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Investor Gains Debated in New Post-Acute Care Proposals

By John Reichard, CQ HealthBeat Editor

July 29, 2014 -- One of the hot new businesses emerging due to wasteful Medicare spending is the streamlining of care for chronically ill patients after they leave the hospital.

Analysts on Wall Street–and increasingly in Washington policy circles–see the "post-acute" world of home care, rehabilitation hospitals, skilled nursing facilities and other providers as laden with inefficiency.

Both investment firms and policymakers are zeroing in on the sector as they weigh business opportunities or hunt ways to cut deficit spending or offset federal outlays for efforts such as overhauling Medicare physician payments.

But some policy watchers worry that too much of the money saved in Medicare by these new "efficiency contractors"–Nashville-based NaviHealth co-founded by former Centers for Medicare and Medicaid Administrator Tom Scully is a prime example–will wind up going to investors .

Hospitals and insurers contract with NaviHealth to save money by lining up the most efficient provider for a particular post-acute patient. NaviHealth nurses stay in touch with the patient during post-acute care to oversee treatment and avoid costly hospital readmissions.

Critics say not enough of the potentially huge savings companies like NaviHealth may generate will benefit the public by making Medicare more sustainable or funding services needed by the frail elderly.

But Scully counters that it's precisely the profit motive and private sector competition that will drive down Medicare spending and make taxpayer savings possible, much like they factored in lowering prescription drug outlays.

Joanne Lynn, director of the Center for Elder Care and Advanced Illness at the Ann Arbor, Michigan-based Altarum Institute, said more savings from efficiency contractors should go to fund services the frail elderly need on a daily basis as they near the end of their lives. The demand is blossoming in a way that never existed in past generations, she said.

Lynn observes that legislation aimed at reducing wasteful care may also wipe out spending that gives families time to make needed adjustments.

"Frail elderly people and their families often urgently need services that Medicare does not directly cover," she said, citing support for housing, food and activities of daily living.

"Clinicians and families have quietly found it expedient to provide some supports, such as skilled nursing facility care, usually just a couple of weeks so the family can rearrange things and the patient can stabilize and so that in-home care becomes easier to do," Lynn wrote in an April 24 blog post for the journal Health Affairs.

"However, this also adds impetus to the remarkable overuse of medical care, with no clear incentives to be more efficient," Lynn wrote. Considering what we know today, "we could actually right-size the medical services, generate the savings, and redesign the delivery system to ensure reliability and supportive services."

Referring to companies like NaviHealth, Lynn and her colleague Anne Montgomery said earlier this month that "some private gain using public dollars may be necessary to catalyze reforms of the post-acute care sector. However, the size of the looming potential loss for the Medicare Trust Fund is stunningly large."

There's little dispute that patients often get treatment in inefficient settings. What that often boils down too in practical terms is the view that many patients could get care through well designed home care services rather than in skilled nursing or rehabilitation facilities.

The independent Medicare Payment Advisory Commission (MedPAC) called attention to wasteful post-acute spending during a May 21 hearing of the House Energy and Commerce Health Subcommittee. MedPAC Executive Director Mark Miller said the yearly cost to Medicare of those services has ballooned to $62 billion, twice what it was in 2001. "In many cases, payments are set too high relative to the providers' cost to treat Medicare patients," he testified.

Bipartisan legislation (HR 4994) introduced June 26 would begin tackling the issue by developing a standardized way of assessing the quality of care given by post-acute providers. That would help lay the groundwork for better choices for post-discharge planners and less wasteful spending.

The hearing focused attention on another bill, HR 4673, introduced by House Republican David B. McKinley of West Virginia and backed by Republican Tom Price of Georgia, which would give coordinators like NaviHealth most of the savings with the remainder going to providers, Lynn says.

Scully in a recent interview scoffed at the idea taxpayers would be shortchanged.

"[Savings] are going to the taxpayer," he insisted, just as when competing prescription drug plans helped lower outlays for the Medicare drug benefit. "Where do you think they went in Part D?" he asked.

"The idea that we're taking all this money out of the system and it's all going to private investors, that's like saying 'we should build a hangar next to the Pentagon and hire a whole bunch of government civil servants to build airplanes,'" he said. "How would that work?"

"The reality is our country is built on people making a margin," he added." In the government programs they should be modest. But that's what drives change."

Scully said it's "very legitimate" to debate what those margins should be. Lynn agreed that it's appropriate to debate the margins, but said they were too high in the McKinley bill.

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