. The ability to earn a family supporting or for that matter self-supporting wage without special training or skills is eroding quickly, save for farming to a certain degree.  Wages will not inflate to any large degree for quite some time again, except in certain industries where scarce labor-skill is operative.  Child bearing occurs later and today, in rising numbers within single parent, non-intact couples. Saving rates remain low although personal debt levels have declined but this is likely temporary.  And finally, most individuals don’t view their income allocation toward health care as favorable and would prefer, a greater amount of their income be available for discretionary spending.  As long as this view, not supported economically, remains prevalent, the pressure on government to subsidize or create cheaper health care will remain high.

Economic trends and economies are changing and will continue to evolve for another decade plus.  This essentially means that labor-levels and employment levels are different and will remain different and thus, higher levels (historic) of unemployment, under-employment, income and non-participation will remain.  These factors cause governments to fund entitlements and support programs.  This will change over time as new sub-economies evolve and social structures adjust.  Expectations move and production shifts to balance a mixed demand for different services, goods, and commodities world-wide.  Today, the imbalance however is palpable as fossil fuel production has moved geographically, food production and distribution as well, and manufacturing re-structuring to a heavy industry third-world production and high-tech production and design residing in first-world countries  The U.S. economy will be different and thus so will be standards of living, valuations on real property, consumer behavior,, and credit and investing.  How this shapes the ACA going forward, I’ll delve into in the next series of posts.

August 17, 2013 Posted by | Policy and Politics - Federal, Uncategorized | , , , , , , , , | 2 Comments

United States v. Vitas: The Impact and What Next

On May 5, the U.S. Department of Justice released its most recent complaint (legal suit filed in Federal court) against Chemed, the corporate parent of Vitas.  The complaint is a False Claims Act suit.  Briefly for the uninitiated, a False Claims Act suit alleges that the Medicare provider knowingly (or unknowingly but once discovered, did not disclose) engaged in certain activity to cause payment to the provider for Medicare services that (not exhaustively listed);

  • Were not provided
  • Were provided but not necessary
  • Were provided improperly, through illegal or unethical means such as via a kick-back scheme, etc.
  • Were or are not substantiated by patient need
  • Were provided by a person or organization not in compliance with relevant Medicare Conditions of Participation
  • Were provided to patients that did not meet coverage criteria

The dominant False Claims Act suits relate to care not provided, care billed for at a particular level despite a related patient need (over-billing), or care provided by but not substantiated by assessment, documentation, or certification.  In the case against Chemed/Vitas, the Federal government is alleging that Vitas intentionally over-billed Medicare for higher reimbursement amounts by “up-coding” patient needs absent any real need and, admitted patients for care and billed for services where there was no definitional or certifiable need on the part of the patient.  In this case, each violation is alleged against Vitas as a hospice provider organization.

Through various cited examples to substantiate its case, the Federal government alleges three primary activities and/or schemes ( the support for the listed causes of action) that led to a series of False Claim Act violations, spanning from 2002 to current.

  • Coding a patient as requiring Continuous or Crisis Care where no such need existed.  Continuous Care or Crisis Care is the highest reimbursed care level within the Medicare Hospice Benefit; today, averaging just short of $1,000 per day. Because of the definition standards and requirements for a hospice to provide and therein bill for Continuous Care, the utilization across the industry averages less than 2% of all days of care. (Vitas averaged nearly 20% of its days in this category.) The requirement for a hospice is a patient’s current symptomatic needs are so complex and unstable that the hospice provide at minimum, 8 hours of licensed nursing care to the patient within a 24 hour period.  Typically, this care is rendered by RNs and somewhat less often, LPNs or LVNs.  Its rarity stems from two components.  First, the true need of a patient in crisis with an end-stage disease for 8 or more hours of licensed nursing care.  Second, the reality of hospice staff levels and the availability of dedicated, licensed nursing coverage for a single patient.  Medicare Conditions of Participation do not allow nursing services via agency contract.  All nursing, except for very episodic and highly unusual instances, must be provided by the hospice employees exclusively.
  • Enrolling patients and thus accepting the Medicare hospice per diem (presently averaging around $160 per day) that did not meet the hospice certification criteria of ‘likely terminal, sans curative interventions, within 6 months or less’.  Citing numerous examples, the complaint details a pervasive practice of increasing revenues and thus, patient volume via enrolling patients and fraudulently certifying the same as terminal, when the patient was not under any common review, proximal to death.
  • Employing aggressive marketing campaigns and incentivizing employees and agents, to knowingly misrepresent patient conditions and/or falsely enroll and then subsequently, code as appropriate for hospice including, at higher reimbursement levels such as Continuous or Crisis Care levels.

Reading the complaint, I was struck with a number of thoughts.  First, the magnitude of the complaint is huge.  It encapsulates the entirety of Chemed’s hospice holdings, collectively Vitas.  The majority of False Claims Act complaints are against a single provider or geographically and agency limited.  Additionally, the time period referenced encompasses over a decade of claims.  As I have followed False Claims Act cases in health care for years and paid close attention to the hospice activity, a reasonable estimate of the dollar amount (Vitas)involved is hundreds of millions of actual claims that are exposed to treble damages before the imposition of Civil Monetary Penalties.  There is also the shadow of criminal prosecution for certain Vitas actors and management looming. Finally, this complaint is in the midst of other complaints against Vitas, open or soon to be open.  A significant False Claims Act case is open against them in Texas and a newly opened complaint with a physician whistleblower in Los Angeles just broke and is today, wrapped in the broader complaint.  Shareholder suits, although relatively meaningless are popping (meaningless in damages, still damaging in costs to defend). As is always the circumstance in matters such as this, the complaint will have tentacles and I suspect there are many.

