Skilled nursing facility providers pay the price for a flawed system

It was only a matter of time, really.

After years of government warnings and legal reports highlighting the flawed payment system for skilled nursing facilities (SNFs)--one that actually incentivized providers give higher levels of therapy--the post-acute care industry is finally paying the price, quite literally.

Earlier this month, RehabCare Group, a subsidiary of Kindred Healthcare Inc., paid $125 million to settle claims that it provided unreasonably high levels of therapy to SNF residents to maximize reimbursement dating back to 2009.

It's a significant settlement for few reasons. First, RehabCare is the largest therapy provider in the country, operating more than 1,000 facilities in 44 states. Four SNF providers that contracted RehabCare for therapy services also agreed to pay $8.5 million.

Second, the settlement is the most (by far) that a SNF provider has paid to resolve claims that it provided unnecessary levels of therapy. In 2013, Ensign Group Inc., a post-acute care provider that operates facilities in 14 states, paid less than half ($48 million) to settle claims that it provided unnecessary rehab therapy at six SNFs in California. RehabCare was involved in four similar cases in 2014 and 2015, but those settlements never rose above $3.75 million

Finally, it could pave the way for a similar False Claims Act lawsuit against HCR ManorCare, filed by the Department of Justice (DOJ) in April of last year. Federal prosecutors allege the provider "knowingly and routinely" provided rehab services that were not medically necessary.  

The DOJ's RehabCare announcement was full of the typical heavy-handed quotes from prosecutors:

"Medicare beneficiaries are entitled to receive care that is dictated by their clinical needs rather than the fiscal interests of healthcare providers," said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the DOJ's Civil Division.

"This False Claim Act settlement addresses allegations that RehabCare and its nursing facility customers engaged in a systematic and broad-ranging scheme to increase profits by delivering, or purporting to deliver, therapy in a manner that was focused on increasing Medicare reimbursement rather than on the clinical needs of patients," U.S. Attorney Carmen M. Ortiz for the District of Massachusetts added, highlighting the "sophistication" of this fraud scheme.

Sophisticated, systematic fraud? Valuing financial interests over patient care? Sounds horrifying, doesn't it?

If you're a federal prosecutor, maybe it is. But it's also disingenuous and borderline naïve to wag a disapproving finger at RehabCare or any other SNF facility when the current payment system is constructed in a way that openly incentivizes this kind of behavior. Rehab providers didn't wake up one day and decide to shuffle patients into higher therapy levels; they were ushered into a payment system that practically begged them to.

That transition began in 1998, when the Centers for Medicare & Medicaid Services (CMS) transitioned therapy payments to a volume-based model. Patients who received "ultrahigh" therapy--at least 720 minutes a week--were paid the most. The payments went down along with the therapy minutes provided (500-719 minutes a week was considered "high" and 45-149 minutes per week was considered "low"). The patient's outcome had no bearing on how the provider was paid.

That ultrahigh catagory was the proverbial carrot, and what happened next should have surprised no one: Ultrahigh payments skyrocketed. According to an August article by the Wall Street Journal, ultrahigh therapy in nursing homes jumped from 7 percent of patient days in 2002 to 54 percent in 2013. RehabCare in particular provided ultrahigh therapy on 58 percent of patient days in 2013, up from 7.6 percent 2002.

After a decade in which these payments gradually shot skyward, some started to wonder if the whole system was flawed. The Office of Inspector General reported in October that these skewed incentives led to more than $1 billion in overpayments in 2012 and 2013, and recommended changing the way CMS pays for therapy services.

Even the therapy industry agreed. In a letter to the editor published in The New York Times, Sharon Dunn, president of the American Physical Therapy Association, said the volume-based model should be replaced with "value-based models where patient outcomes relative to the cost or resources needed to provide that care or the primary indicator of performance." Mark Parkinson, president and CEO of the American Health Care Association, agreed that "the current payment system for therapy is flawed."

Sounds just like typical fraudster, doesn't it? Begging CMS to change the system that is pulling in the most money.

For what it's worth, CMS has said it is working on potential alternatives. In the meantime, it's hard to stomach the righteous indignation from enforcement officials. In a perfect world, RehabCare does value clinical needs over financial interests. In reality, healthcare is a business, and, like it or not, companies like RehabCare exist to make a profit, even maximize profit. When payment models are structured to encourage high levels of therapy, it shouldn't be a shock to see providers doing just that. It's like placing a child in front of a chocolate cake, and then returning in a huff when there's nothing but crumbs.

RehabCare shouldn't be held blameless for gaming the system, but, more importantly, CMS didn't exactly make it a hard game to play; it practically begged for it by constructing a payment method that offered virtually no effective oversight or structure, and relied on for-profit providers to play within an ill-defined set of rules, or follow some mythical moral compass.

Now, after more than a decade, the feds are lashing back in a transparent attempt to hide their own inadequacies. For the foreseeable future, it seems providers will keep taking the brunt of it. - Evan (@HealthPayer)

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