The U.S. Centers for Medicare & Medicaid Services (CMS) recently proposed a 2.7% pay increase for hospice care for Fiscal Year 2023. However, that amount may be a drop in the bucket as COVID-19 headwinds rage, inflation surges and employee wages climb.
Beyond the rising costs, Medicare is phasing in the return of payment sequestration, which was temporarily suspended during the COVID-19 public health emergency. Effective April 1, CMS began a 1% withholding.
As of June 30, that will rise to the typical 2%, representing a headwind that some hospices consider “devastating.” CMS had temporarily suspended sequestration during the pandemic.
During the first half of 2022, providers continue to hemorrhage dollars to boost hiring while adjusting wages and purchasing for skyrocketing inflation. In addition, they still have to buy higher-than-historical amounts of supplies like personal protective equipment. All things considered, a number of leaders in the space are concerned that the 2023 rate increase is insufficient.
“I was shocked by the number … [CMS] is using stale data, and they’re lagging the reimbursement increase, and that’s going to exacerbate the situation that everyone has experienced in the industry,” Kevin McNamara, CEO of Chemed Corp. (NYSE: CHEM), said at the RBC Capital Markets Global Healthcare Conference. “So we are looking at a high single-digit year-over-year increase for the overall net of what we’re doing for our folks.”
Chemed is the parent company of VITAS Healthcare, the largest hospice provider in the United States by market share, according to LexisNexis.
McNamara’s comments reflect a widespread concern that CMS seems to have used 2019 data to calculate the 2023 rate, including wages and cost reports.
These time lags are typical for the agency’s reimbursement decisions, but the conditions that hospices have endured since early 2020 have been nowhere close to normal.
Among the major outliers is rising inflation, which represents a pain point for any business. As of April, the rate of increase fell slightly to 8.3%, still close to a 40-year high, according to the U.S Department of Labor.
Also worrisome is the price of gasoline, which surged upwards following the Russian invasion of Ukraine. Retail gas prices rose 19.3% a gallon as of March, the American Automobile Association reported. These increases pose difficulties for hospices, considering that most clinical staff routinely drive to conduct patient visits.
Of course, the draft rule is a proposal. Before CMS finalizes the rule in October, providers and other stakeholders have the opportunity to comment on the language. Though nothing at this point is guaranteed, the possibility exists that some aspects of the bill could change between now and then, including the rate numbers.
“I think the rate increase that they’ve looked at on the hospice side is a little lighter than people anticipated,” Addus HomeCare (NASDAQ: ADUS) CEO Dirk Allison said on a first quarter 2022 earnings call. “We’re also optimistic that, with the comment period, those rates will get adjusted, as well as the home health rates, but Medicare tends to lag just because of the cost report data. So there’s a little bit of a gap; it’s not quite as immediate as you’d like to see it.”
In the midst of this, providers are also contending with an intensely competitive labor market. And some in the space are finding that the inflation that is hitting providers’ bottom lines is also driving clinicians to take jobs that can offer them higher compensation.
Aveanna Healthcare Holdings (NASDAQ: AVAH) recently conducted an analysis of workforce trends that suggested higher compensation may be the most important consideration for prospective employees, particularly in light of rising inflation, the company’s CEO Tony Strange said at the RBC Capital Markets Global Healthcare Conference.
Strange called on industry stakeholders to communicate to CMS their concerns about reimbursement relative to labor costs.
Other CEOs have echoed these concerns.
“We’re all balancing and navigating the same challenges — inflationary cost outpacing pricing and reimbursement from the federal government,” VITAS CEO Nick Westfall said at the RBC conference. “We’re doing all what we can internally to optimize our ability to retain our skilled clinicians, as well as attract and identify new ones, and look to find the most efficient way to bring them into the organization as quickly as possible.”
VITAS has been on a recruitment blitz during late 2021 and early 2022 to counter the industry-wide workforce shortage. The company reports some positive trends, though results do vary from market to market, according to Westfall.
One positive sign for VITAS is that more licensed clinicians are coming on board full-time as opposed to part-time, though performance on net hiring and turnover rates remains below pre-pandemic levels, the company indicated on a Q1 earnings call.
When considering the proposed rate increase, some hospice industry leaders have spoken on apparent disparities among care settings, suggesting that CMS is prioritizing hospitals over different, but equally important, types of providers.
“The reality is: [2.7%] doesn’t cover the cost of living, not even close. In comparison to that, you see hospitals and other settings getting the bump to account for all those things that have happened,” Edo Banach, president and CEO of the National Hospice and Palliative Care Organization, said at the Hospice News Palliative Care Conference in Chicago. “The reality is we can’t provide the care that you’re expecting us to provide, nor can we pay for the employees who are leaving to go work for those hospitals. If you’re trying to send us a message, government, that you value institutional medical care over interdisciplinary care in the community, you’re doing that. But if you want to send a different message, you need to show that.”
Companies featured in this article:
Addus Homecare, Aveanna Healthcare, Chemed Corp., National Hospice and Palliative Care Organization, RBC Capital Markets, VITAS Healthcare