In an earlier post, I wrote how the parallel is striking between Vitas’ current problems and the investigations that crippled and continue to cripple Amedysis.  Amedysis was the “big dog” in the home health industry until it became the target of Department of Justice investigations and Senate inquiries.  Once trading at nearly $60 per share, Amedysis trades today around $10.  Their earnings estimates continue to shallow and at 10x projected earnings, their share price today should be around $5.  Once a billion dollar plus company, Amedysis today has shrunk by more than half.  They continue to close agencies and scramble to maintain market share.  Major network contracts have cut their exposure to Amedysis and thus, payments.  Their aggressive Medicare business is a fraction of what it once was and they remain today, under investigation.  The last likely play is to go private via a private-equity sale and simultaneously restructure, outside of the publicly traded arena.

Reading various investment analyst reports and Vitas’ disclosures, the “take away” on the part of Wall Street is more wait and see with some folks marking this up to “cost of doing business” and others trying to grasp the magnitude.  As I consult for a number of firms that invest in the health care industry, I understand the difficulties in wrapping one’s head around the complaints and the possible fall-out for Chemed/Vitas.  Because of my working knowledge of the health care industry, depth of experience with the regulatory process, etc., my view is more solid (not necessarily right perhaps) today than that of most investment firms. My view comes from thirty years of research, operational, and consulting work in the industry.

From my vantage point, Vitas is about to begin a slow and profound slide into an abyss that they will not recover from.  The complaints current and yet forthcoming, paint an overall picture of a business model that is grossly non-compliant and steeped in fraud at the core.  Retooling this model, just as occurred with Amedysis, will shrink revenue, market share, and company value expressed via price per share.  Unlike Amedysis, Vitas exists in the “hospice space” only.  They have no other revenue source or model.  Amedysis had and continues to have, some ability to ply the entirety of the home health industry and to a much lesser scale, the hospice industry. Their revenue model is sufficiently broader, though flawed in its reliance on exploiting Medicare and the therapy components thereto. Vitas exists in an industry where Medicare is the primary payer and the overall market for hospice by definition, is very narrow.  A significant “clip” to their volume and revenue streams resulting from having to adjust in response to current and future investigations will begin the shrinking process and as more is disclosed, the process accelerates.

True enough that the ultimate settlement may not be fully crippling even though the scope could be hundreds of millions of dollars.  The real damages lie in the go-forward world of continued compliance monitoring and being subject to a lengthy period of oversight by the Feds.  Again, I offer Amedysis as a reference.  The complaints won’t resolve timely and thus, the slow dance of revision begins.  Moreover, everything now public suggests a clear tone from the Department of Justice and CMS of a focused intent to shrink the prevalence of large, for-profit hospices and curtail dramatically, the incentive to suspiciously enroll non-terminal patients.  Their words in various locations, tell me straight-forward that the industry has a fraud pandemic and the day of reckoning has arrived.  Vitas, just as Amedysis on the home health side, is the poster-child face of the “bad actors” per the Feds.  Vitas is the example and the governmental intent is clear: get them compliant at any cost including the death of the company.  The Washington view is that ample providers exist to care for the organic demand (my view as well) and the loss of Vitas will have no negative impact on access (again, my view as well).

What next?  The implosion of Vitas begins and the hospice industry will bear some of the fall-out.  The Feds are ramping-up investigations and reviews across the industry and for the providers who think vulnerability doesn’t exist, I offer words of extreme caution. Mandated by the ACA, the Secretary of HHS must promulgate new payment methodology for the industry after October 1, 2013 and before September 30, 2014.  The cases against Vitas and others that have committed similar violations will form the backdrop for payment restructuring and associated rule-making.  As has happened across the health care industry, payment reform and restructured rules associated with the same, emanate from sector dynamics current.  My guess is that the next round of payment reform for the hospice industry will organically change provider business models and not toward greater profitability.

Note: Readers with subject level interest in hospice and/or separately, the topic of fraud and compliance in healthcare will find a number of prior posts on these topics, on this site.

May 15, 2013 Posted by | Hospice, Policy and Politics - Federal | , , , , , , , , | 7 Comments

2013 Medicare, Fiscal Cliff, Policy Outlook and More

Happy New Year!  Now that I’m back in the saddle, so to speak, and semi-organized after a holiday break and vacation the time has come to take a look at where health care is  and what is setting the stage for 2013 (at least near term).

Getting started, Washington remains unbelievably mired in dysfunction.  So much for any hope of improved governance post elections.  In some ways, lines that were already  drawn ideologically have turned toward sharper divisions.  As this Congress is apt to do, and nothing will fundamentally change with the new Congress, it once again kicked the US economic and substantive health care policy issues down the road, leaving much yet “in the wind”.  The Fiscal Cliff resolution is nothing more than a temporary band-aid for health care as significant issues remain regarding sequestration cuts and Medicare funding, not to mention the outlook for the continued phase-in of the PPACA. Suffice to say, from a health policy perspective, the Fiscal Cliff tax implications were the least important.

Taking a look at where we sit today, five observations from my end are;

