Archives for January 2014

ACOs’ First Year Start-Up Costs Average Less than Most Estimates

Startup costs for the 2012 Medicare Shared Saving Plan (MSSP) Accountable Care Organizations (ACOs) are higher than estimated by CMS but considerably lower than many other estimates, according to a November 2013 survey conducted by the National Association of ACOs (NAACOS). “The average first 12 months start-up cost per ACO of $2,000,000 is [a] strong statement about the high level of risk ACOs are willing to take to transform care in their community” NAACOs said.


CMS established the MSSP to facilitate coordination and cooperation among providers to improve the quality of care for Medicare fee-for-service (FFS) beneficiaries and reduce unnecessary costs. Eligible providers, hospitals, and suppliers may voluntarily participate in the MSSP by creating or participating in an ACO. MSSP is designed to improve beneficiary outcomes and increase value of care by promoting accountability for the care of Medicare FFS beneficiaries, requiring coordinated care for all services provided under Medicare FFS, and encouraging investment in infrastructure and redesigned care processes. ACOs that lower their growth in health care costs while meeting performance standards on quality of care and putting patients first are rewarded.

The Survey

NAACOS conducted its first short web-based survey in November 2013 covering (1) first year start-up costs, (2) financial prospects for the first year of operation, (3) operational problems launching the ACO, (4) who processes CMS claims data (CCLF), (5) total Cost of internal and external IT services, and (6) satisfaction with information technology (IT) services. The survey was designed to capture new information related to the actual first year start-up costs and IT spending experienced from the April 1, 2012, and July 1, 2012, by MSSP ACOs after they finished their first full year of operation. The survey consisted of 11 questions that required multiple choice or text answers. Spending on feasibility studies, CMS application, legal fees or other pre-contract costs were NOT included in the first year costs. Thirty-five ACOs responded and were representative of the size and geographic distribution of the ACO population. Size ranged from 5,100 to 78,000 assigned Medicare beneficiaries.

Survey Results

The survey found that the average actual start-up costs of the respondents in the first 12 months of operation were $2.0 million with a range from $300,000 to $6,700,000. “Since savings are slow to flow as result of data and complex reconciliation process, ACOs will have almost a second full year of operations until their cash flow can be replenished with shared savings from CMS (if any),” NAACOS explained. NAACOS concluded that “the average ACO will risk $3.5 million plus any feasibility and pre-application costs” and estimated that “ACOs on average will need $4 million of startup capital until there is a chance for any recoupment from savings.”

Although at the time of the survey the ACOs had not received any interim reconciliation numbers from CMS, the NAACOS asked the ACOs to estimate their financial results after the first year of operations. The survey found that the range of predicted estimated gains was as high as $9,000,000 and losses as much as $10,000,000. About one third of the ACOs estimated a break-even level for the first year. NAACO said that “including the breakeven ACOs, total estimated gains would be about equal to the estimated losses so the program as a whole would breakeven.”

An “overwhelming number” of respondents identified CMS data and learning to access it and process it as the most challenging problem in first year operation. Respondents specifically pinpointed problems dealing with finding suitable software, meeting implementation schedules, delays in getting claims data, new skill sets to analyze data, addresses of assignees, slow stand-up of IT system, data inconsistency from CMS, and translating the data into actionable information for care managers and providers, according to NAACOS.

The survey also found that about one quarter of the respondents use internal resources for the claims data processing, about one quarter use exclusively external sources and about half use a combination. In regard to IT services almost all ACOs had both internal and external costs for IT functions with an overall average of $413,000 for internal costs and $443,000 for external vendor costs. Respondents rated their satisfaction with IT services as 6.4 on a scale of 10.

Highlight on West Virginia: Chemical Spill’s Health Effects Still Uncertain

Since January 9, 2014, when chemicals leaked out of a storage tank and into the Elk River contaminating the drinking water for most West Virginia residents, plenty of uncertainty regarding the health effects of the contamination was evident. Even two weeks after the incident, new reports indicated the presence of additional chemicals, besides the originally reported Crude MCHM, among the leaked materials. Further, the statements issued by West Virginia agencies and offices and the CDC reveal there has been extremely limited reasearch into each of these chemicals. As such, West Virginia residents continue to live in an environment where the implications of using the drinking water are unknown, for at least some parts of the population. While this controversy has fueled calls for new legislation, a bill that would impose stricter regulations on chemicals with unknown health effects failed to gain support after its introduction in the Senate last year.

