As the baby boomers move out of the workforce, their payroll contributions to Medicare disappear, their need for Medicare services begins and the costs of health care rise every year
by Mary Ellen Conway
January 13, 2016

Not a week goes by that I don’t get a call to my office where the caller introduces themselves and says, “I would like to hire you to help me open a (insert here—Medicare-certified or private duty home care company, hospice, or DMEPOS business).”

Since January 1 of 2011, between 8,000 and 10,000 people turn 65 every day and will do so for the next 18 years. This well-publicized information about the aging of the baby boomers in the United States is the subject of many business seminars, articles and teleconferences. Speakers point to the business opportunities available for this group and that these baby boomers are going to need health care services from Medicare and Medicaid at a level unlike anything in previous years. This may be true, but one very important factor usually left out of the discussion is the financial solvency of Medicare and Medicaid.

Medicare and Medicaid are not going to happily pay providers’ expenses simply because there is a need for services. Just as sother federal and state government agencies are struggling with budget deficits and the need to cut expenses, Medicare and Medicaid are no exception.

As the baby boomers move out of the workforce, their payroll contributions to Medicare disappear, their need for Medicare services begins and the costs of health care rise every year. Further, as more and more people struggle with unemployment, enrollees in Medicaid increase every year.

Start-Up Expenses

Medicare does not want to have hundreds of providers in each state, so we have competitive bidding in DME as well as audits and restrictive enrollment criteria across all three segments. In most states, in order to become a state Medicaid provider, a new home care or hospice (HHA) provider or a new DMEPOS (DME) supplier must first obtain a Medicare provider/supplier number. The process to becoming a Medicaid provider is costly and time-consuming, and there is no guarantee that any new business will be successful and be able to maintain operations, even with the growing number of beneficiaries.

Additionally, since March 1, 2007, Medicare requires that all new health care providers be accredited. This is also true in states that do not have Certificate of Need (CON) requirements. Certificate of Need laws allow the government to approve the need for a new medical facility or program. New HHA business owners can choose from one of three accrediting organizations (AOs), while DME suppliers have nine AOs to choose from. New businesses should carefully research which accreditor is the right one for them—calling the AO they are interested in working with, talking to customer service staff, comparing prices and workloads, before deciding which organization is the best fit for their offered services, patient population and business goals.

Once a new business makes the decision about their accreditor, the business must obtain the accreditor’s standards, customize their policy and procedure manual accordingly and complete the accreditor’s pre-survey process. Applicants for DME or HHA accreditation must provide, at their own expense, the services they desire to be accredited for to at least 10 patients. Once they have attained a census of 10 active patients, they then notify their accreditor that they are ready for the initial on-site survey, which is often unannounced. That survey should occur within 60 days. All of the services provided to these initial customers are at the business owner’s expense before the provider or supplier is accredited, and Medicare or Medicaid will not reimburse expenses incurred during this start-up period.

All of the expenses incurred during start-up time will never be recovered, as Medicare does not allow for retroactive billing. A provider or supplier can only start billing Medicare after their accreditation is successful and they have been notified of their accreditation date so that they can file with the National Suppliers Clearinghouse (NSC) for a provider billing number. This process, from start to finish, can easily take six months (or longer) and cost the new business many thousands of dollars, from the accreditation fees and expenses and the administrative staff to complete the pre-work, to the business expenses, (such as space, telephone, employee expenses) to the purchase of DME equipment to meet initial stock needs.

Aggressive Audit Activity

Because of current funding problems, Medicare and Medicaid are looking for every way possible to recover monies spent. One way this is happening is through the aggressive audit activity occurring in all three areas.

Agencies currently in business are struggling under unprecedented Medicare and Medicaid audits, where the auditor goes back—sometimes up to six years—and reviews claims that were previously paid. In many cases, the auditor finds problems with the documentation and determines that payment should not have been made and demands that these over payments be returned from the provider/supplier immediately. In the worst case, the auditor determines that there is a case for fraud and the provider/supplier is referred for civil and monetary penalties and potential prosecution.

In February of 2013, DME supplier Liberty Medical filed for bankruptcy as they were struggling with repaying the overpayments identified in a Medicare audit of diabetic supply claims, which had them paying the government 3.2 million dollars per month as they awaited a date for a court hearing to dispute the charges. The current wait time for scheduled Administrative Law Judge (ALJ) hearings, the final step in the appeal process, is two years and growing.