  • The “big” fight with regard to health policy is upcoming.  The Fiscal Cliff “patch” only resolved the tiny issues and once again, temporarily.  True, the doc fix/Part B payment issues are once again off the table for another year but if we look closer, there are some caveats worth noting.  First, to partially fund the “fix”, the MPPR (Multiple Procedure Payment Reduction) jumped from 20% and 25% to 50%.  This reduction applies to multiple procedures or therapy services provided to the same patient, in the same day even if the procedures were provided via two different disciplines or at two different visit times (applicable to 44 CPT codes identified as “always therapy”).  By reasonable estimates, this change results in a 6% reduction in aggregate payments, depending on a provider’s case-mix (could be slightly higher or lower).  One tiny ray of good news is that the practice expense inflation provided tor 2013 is 4%, cushioning the total reduction modestly.  For therapy providers, the MMR process remains in effect and the caps remain at $3,800 ($1.900 Speech and PT combined, and $1,900 for OT). Sadly, the big issue related to the SGR (Sustainable Growth Rate) formula that drives this mess annually remains.  The Fiscal Cliff patch did nothing to change the underlying dynamic, merely shifting it to December 2013.  Anyone believe we won’t revisit all this same drama and nonsense next Christmas?
  • The debt ceiling debate will get us hip-deep in Medicare and entitlement spending.  For providers, this issue looms “huge” as the Fiscal Cliff patch did not repair any cuts related to sequestration.  In other words, while the patch pushed sequestration cuts aside for two months, the cuts are still part of current law, unchanged.  Without resolution, a 2% Medicare cut will occur on March 1.  Looking a bit below the surface, sequestration cuts may be the lesser of all evils when the debate gets going.  Recall, providers remain subject to series after series of Medicare outlay reductions, rate rebasing, and productivity offsets driven by the passage of the PPACA.  Another 2% is like icing on the cake to certain politicos supportive of the PPACA as the Medicare savior.  Here’s the crux of this whole mess: Sequestration is a give-away in the debate or if you will, a bargaining chip that either side will use to tout deficit reduction or trade in a Washington bait-and-switch play against say, defense spending or education spending. Many believe, including those that make-up Medpac, that providers are adequately paid if not over-paid (SNFs). Congress, especially this group, is prone to ignoring the “law of unintended consequences” and I am concerned that funny math will dominate the discussions and any resolution thus, burdening providers with less straight forward cuts and more baked-in language such as increased fees, taxes, on provider related supplies and infrastructure, coupled with direction to the Secretary to revamp payment formulas and re-base rates using some convoluted formula such as the SGR (by reference only).  Additionally, I am concerned that Medicaid support may be targeted as well, driven by a compromise between warring parties, incorporating a phased-in “global” grant system.  Again, I am not theoretically opposed to a block or global grant methodology but only if the entirety of Medicaid is reformed to give states flexibility enough to work within a system such as this.  Right now, states are shouldering huge burdens under Medicaid due to expanded eligibility ranks, dour regional and local economies, and new regulations under the PPACA and Medicaid expansion.  Stay tuned here as this is about to get really, really funky.
  • Cost creep is becoming very, very visible for providers.  While reimbursement outlooks are down, costs are rising.  Food cost outlooks for 2013 suggest increases of 3% to 4%.  For SNFs and to a lesser extent but still palpable, hospitals, this amount is important and impactful.  Reimbursements aren’t rising at any rate close to this.  Courtesy of the PPACA, health insurance costs are going up.  Providers have no ability to off load this cost and for health care providers, labor and benefits are typically their largest expenditure.  The Medical Device tax flows through to all providers, not just DME providers.  Basically, as the economy remains stagnant but the costs of doing business rise, regardless of the business, the flow-through effect cuts at providers.  In running a series of economic models using current reimbursement levels, 2014 (October 1) reimbursement outlooks, current tax law and PPACA implications plus producer and consumer price data forecasts, institutional providers such as hospitals and nursing homes can expect a margin erosion of on average, .5% due to increasing costs, current law, current economic activity, and current payment levels plus trend.  Some providers may see greater erosion depending on location and payer mix/case mix.  When I isolate SNFs specifically, the outlook is more dire given the higher levels of Medicaid payer mix combined with Medicare rate cuts already in-place and known forthcoming.  For a typical SNF, margin erosion can easily fall between .5% and 1%, maybe modestly higher.
  • An age-old paradigm in business and in health care particularly is that reimbursement should be somewhat tied to regulation such that the relationship is as follows: Pay less, reduce regulation and of course, regulate more pay more to compensate for increased costs.  Last year and this year and for the foreseeable future, health care is in the Perfect Storm.  Courtesy of the PPACA and a stalled Congress, regulation is fast furious.  When Congress can’t act, agencies tend to govern via order and administrative fiat, lacking legislative leadership.  In short, a do-nothing legislative branch doesn’t mean inactive government and as of late, it means just the opposite.  Broad legislation such as the PPACA is made-up in detail, as we go by regulation.  Law makers inactive don’t provide any check or balance and thus, regulation comes forth and the courts become the arbiter of fair/unfair, etc.  2013 will visit us with oodles of new regulations some known and many yet still entombed in DHS, FDA, CMS, etc. offices. On my watch list is Federal rules for exchanges and the Federal Exchange details, prescription drug benefits under the exchange plans, new rules requiring pharmaceutical companies and medical device companies to disclose payments made to physicians, new payment levels for disproportionate share and safety net hospitals, and the overpayment and false claims act rules requiring self-disclosure and repayment made within 60 days of discovery (whatever this might mean).
  • My biggest, global focal area for 2013 is the economy – so many implications for providers and the industry in total.  Recovery is slower than slow and sporadic at best.  GDP growth is mired at 2% or less meaning stagnant.  Unemployment is stuck at around 8% or higher if one views total unemployment and underemployment.  Taxes are going up and in some cases, appropriately so but no doubt, the bite to paychecks will be visible and in some cases, painful as wage inflation is virtually non-existent.  Health care costs in terms of insurance are rising, further taking a bite from employers and employees.  States are facing unusually high levels of Medicaid, the loss last year of enhanced FMAP and Medicaid expansion; all within a slow economy.  State coffers are empty yet their populus needs expanding.  Capital is cheap but few can afford it or access it.  Yes, housing is rebounding slowly but it had nowhere else to go.  We are years away for cleaning out the surplus properties and distressed properties, especially on the commercial end.  And, last but not least, we have a government that today is wholly gridlocked and a burgeoning deficit (current and aggregated) fueled principally by entitlement spending and programs.  No rational plans are on the table and nowhere in-sight is fortitude or wisdom, let alone leadership, to address the fact that true entitlement reform, not the PPACA type, is warranted and necessary to adjust the economic outlook.  I hate to think that we will continue to teeter on the economic precipice of recession for another series of years but as of today, I don’t see any other outlook.

More upcoming on a series of industry specific outlooks and trends….

January 11, 2013 Posted by | Policy and Politics - Federal | , , , , , , , | 1 Comment

Healthcare Polar Express

With the Holidays fast approaching and me, heading into a break and a brief vacation, the time is right to recap the current health policy landscape.  As the title states, now it seems as if the industry is riding on the Healthcare Polar Express; head first into the dark, cold, snowy north.