The Spill and Recent Updates

Following the January 9th spill, the governor of West Virginia declared a state of emergency in nine West Virginia counties and advised citizens to “refrain from using the water for drinking, cooking, cleaning, bathing, and washing.” The state provided alternative water sources at the certain locations in each county. In the days after the spill, the state relayed information to citizens about flushing plumbing systems and as of January 14th had lifted the drinking water ban in some locations. However, on January 15, 2014, the CDC released guidance to the West Virginia Department of Health and Human Resources stating that due to the limited availability on data indicating the effects of MCHM the state “may wish to consider an alternative drinking water source for pregnant women until the chemical is at non-detectable levels in the water distribution system.” As a result, the Office of the Governor of West Virginia, despite its earlier lift of bans in some areas, issued a statement recommending that pregnant women drink only bottled water until the desired levels are reached.

After the recommendations were released and two weeks after the spill, it was reported that another chemical was also present in the leaked material. The company that owned the storage tank responsible for the leak, Freedom Industries, refused to release the exact composition of that material, claiming it was proprietary. The CDC release indicated it was a mixture of polyglycol ethers (PPH). Again, the CDC admitted that knowledge of the toxicity of PPH was limited.

Crude MCHM and PPH

Crude MCHM is composed of seven different chemicals including 4-methylcyclohexanemethanol (4-MCHM), which makes up 68 to 86 percent of the Crude MCHM according to the material safety data sheet. The data sheet also reveals the considerable uncertainty as to the consequences of exposure to MCHM as it states that there is “no data available” as to many of its effects. In fact, a recent Washington Post article pointed out the data sheet used the phrase “no data available” 152 times.

Both the CDC’s release and the West Virginia government’s comments on the issue of the consumption of the water by pregnant woman were fraught with unknowns. The CDC states that few studies on the effects of Crude MCHM have been conducted and most of the existing studies were done on animals, while the answers to Frequently Asked Questions released by the West Virginia Bureau for Public Health provide answers that are coupled with the caveat that there are no known studies to support that negative effects exist. The CDC also announced, after it was communicated that PPH was a part of the  leaked materials into the Elk River, that studies on PPH were also quite limited.  

Proposed Legislation

The Governor of West Virginia, Earl Ray Tomblin, announced his intention to draft new legislation to guard against this kind of contamination by implementing above ground storage regulations. Earlier last year, a Senate bill was introduced that would require safety evaluations on all chemicals in commerce. The proposed bill, which was introduced as the Chemical Safety Improvement Act of 2013 and has not been voted on since its inception in May of 2013, was described as a means to test for hazards to children and pregnant women. The bill was also said to provide specific guidelines to the chemical industry of health effects. Senator Lamar Alexander (R-TN) noted, the bill “would give companies such as Eastman Chemical Company… the long overdue clarity in the law they need to better innovate and create jobs in the 21st century economy.” Eastman Chemical is the manufacturer of Crude MCHM.

Kusserow’s Corner: DOJ Report On 2013 Medicare Fraud Strike Force Prosecutions

A short time ago, I wrote a blog article regarding a report from the Department of Justice (DOJ), which collected $8 billion in civil and criminal actions for fiscal year (FY) 2013. The collections included $5.9 billion civil actions; and approximately $2.2 billion for criminal enforcement in restitution, criminal fines and felony assessments. This week, the DOJ criminal side reported on the Medicare Fraud Strike Force results for the same period that achieved a record number of health care prosecutions, as well as fines and penalties in those cases. The DOJ Strike Force includes investigators and prosecutors from the HHS Office of Inspector General (OIG) and the FBI. It targets specific geographic areas showing unusually high levels of Medicare billing in nine cities, including Baton Rouge, La.; Brooklyn, N.Y.; Chicago; Dallas; Detroit; Houston; Los Angeles; Miami; and Tampa, Fla. Indeed, if you look back to enforcement highlights on this blog site, you will see that a majority of major actions have taken place in these locations.

The Strike Force reported filing 137 cases, and charging 345 individuals; it secured 234 guilty pleas and 46 convictions from jury trials. Those charged and sentenced face an average of 52 months in prison. To date, the Strike Force has charged more than 1,700 defendants in fraudulent schemes that billed the Medicare program more than $5.5 billion since its inception in 2007. The Strike Force cases are included in the DOJ report of the total amount collected in criminal actions for health care fraud of $450 million.