Obtaining High-Quality Referrals

New Medicare-certified HHAs and DME suppliers struggle to break into a market that is, in most areas, saturated. Most Medicare-eligible home care patients are referred following a stay in an acute care facility (hospital), a sub-acute or rehabilitation facility (nursing home or rehab unit). They can also come from ambulatory surgery centers, emergency rooms and other types of facilities following surgery or treatment. Very few quality referrals are made directly from a physician’s office for home care services and, in fact, Medicare currently views these types of referrals as potentially fraudulent and they are very suspect of community-based referrals. Agencies should accept these types of referrals on a very limited basis due to the Medicare and Medicaid scrutiny involved.

In Medicare certified home care, agencies must make sure their paperwork is properly coded with the correct ICD-10 codes and that the codes are in the correct order for payment. The best way to do this is to hire a certified home care coder, or contract out to a coding company—which can be very expensive. Medicare and Medicaid never give the provider or supplier the benefit of the doubt, or consider incorrect documentation or coding a mistake—they consider it fraud. Medicare monitors the types of patients you provide care to, where they live, the physicians referring the patients to you and many other items looking for the potential of fraud. It is imperative that home care agencies always employ people who know this business very well, keep the operation running smoothly and can ensure that the agency always remains compliant with the litany of ever-changing Medicare requirements.

New Home Care Payment Models

One of the new ways that the Centers for Medicare and Medicaid Services (CMS) will implement the pay-per-outcome model is through bundled payments.

Currently, payment rewards the quantity of services offered by providers rather than the quality of care furnished. Research has shown that bundled payments can align incentives for providers—hospitals, post-acute care providers, physicians, and other practitioners—allowing them to work closely together across all specialties and settings.

The Bundled Payments for Care Improvement (BPCI) initiative was developed by the Center for Medicare and Medicaid Innovation (Innovation Center). The Innovation Center was created by the Affordable Care Act to test innovative payment and service delivery models that have the potential to reduce Medicare, Medicaid, or Children’s Health Insurance Program (CHIP) expenditures while preserving or enhancing the quality of care for beneficiaries. Over the course of the initiative, CMS will work with participating organizations to assess whether the models being tested result in improved patient care and lower costs to Medicare.

There are four models of bundled payment programs, but essentially the idea is that there will be a fixed price payment made to the hospital to cover the procedure and its post-acute care. The subtleties between the various models relate to the time period covered by the bundle and whether the reimbursement is via fee-for-service and then reconciled or whether a single payment is made and the providers submit no cost claims. Providers can learn more at innovation.cms.gov/initiatives/bundled-payments.

Value-Based Home Health Care

On July 6, 2015, CMS announced a new proposed rule to promote quality performance in home health. The proposed rule includes the usual annual payment rate update along with the highly anticipated value-based purchasing pilot program. The payment rule simply carries out the third year of a four-year phase-in of the rate-rebasing plan proposed by Congress. Congress required that the rate rebasing be done in equal installments from 2014 through 2017. However, CMS, in its new rule, has proposed additional cuts of 1.72 percent in 2016 and 2017 to penalize agencies for what they call “case mix creep,” or perceived coding creep. CMS alleges that HHAs have up-coded claims to levels that do not reflect actual changes in patients’ clinical condition. Coding creep adjustments have been imposed in the past. In the 2015 rate rule, CMS estimated the coding creep at 2.32 percent. With an additional data year, the level has risen to 3.44 percent.

The Home Health Value-Based Purchasing (VBP) model would test whether incentives for better care can improve outcomes in the delivery of home health services. The model is part of the Department of Health and Human Services’ (HHS) commitment to build a health care delivery system that’s better, smarter, and healthier—one that delivers better care, spends health care dollars more wisely and results in healthier people and communities.

The model would apply either a payment reduction or increase to current Medicare-certified home health agency payments, depending on quality performance, for all agencies delivering services within nine randomly selected states. Payment adjustments would be applied on an annual basis, beginning at five percent and increasing to eight percent in later years of the initiative.

CMS proposes to institute the VBP program in nine states. It would be a mandatory program in all the affected states. The proposed states are: Massachusetts, Maryland, North Carolina, Florida, Washington, Arizona, Iowa, Nebraska and Tennessee. CMS says it selected these states randomly from the 10 HHS regions. However, the pilot is deficient in its failure to include more rural states such as Montana, Oregon, Utah, Arkansas, and Mississippi. DME suppliers should look to partner with their neighboring home care suppliers in order to be able to work within these models as they are tested and then eventually become the new method of reimbursement.

These days, becoming a home care or hospice provider or a DMEPOS supplier is not an easy or inexpensive business to start. Nonetheless, new providers and suppliers are out there every day vying for the Medicare beneficiaries and in non-Medicare areas, for Medicaid and third-party business.
You cannot open a new business without knowing the basics of what you are getting into. No business involving health care is easy and the days of unregulated services are gone. Make an informed decision and do your homework before you set off on this path.