  • Fiscal Cliff: Wow, what a mess.  The House has adjourned for the Christmas holiday, leaving the Senate to try to fashion a compromise bill.  The key players, namely Speaker Boehner and President Obama are at impasse.  As I write, the market has dropped by 120 points.  Aside from the tax issues unresolved, the bigger implications of “no deal” are the pending Medicare Part B cuts of 26% (physician payments, outpatient payments tied to the Sustainable Growth Rate formula), sequestration cuts for Medicare of 2%, and a series of PPACA related provisions that raise Medicare premiums and apply new provider taxes on insurance companies/insurance plans.  While it is possible that a temporary deal gets one, buying once again a brief reprieve, the tone of settlement of the big issues is alarming.  What’s worse is the imbedded economic impact of “no deal” or a “marginalized” deal.  Recall, Medicare and Medicaid funding is primarily tied to taxes; payroll and income. I am most alarmed at the implication for Medicaid as any further erosion in economic recovery will put states in a real fiscal vice.  Nationalized signs of recovery are just that, nationalized.  Important for state budgets and Medicaid is an expansion of GDP growth fertile enough to expand into local, regional and state economies.  Right now, a meager 2% GDP growth is akin to treading water for most states.  Slower growth or a recession is disastrous as Medicaid ranks are already swollen with chronically unemployed and underemployed individuals.
  • Medicare and SNFs: On the heels of last year’s outlay reduction and rate cuts (10%), sequestration cuts set to occur without a Fiscal Cliff compromise add an additional 2% reduction. Making matters worse are two recently released reports from Medpac and the GAO respectively. In November, the GAO reported that 23% of all Medicare SNF claims are fraudulent (upcoding, care billed for and not provided, etc.).  Important to note, the GAO review focused on claims from 2009, prior to changes imputed under RUGs IV.  Arguably, the current environment is still somewhat ripe with fraudulent claims but my guess is that the GAO is mixing “apples with oranges” in some of its conclusions.  The simple fact is that the RUGs III environment and rules gave providers very wide berth via the use of look back provisions, the methodology for minute counting (group minutes divided in whole treatments versus fractional), etc. Earlier in the month, Medpac recommended elimination of the 2013 market basket for SNFs accompanied by a plan to rebase rates for 2014 imbedding an initial 4% payment reduction. Medpac’s conclusion is derived somewhat from data drawn from the GAO but moreover, from reviews of cost reports, etc. that continue to imply fairly substantial Medicare margins for SNFs.  Medpac’s reasoning for rebasing is to bring payments more in-line with provider costs (down).  The difficulty in making sense of this argument for the industry is that the industry still survives by cost and revenue shifting as the dominant payer source for the vast majority of SNFs is Medicaid; historically a payer that creates a negative margin.  Regardless of the track Congress takes, the overall implication is a future with downward rate trend.  The industry faces difficult haggling positions given the GAO’s report – tough to argue that rates should remain high when there is a 20 plus percent fraud over-hang.
  • Lame Duck Watch: If the Fiscal Cliff issues aren’t enough to feel like “coal in the stocking”, consider that this is also Lame Duck time in the House and the Senate.  Lame Duck watch means simply this: Don’t ignore the series of bills and riders to spending continuation legislation proffered by Lame Duck Senators and Congressmen.  A classic case is a bill supported by Lame Duck Senator Kohl known as the Painkiller Bill.  Kohl first introduced this bill in 2011 and it went nowhere.  Its back.  The bill on the surface seems reasonable, offering an easier methodology for physicians to provide oral orders for opiates and other pain killers for SNF residents.  The objective is to provide more rapid response to patients with chronic and break-through pain. Alas, as is customary with legislative manipulation of this sort, the bill is loaded with potholes that would dramatically increase record-keeping requirements for pain medication administration and impart fines (significant) and penalties including prison time for compliance failure or diversion.  Simply put, this should be a non-starter.  The issue isn’t to create a different path but to establish a different systemic methodology that would allow the use and encourage with grant funding, automated dispensing.  Hospitals have used this system for years but as of today, CMS still requires “unit dose” per resident for SNF patients.  With automated dispensing, the delay in care issues are significantly controlled as is the likelihood of diversion as the systems have multiple fail-safes for access and distribution of controlled substances such as opiates.
  • Hospital Quality Payment Program: On Thursday, CMS released a schedule of bonuses and penalties for 3,000 hospitals tied to quality of care provided by standard as well as patient experience.  The nearly $1 billion in payment revisions will begin in January. The approach or program is known as Value Based Purchasing, incorporating 12 measures of timely and effective clinical care. Examples include the percentage of heart attack patients given anti-coagulants within 30 minutes of arrival at the hospital, the percent of pneumonia patients cultured before started on anti-biotic therapy, and the percent of surgical patients that received an antibiotic within an hour of surgery.  In addition, 8 surveyed measures on quality of service were incorporated.  Examples include how well doctors communicated with patients, how well nurses communicated with patients and how responsive hospital staff was to patient needs.  Any reader interested in knowing all 12 clinical measures and the 8 quality of service measures, drop me an e-mail (contact on the Author page) or comment to this post. I also have information on possible upcoming additions to the program as well as a series of charts and accompanying data on hospital performance.  Nationally, 52% of hospitals will receive positive adjustments and 48% negative or payment reductions.  The best performing state in terms of percentage of hospitals receiving a bonus is Maine (79%) with an average adjustment of .23%.  The worst performing state, if you can call it that, was Washington D.C. with 0 or no hospitals receiving a bonus.

To all my readers, Happy Holidays and best wishes for a prosperous, healthy and safe New Year!

December 21, 2012 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , , , | Leave a comment

Healthcare and the Fiscal Cliff

The Fiscal Cliff stories are everywhere and as a result, lots of misinformation, conjecture, and supposition of deals, no deals and what happens next abound within the media.  The economist in me can’t help but opine on the economics at stake but for this purpose, I’ll take only a slice of the overall issues; a healthcare slice.

Suffice to say, the issues on the table are polarizing and complex as the intricacies of policies current, past and yet in transit are all actors in a grand ideological play.  If for example, I chose to take each possible issue that is part and parcel to the Fiscal Cliff discussions singularly, elaborating on what the issue is, why it is part of the discussions, and the pros and cons of addressing the same temporarily or permanently, I would pen the equivalent of War and Peace.  The healthcare elements are complex enough and below, I’ve done my best to summarize and focus.

