Medicare changes bring challenges, opportunities for private duty
More Medicare business not necessarily bad
With a projected $16.2 billion in Medicare cuts over five years, the Balanced Budget Act of 1997 promises to reshape the home care industry. The Health Care Financing Administration (HCFA) estimates that two-thirds of all providers will be over the Interim Payment System cost limits announced in January, up from one-third previously. The National Association for Home Care (NAHC) places the figure as high as 75%. The revised cost limits, combined with new per-beneficiary caps, create a whole new - arguably ugly - operating landscape.
Some providers will simply not be successful in this environment. Industry sources predict that up to 60% of Medicare-certified home health agencies will go out of business. But with their more diverse payer mix and operations, private duty providers who are also Medicare-certified may weather the storm well.
Increasing your Medicare caseload - by either admitting former patients of defunct agencies or acquiring an agency - may be a sound strategy. However, doing so requires careful analysis and action to limit per-patient financial exposure, maximize fixed cost offsets, and tighten already efficient operations, sources caution.
"The first thing I would advise my client [inquiring about taking on more Medicare patients] is 'Check with your accountant to see what that is going to do to you,'" says John Gilliland, an attorney who specializes in home care in Crestview Hills, KY.
· Know the probable financial impact of each patient.
The key to staying afloat when increasing Medicare business is serving patients while remaining under your per-beneficiary cost, says Jay Brecker, CPA, principal for Jay T. Brecker and Associates, an Owings Mills, MD-based home care accounting firm. To do so, providers must know the average number of visits they can make for each patient, given their operating costs. This requires extensive analysis using agency- specific per-beneficiary limits, ratio of visits per discipline, costs for each discipline, and average visits per patient. (See related analysis, p. 83.)
Armed with this information and utilization history of patients with similar diagnoses, providers should predict each patient's potential financial impact. Admitting many patients whom you expect to require more than your average number of visits can be a financial nightmare. And for some providers, it only takes one resource-intensive patient. "A small agency that gets the wrong patient is out of business," says Gilliland. Yet Medicare conditions of participation require nondiscriminatory patient admissions. "Home care attorneys are struggling for a way for clients to remain in business [and lawfully restrict admissions]," adds Gilliland.
Stay financially strong
Medicare conditions of participation also require that agencies have enough resources to provide appropriate care. "You have a legal responsibility to remain financially viable. So you should not admit someone that would put you out of business."
· Review your admissions policy.
To address the seemingly irreconcilable mandates to not discriminate and remain financially viable, Gilliland suggests revising your admission policy. Providers should look closely at their cost structure, average visits per patient, and anticipated visits for key diagnoses and change their admission policy to restrict "budget busters," he explains. "They need to in some way equate admissions with their capability and resources to provide care."
For example, a provider may identify certain types of patients for whom their costs will far exceed reimbursement. They may then determine that based upon their budget and resources they cannot provide care for more than a certain number of such patients. "This is a legal theory, an argument, and not a legal guarantee," Gilliland warns. "You can expect Medicare will fight doing this."
· Invest in information systems.
Providers should also invest in flexible budget systems that link actual performance, trends, and budgets to update financial forecasts, says Brecker. Such systems overlay per-beneficiary limits with changing patient mix and operating costs, allowing providers to constantly assess their financial situation and change operations as needed, he adds.
Sophisticated information systems are also necessary to maximize Medicare's administrative overhead offset, says Brecker. "You have to do budgets and projections, use assumptions, and see how administrative overhead steps down." For example, if Medicare becomes one-third of your business, it will absorb one-third of your rent and other fixed operating expenses. By offsetting these expenses, increased Medicare business may be financially advantageous though it may post an accounting loss, he adds.
· Look for places to streamline operations.
While private duty providers may already be more efficient and flexible than primarily Medicare-based companies, to assume more Medicare business they should tighten operations even more and find ways to make each visit as productive as possible, sources say. Visiting Nurses Association (VNA) of Texas staff members use more written teaching materials and train patients, family members, and even volunteers to provide care from the onset. They also rely on more telephone contact.
Sometimes efficient operations means using resources. For example, it may be more cost-effective for a company that does not already have a wound care specialist to bring on the more highly paid professional if it helps discharge patients sooner, Brecker notes. A wound healed one month faster with a wound care specialist's intervention saves the agency the costs of visits that might otherwise have occurred during that time, he adds.
Brecker also advises "best practicing" or benchmarking to change clinical procedures for the most efficient outcomes. For example, examining visit time variations for patients with the same diagnosis may pinpoint efficient practices among field staff. Widespread adoption of such procedures saves overall resources, thus reducing costs.
But all of this must be done within Medicare program guidelines. "Medicare is a whipping boy right now and [providers must] dot all i's and cross all t's," Brecker cautions. This may be a particular consideration of private duty providers with very small Medicare case loads. You may have the right expertise and staff resources to appropriately manage your existing volume but not a larger number of patients, he advises.
As the Interim Payment System takes full effect, many providers may hastily close their doors. It is not too far-fetched to imagine a Friday afternoon telephone call from a competitor who says they are going out of business that day. In the VNA of Texas' service area this is already a reality. Agencies have simply stopped operating, with no advance warning to patients, staff, or other providers, says Mary Suther, president and chief executive officer. As a result, she has contacted other agencies and offered to work with them if they were having difficulties.
"We treat [these patients] like any other transfer," she says. Once a transferring patient selects the VNA of Texas, a nurse evaluates them for qualifying skilled needs. The agency admits those who have skilled needs and meet its admission criteria, which closely mirror Medicare guidelines. Patients without Medicare-qualifying skilled needs are referred to private duty or state programs, depending on their financial resources.
If you receive a Friday afternoon SOS call from a competitor, "Tell them you will help them out, but don't do it over the weekend," Brecker advises. "Tell them you will sit down with them on Monday. Otherwise, you can get blindsided, because you can't not service [patients] once you've admitted them."
Gilliland concurs. Agencies should follow their normal admission procedures but should also involve their accountant to review financial impact, he adds.
During the Monday meeting, Brecker advises close financial scrutiny. "Make sure the numbers are correct. You must do your homework - albeit quickly. Don't act on impulse." For example, an agency's 200 unduplicated patients and 12,000 total visits or an average 60 visits per patient may on the surface appear reasonable. However, 75 one-visit flu shot patients may be imbedded in the census count, thus greatly skewing the average visit number and indicating the agency may be chock-full of high-intensity patients, Brecker advises.
Beware of bargains
Distressed agencies may also offer themselves for sale. Again, financial considerations should be first and foremost, sources advise. "In today's environment, with so much turmoil, I would advise that people proceed very cautiously. But if there is a deal now that may not be there in three months when the picture is clearer, I would ask 'have you run the numbers?' If it looks financially viable, then we'd figure out the legal issues," says Gilliland.
The VNA of Texas has not considered acquiring other agencies out of financial considerations and liability concerns, says Suther. "We don't want to take on their liabilities," she adds.
But you may not have to assume providers' liabilities, says Gilliland. An asset purchase does not involve the provider number and thus avoids overpayment liabilities. "That works if you're buying something in your market, but if it's four states away, you may have to. Every deal is different," he adds.
If all the above makes you want to turn toward the hills and run, slow down, sources advise. "Success [with Medicare] is still possible. You must have a good payer mix - private pay, Medicare, and managed care - and operate efficiently. And you must take your accountant's advice." Brecker warns.
"I'd advise providers to keep their powder dry and be prepared to move in any direction. No one knows where its going. Remain flexible until it settles a bit," says Gilliland.
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