  • Obama Care/PPACA: This is the grandaddy of conundrums at the table, ideologically and practically.  The ideological issues are clear while the economic implications are muddy and tied to issues within the Fiscal Cliff discussions.  Taking this issue in two big chunks for sanity and brevity, the discussions tilt on separate axis’: Deficits and Taxes.  Sequestration which is part of the Fiscal Cliff discussion (cuts in federal spending), impact Medicare and are a direct result of rising federal deficits and the debt ceiling (yes, its back) debate.  The primary driver of current deficit levels is entitlement spending.  Within and inextricably linked to the Fiscal Cliff discussion is renewed discussion regarding entitlement spending, the debt ceiling, etc. and thus, costs associated with the PPACA.  As Congress controls funding for federal programs, an unavoidable discussion regarding Medicare and Medicaid spending is embedded within the Fiscal Cliff/debt ceiling discussion and thus, core elements of the PPACA are on the table (metaphorically).  The second chunk of PPACA impact is its phase-in of new taxes.  Here’s where things get horribly complicated. First, the PPACA imputes an additional Medicare tax on individuals that earn over $200,000 and families that earn over $250,000 (.9%).  This tax applies only to “people” not employers.  In addition, the PPACA imputes a 3.9% tax on investment income for individuals and families.  Investment income is defined as dividends, capital gains, rents, royalties, etc.  This tax applies to any individual with a Modified Adjusted Gross Income of $200,000 or families at $250,000. The Fiscal Cliff twist or dilemma?  If no compromise on current tax rates is attainable and the rates rise to pre-Bush levels, a person earning over $200,000 per year could pay capital gains tax (including the PPACA portion) of 23.8% (currently 15%) and a dividend tax of 43.4% (currently taxed at individual tax rates or approximately, 35%).  This implication alone has many economists fearful of signficant market reactions and potential pullback from investors enough to create a recession.
  • Medicare Cuts: This element of Fiscal Cliff discussions contains known and unknown elements.  The known elements involve Sequestration cuts if unresolved, equal to approximately a 2% Medicare cut in provider payments and the evaporation of the present “doc fix” funding, netting in January to a 27% cut in physician and other Part B provider payments. Without resolution, both occur automatically.  The unknown elements center around the debt ceiling and the structural deficits current and projected in entitlements, principally Medicare and Medicaid. In a recent Fitch outlook, Fitch indicated that while the healthcare industry outlook at present is stable, deficit reductions, increased taxes, etc. could drastically change industry fortunes to negative and quickly.  Fitch notes that margins today are small and capital levels reasonably adequate but fortunes can change quickly with margin erosion via cuts and unmeasured structural changes to Medicare and Medicaid funding.  Given that numerous provisions across healthcare arising from the PPACA are presently in-play (hospital readmission penalties and medical device taxes for example), the industry is already under a certain amount of constraint.
  • Healthcare and the Economy: Healthcare today is a $3 trillion economy, larger in scope than the entire Canadian economy (GDP) of $1.74 trillion. In fact, only three other nations in the world have a larger total economy than the U.S. healthcare economy (Germany, Japan and China). The Fiscal Cliff implications for healthcare also hold enormous economic implications for the U.S.  Simply, if the U.S. economy moves closer to a total stall or recession, the impact on healthcare is enormous.  The two largest entitlement programs are tax funded and a reduction in tax revenues via additional economic slow-down, further employment rescission, etc. places not only additional deficits into Medicare and Medicaid but additionally, removes paying patients from the system.  More deficits in Medicare and Medicaid place greater burden on policy makers to cut spending.  Economic weakness moves patients away from seeking care and ultimately, shifts the health risk profile of the population.  This shift is insidious and fraught with long-term implication as it is typified by undiagnosed and ill-treated chronic diseases – already a major problem in the U.S. Any further long-term erosion of population health status due to persistent underemployment, unemployment, etc. pushes the unresolved care burden incrementally higher (more expensive).  The net result is a sicker population overall, one that becomes ridden with chronic illness, disability, etc.  Further, additional burdens for providers arise in the form of patients seeking too much urgent and emergent care; expensive and often, under or not reimbursed adequately, if at all.  Given that the economy remains in an overall fragile state of recovery and the last series of years have been straining on providers, any inability on the part of Washington to resolve the Cliff issues with certainty and equanimity bodes poorly for providers and patients alike.

November 30, 2012 Posted by | Policy and Politics - Federal, Uncategorized | , , , , , , , , | 3 Comments

Health Policy News: Too Good to be Quieted by Election Coverage

With all of the election news blaring (thank goodness the end is soon here), some important health policy issues have been somewhat lost in the milieu.  Below is a quick summary of what has caught my attention as of late (a heads-up for readers).

Medicare/SNF Class Action Settlement: This is profound on a number of levels though I have seen very little analysis on the decision.  A nationwide “group” of Medicare beneficiaries and their families, all suffering (some passed) from one or more chronic illnesses, sued the Federal government on a class-action basis alleging denial of Medicare coverage based on the “improvement” criteria imposed by Medicare intermediaries.  The gist of the case is as such.  In each instance, a SNF resident was admitted meeting the qualifying criteria (three day prior hospital stay, requiring skilled services).  In each instance, Medicare benefits were subsequently denied to these residents, even though the skilled service requirement remained, as the resident’s condition stabilized or failed to show improvement.  The suit further alleged that in certain cases, care levels diminished or skilled services reduced or ended as the individuals involved, were not able to pay for additional care privately.  Briefly, without the presumption of Medicare coverage, the presumption of continuation of skilled services like therapies evaporates, requiring the resident to then pay privately for continuation of service.

The settlement arose when Medicare officials agreed to re-write the claim adjudication manuals to make “clear” that Medicare coverage is only conditioned upon Medicare eligibility, a three day prior inpatient qualifying stay (hospital) and the requirement and delivery of, daily skilled services (as presently defined).  Denial of continued coverage should only occur when the skilled service is no longer required based on the resident’s care needs, not based on improvement or lack thereof.  Nowhere in existing Medicare regulations is there a requirement for “improvement” yet the standard has been universally applied by Fiscal Intermediaries (Medicare claims adjudication contractors).

The case, coming out of Vermont, is expected to be published soon and the class encompassing more than 10,000 beneficiaries nationwide.  The implication is that this group, as well as other beneficiaries, can appeal coverage decisions (where coverage was discontinued) for claims prior to January of 2011 (when the suit was filed).  Note: This will limit claim review exposure unless the decision provides greater detail due to Medicare’s 18 month limit for re-filing claims (18 months from denial or service discontinuation if denial is implied).  Additionally, many residents in the class will no doubt be dead with closed estates, thereby limiting a reconsideration of coverage claim.

What I don’t know yet is how this decision will impact claims going forward.  I am awaiting details on the following questions/concerns.

  • Appeal information as applicable from intermediaries.
  • Coverage guidance to providers to continue to bill Medicare as long as a skilled service is still required.
  • Any RUG guidance and assessment guidance for interpretation of therapy services in particular.  Ordinarily, some assumption of continued therapy hinges on documentation of improvement of some type and guidance is necessary to document minutes for other reasons (prevention of decline, safety, etc.).
  • When intermediaries will be instructed by Medicare on the “revised” interpretation of coverage.

Medpac Recommends Cut to Part B Therapy Caps: In their November 1 report to Congress, Medpac recommends a 33% reduction to the current Part B Outpatient therapy cap; presently $1,880 reduced to $1,270.  Additionally, Medpac is recommending that the Manual Medical Review process expand to all “therapy” services including those provided in hospital outpatient departments, whenever a cap is exceeded.  Currently, the process kicks-in at $3,700.  Set to expire at year-end is the exception process with hard-caps going into place in January of 2013, unless Congress acts to extend the cap limits and the exception process.  Medpac’s report is the first shot at creating a recommended action for Congress prior to the January date.  Medpac further recommended, in conjunction with their continuation of the manual review process, a streamlined review approach.  Core to this recommendation is a ten-day turnaround and the use of two MAC contractors nationwide for consistency and focus.  Anyone who wishes to view the report, e-mail me at hislop3@msn.com or leave a comment on this post with your contact e-mail and I will forward it to you.

Medicare Sued for Inappropriate Setting Determination Denials: This one fascinates me particularly as it is the first suit I am aware of implicating Medicare’s RAC contractors and post-care denials.  In this case, the American Hospital Association, joined by four other healthcare providers sued HHS and CMS for allowing RAC contractors to retrospectively, deny outpatient claims filed under Part B determining that the care should have been rendered inpatient and the claim submitted via Part A.  The suit alleges illegality in denial of payments when cases are retrospectively reviewed.  What is interesting is that “inappropriate location” of care is an odd justification for denial, especially when the setting is less costly to Medicare.  While it has always been illegal to improperly bill Medicare, including under-billing, rarely have I seen (in fact never) claims denied retrospectively as inappropriate, simply based on the use of a lower cost or alternative setting.  Typically, a claim properly billed has never been reversed or denied based on location and certainly not a judgment call such as this appears – seemed more appropriate inpatient.  No allegation or substantiation is provided as to whether the care rendered was inadequate, merely wrongly located.  Why this case bears watching is that the RAC issues are brewing in terms of the programs costs, its inter-relationships and lack of impartiality, and the incentivized methodology that exists to “recover” overpayments.  Denials of this nature and the appeals are incredibly expensive for providers and clearly, the suit incorporates by description, the cost vs. benefit insanity of having to appeal denials of this nature.

November 5, 2012 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , | 1 Comment

Fables, Tales and Job Reports

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

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

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

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

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

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

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

One Week

One week from today is the national election for president, every seat in the House of Representatives, and one-third of the Senate.  Additionally, there are numerous gubernatorial elections and local or state-wide races at issue.  No other nation on the face of the earth affords, nay protects, the rights of all of its citizens to partake directly in government.

The U.S. is unique in that its government is a representative form of democracy.  We directly elect those we wish to represent us at every level of government; local, state and national.  The power, used correctly, is that each voter contributes directly to current and future outcomes of the governing process.  The power used incorrectly, or in my view abused, occurs when we get government by abdication.  Power can be used correctly to instill direction and movement.  It can be misused, creating havoc, uncertainty and upheaval (Syria, Egypt, and Libya come to mind as recent examples).  Power can also be fallowed; left unused and thus on-the-shelf, inappropriately placed perhaps waiting for some future opportunity.  In our form of electoral process, power is given and protected often at great human cost, with the intent of use, not misuse and not left unused.

In 2008, the national election was prized as a great example of engagement and voter turnout – just a shade over 60%.  In terms of turnout of the voting age population, the number was just under 57%.  By any statistical measure, more than one-third of eligible voters abdicated their individual power and decided that the other less than two-thirds would decide their course for the next four years.  While I have no statistics in terms of how many voters merely failed to vote for a national race yet participated locally, I suspect the real results are inverted – they voted nationally and failed to cast a local or state-wide vote.

Projections for this cycle suggest a lower turnout than in 2008.  How sad.  Even sadder is the certain lament I will hear from folks about the outcome, the course of the country and the assorted woes and struggles that are apparent for most who choose to abdicate their power.  The disconnect between how “things” work and who influences direction is a crevice that demands attention.

Like the candidates or not, next Tuesday is a monumental day in the U.S.  To anyone paying attention, the choices on our ballot are clear.  As I have said before, I am not partisan moreover, opinionated for reasons I articulate in my writing.  Frankly, I could care less how people vote, just so they do.  Government by abdication scares me in what is left of this free (or mostly) society.  I fear slippage will continue if we can’t marshal our collective rights, utilize them, and express our personal and where applicable, collective opinions.

As I wrote previously, elections have consequences.  Those who vote typically understand the consequences far better than those who don’t vote.  Today, the potholes and sink holes are fairly evident yet what we fail to grasp is the depth.  Like all elections, this one is consequential but for reasons perhaps to economically wonky and policy wonky for many to grasp.  I just hope that the sense of either right-course or wrong-course is palpable enough today to muster a stronger turnout than predicted.

For me, the direction is clear.  I am at heart, an economist and a policy guy.  I love the detail and spend much of my days working with folks on the guts and outcomes of health and economic policy.  I think I see the big picture and gravitate to the broad solutions rather than the micro.  I am after all, someone who has built businesses and had success by finding solutions and compromises across broad issues and strategies.  I think of things as issues where convenience breeds unintended consequences and follow most acutely, the wise words of my father: ‘Tell people the truth, even if you know it’s not what they want to hear, tell it to them just the same”.

I know election hype is less about truth in the media or the debates as people seek style rather than substance and the forums provide little opportunity for substance.  Yet substance is available for those who seek it.  Records are public, depicting action and inaction.  Most outcomes are known or knowable for those who want to ponder and probe just a tad deeper than the conventional news cycle.  Character is fairly displayed.  We can frankly, make clear decisions with sound logic on the policies and ideas that matter and if brave enough, tune out the conventional opinions, polls, political caricatures and robo calls.  We have the power and while it is cliché, a comic book hallmark stated it best: “With great power comes great responsibility”.

October 30, 2012 Posted by | Policy and Politics - Federal | , , , , , | 1 Comment

Elections Have Consequences

Heading into round 2 of a three round debate format (tonight), I think its time to put a few core concepts on paper (or e-media in this case) for folks to remember about this political season.  My role or task here is not to be partisan (your decision suffices on this front) but to be focused on the “heart” of the subject, not the rhetoric that permeates the debates and the political reports.  In short, rather than slicing and dicing on things that ultimately matter very little, let’s look quickly at why elections have consequences.

  • In the system of government tried and true in the U.S., the presidential election is relatively unimportant in the daily life consequences of citizens.  Promises about tax cuts, passage of certain legislation, removing certain regulations or adding new ones is pure rhetoric.  Our system does not afford the President such powers.  He/she is not a king or even a legislator as powerful as the Speaker of the House.  The election with more consequence is the one where seats in the House (all) and the Senate are open.  So goes the political balance, so goes the ability for any president to achieve policy agenda priority.
  • Where the President matters in elections isn’t often discussed in a debate or is certainly, glossed over.  The Presidency is a position of state; a leader to the international world and the domestic (entirety) world.  In this regard, the election is about certainty, purpose and vision.
  • The next president will likely play a very critical role in shaping the judicial branch of the government as four justices are over 76, one with pancreatic cancer and another who has openly said he will retire post this term and the election.  While the President can’t appoint any old person without confirmation, wide deference is given to this appointment and but in rare exceptions, confirmations are all but certain.
  • Rhetoric and policy language aside, the Presidency in an election is all about picking someone who can truly galvanize compromise, not push ideology.  The best at this role includes names like Reagan, Roosevelt, Kennedy and Lincoln.  They knew that ideology stabilized voters and painted a picture but that the true job was about action not rhetoric, photo opps and speeches.

What is at stake today is an array of deep challenges across a breath of policy fronts.  The following list is not exhaustive but prioritized by a guy who is an economist by study and a health policy and health care businessman by trade.

  • Its time to ignore the phony math and crazy skewed data published with regard to certain economic indicators spewed across the airwaves.  The reality is that economic growth expressed via GDP is stagnant and it has been for quite some time.  Unemployment, underemployment and personal income is at perilous levels and not improving.  The recent drop in unemployment is about as real at the main street level as the Tooth Fairy.  Yet, jobs do exist that pay well but the gap between skill levels and the job requirements continues to widen.  Manufacturing has changed and today, it requires skilled work.  So do health care jobs.  We also need to somehow, do a better job reminding our children that not everyone is suited for a career in management and most jobs, require that you show up, work hard and maybe, just maybe, get a little dirty now and then.
  • Bad, forget that, horrendous and irresponsible fiscal policy from Washington has the country facing what many are calling “the fiscal cliff”.  The timing could not be much worse given the health (lack thereof) of the economy.  Defense spending and sequestration cuts are hardly the major issue here – the cuts are very minimal and parceled out over a decade.  The issue here is revenue and Washington has boogered-up tax policy via tax credits, one-time reductions, etc. so as to create a Phantom Menace around personal and corporate income.  The first priority at hand is to create revenue certainty and simplicity via sane tax policy.  The next is to rationally, reign in non-essential spending.
  • There is no path to prosperity (sorry Paul) and no way forward without entitlement reform – large-scale, total.  Entitlements consume every dollar of revenue today and no tax policy fixes that equation.  Reform must occur.  One of the most ironic and frankly scary conversations I have with hospital folks is around Medicaid and Medicaid expansion.  When hospitals argue that Medicaid expansion is a good thing because it reduces the number of non-paid services provided, I know we have come to an end.  As the old Pogo cartoon strip relayed, “We have met the enemy and he is us”.  Continuing to do more of a dumb thing faster, with more money on a broader scale only produces more stupidity.  Expanding entitlements with debt financing is about as idiotic of a proposition as I can think of, regardless of who gets paid.
  • Drilling for more fossil fuel is not a solution to becoming energy sufficient, creating more end-product capacity is.  We need to invest in refinery capacity and modernization and locating the same where it logistically belongs.  We also need to drop the “green is good” at any cost if we expect the economy to recover.  Green is only as good as the return on the investment dictates.  Using food for fuel is a stupid idea especially since the only way it is economically feasible is with federal subsidies.  It is even more idiotic when viewed in light of the energy input required to produce an ounce of a product that is less efficient.  And no, I am not anti-environment as I am avid outdoorsman and a life supporter of Ducks Unlimited.  I am a pragmatist and I know that economies seek equilibrium – balance.
  • To rebuild the “American Dream” (if this language suits), we need to get everyone in the U.S. to again have “skin in the game”.  We aren’t there and in fact, we continue to widen the gap between those who pay and those who don’t.  In a bad CBS interview when Mitt Romney was asked if it was fair that a man of his status in life paid less by rate in taxes than someone earning $50,000 per year, Mitt bombed.  The fact is that Mitt pays more in rate, at his 15% or so, than the person earning $50,000 or $60,000 today.  This is even after giving millions to charity, which if imputed into this tax rate, raises it even higher.  Trust me, I am not a die-hard Mitt fan nor am I advocating for him.  The plain reality is that the incentives need to align so that everyone has skin in this game not disproportionately more by income.  If for no other reason than getting it right, we need to quit pointing fingers and bashing the Mitt Romney’s of the world as last I checked, Mitt earned his money and created lots of jobs.  He isn’t even as rich as Bill Gates or probably, Brad Pitt but no one bashes Brad.  How many jobs did Brad create?  I know the answer for Bill.  Class warfare is ugly and we are busiest today trying to escalate the war.
  • As I have written before and I live through it and see it daily, certainty is lacking.  The real issues we face require simplicity and certainty in order for jobs to grow, homes to be sold and businesses to grow and multiply.  This is less about numbers and more about policy.  Governments stink at and are incapable of redistributing “wealth” and legislating morality (unless the government is a totalitarian state and as history has shown, those don’t last real long).  Wealth balance comes from matching productive inputs with an investment return such that it is equal or greater in value to the input, to create sufficient and when needed growing levels of inputs – this system creates balance across executives and workers alike, proportionately.  We can’t evolve to a system that is punitive to those who take risk and lever their talent for handsome reward because arbitrarily to some, this isn’t fair.  I’ll defend Brad Pitt’s right to make gazillions if people are willing to reward his “input” in the form of acting talent, etc., even though I don’t think much of his movies or his acting.  Truth be told, he earned it and took the risks and leveraged whatever his gifts were and no governmental entity should try to redistribute his earnings to someone else in the guise of “fairness”.  He should pay proportionate by rate and rate alone, taxes but no different from someone who uses his/her talent to weld.  If Brad wants to  redistribute his wealth via charity, that is his choice.

Happy debate watching – enough said – for now.

October 16, 2012 Posted by | Policy and Politics - Federal | , , , , , , , | 1 Comment

First Glimpse at ACO Results

A cornerstone of health policy arising from health care reform is the formation of Accountable Care Organizations.  The premise is that an organizational structure focused on improving patient care and satisfaction, in a coordinated fashion, would improve quality and thus, reduce cost. The policy implication is that on a shared incentive basis, organizations at-risk, would create savings sufficient to share between the government and the ACO. In June of 2011, I wrote a post regarding my analysis of the ACO rules and their impact on the post-acute environment (http://wp.me/ptUlY-8H ).  Today, our first glimpse of how effective ACOs are/may be in producing outcomes and netting savings is available via a study released and published today in Health Affairs.

The study involved a five-year forecast or simulation of an average population of 65-75 year old, type II diabetics.  Using a tool that simulates “what” would occur with this group participating in an average ACO with representative populations, costs, and processes, synthesized outcomes were produced and evaluated.  Important to note, the tool simulated the outcomes for the set of individuals correlated to the Medicare required performance measures (blood pressure, cholesterol, glucose levels, etc.). The choice of diabetes as a disease focus is related to an easy to quantify population where known application of certain best practices and care management techniques can have a readily qualified improvement. In short, the group is a large, at-risk population with enormous potential for adverse events when care is not properly managed.  Diabetes represents a focal area of care improvement per the ACO intent under the reform law.

A key element for the ACO formation under the reform law is known as the Shared Saving Program.  Under this program, CMS specifies four domains for performance measures: patient/caregiver experience, care coordination and safety, preventative health, and at-risk populations.  For diabetes, seven of the twelve measures in the “at-risk” domain are tracked although only the composite hemoglobin A1c and poor control measures are scored by CMS for calculating the shared savings. Each of these measures is given a score by CMS and then compared against a “threshold” and a “benchmark”.  While CMS has yet to specify the limits for thresholds and benchmarks, the law provides that attainment of one or the other triggers the “shared savings” payments. In the first three years of ACO roll-out, organizations can choose between two forms of shared savings.  The first option is the organization can elect to receive 50% of the savings if costs decrease but not be “at-risk” if costs increase.  The second option provides for a 60% share of savings with the possibility of a penalty if costs increase.  By year three, the first option expires and in the interim, savings must exceed 2% before any “sharing” kicks-in.

The results of the study are intriguing and supportive of my general conclusions that the ACO concept while a good-start, can’t be terribly viable without overall reforms to Medicare.  Simply, layering a different model over-the-top of the current system is like reupholstering a broken down couch – it only looks better.  The core results showed that even a 10% improvement in the core measures for this population, while preventing up to 4% of adverse outcomes, nets savings of less than 2% (1.2% to Parts A and B).  If the costs associated with drug therapy (Part D is excluded from the ACO model) are included, the net to Medicare is zero or perhaps, a modest cost increase. In short, the likelihood of “shared savings” returns to the ACO are minimal and compared against heavy start-up costs, on average $1.7 million, a disheartening risk-return proposition.

As I have been watching this developing element of the health care landscape carefully and working on a variety of network initiatives, my conclusions are pretty consistent with the study authors, namely;

  • CMS needs to look carefully at the weights assigned across the performance measures – now, equally calculated.  We know certain elements are more directly linked to savings.
  • Drugs need to be factored into the shared savings program – big gains or losses can be found here.
  • Thresholds and benchmarks are yet defined by CMS and they will need to look very carefully at these levels.
  • Payments via shared savings need to be re-evaluated by level and delivery.  ACO development is expensive and as demonstrated, the current shared savings program provides little return on investment.
  • ACOs will need to look at alternatives to produce higher volume savings and core operating efficiencies in order to make “real” money under the ACO model.
  • Lastly, CMS needs to figure a methodology for a two-part payment approach – an incentive per capita for high performing organizations and then a return payment for results equal to a savings share (a bonus if you will).  The success should drive the next period payment levels rather than a “one size” fits all approach.

October 8, 2012 Posted by | Policy and Politics - Federal | , , , , , , , , | 3 Comments