The DOJ has begun in the new calendar year with a number of actions in Strike Force cities, including the following:

  • In Brooklyn, NY, a sixth defendant pleaded guilty to conspiracy to pay and receive illegal health care kickbacks in connection with a $13 million health care fraud and money-laundering scheme. He recruited patients with cash kickbacks to attend a clinic using an ambulette licensed by the State’s Medicaid program to transport beneficiaries to and from medical facilities to receive medically unnecessary physical therapy, diagnostic testing, and other services.
  • In Chicago, the owner of a hospice company was charged with federal health care fraud for allegedly engaging in an extensive scheme to obtain higher Medicare and Medicaid payments by fraudulently elevating the level of hospice care for patients, many of whom resided at nursing homes he controlled across the state.
  • In Detroit, a home health agency owner who participated in a Medicare fraud scheme that totaled almost $11 million was found guilty in a jury trial and sentenced to serve 120 months in prison, three years of supervised release, and pay more than $10 million in restitution, jointly and severally with his co-defendants. He and his co-conspirators caused the submission of false and fraudulent claims to Medicare for purportedly providing skilled nursing and physical therapy services to Medicare beneficiaries in the greater Detroit area.
  • In Texas, the owner and operator of two durable medical equipment (DME) companies in Houston was arrested for his alleged role in a $3.4 million Medicare fraud scheme. In another case the owner, operator, and director of nursing of a home health agency in Houston was arrested for her alleged role in a Medicare fraud scheme and a conspiracy to structure bank withdrawals. In a third case, the owner of an ambulance transportation company in McAllen turned himself into federal authorities following the return of a federal indictment alleging a scheme to defraud Medicare and Texas Medicaid through fraudulent billings. In a fourth case, the last of six defendants in a fraud conspiracy was sentenced in Dallas to 72 months in federal prison, and ordered to pay $880,000 in restitution, following his conviction at trial on charges stemming from his involvement in the operation of Euless Healthcare Corporation and Medic Healthcare Incorporated.
  • In Miami, a patient recruiter pleaded guilty connection to her participation in a mental health company involving a $190 million Medicare fraud scheme. In another case, the owner and operator of a medical clinic pleaded guilty in connection with multiple health care fraud schemes involving the defunct clinic.

According to a recent report by the HHS Inspector General, for every dollar the DOJ and HHS have spent fighting health care fraud, they have returned an average of nearly eight dollars to the U.S. Treasury, the Medicare Trust Fund, and others.

The Medicare Fraud Strike Force is part of an unprecedented partnership between the DOJ and HHS called HEAT (Health Care Fraud Prevention and Enforcement Action Team). Formed in May 2009, this partnership brings together high-level leaders from both departments to share information, spot trends, coordinate strategy and strengthen fraud prevention efforts.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

Connect with Richard Kusserow on Google+ or LinkedIn.

Copyright © 2014 Strategic Management Services, LLC. Published with permission.

Florida Supreme Court Allows Medical Marijuana Initiative on November 2014 Ballot

According to the Florida Supreme Court, Floridians will be afforded the opportunity to vote on whether to adopt an amendment legalizing the medical use of marijuana within the state. In its 4-3 decision approving the placement of the initiative on the state’s November 2014 ballot, the Florida Supreme Court shot down opponents’ arguments that the amendment would be misleading to voters.

The court concluded in its advisory opinion that in reading the ballot as a whole, “the voters will not be affirmatively misled regarding the purpose of the proposed amendment because the ballot title and summary accurately convey the limited use of marijuana, as determined by a licensed Florida physician.” Further, the court found that proponents’ interpretation that “the intent is to allow [marijuana] use for a serious medical condition or disease,” as opposed to “any medical condition for which a physician personally believes that the benefits outweigh the health risks,” is reasonable and supported by the “accepted principles of constitutional interpretation.”

Ben Pollara, Campaign Manager for United for Care, stated that “this is a historic moment for the people of Florida – and in particular, those suffering from debilitating conditions and illnesses,” according to the proponent organization’s news release.

Although the court decided in favor of allowing the initiative to be placed on the ballot, three justices dissented. Chief Justice Polston stated, “the title and summary at issue in this case are affirmatively misleading because they obscure the breadth of medical issues that would qualify for medical marijuana by deceptively employing the term ‘disease’ and by failing to disclose that a physician need only believe that the benefits would likely outweigh the risks.” In addition, the chief justice argued the title and summary are misleading since “they fail to disclose the broad immunity that would be granted if the amendment passes and because they falsely imply that the use and possession of marijuana in accordance with the amendment would not violate federal law.”

However, proponents of the initiative suggest that Justice Polston’s dissent uses the same misleading “wordsmithing” that he criticizes the ballot language of, reports the Miami Herald. State Representative Katie Edwards noted that the Supreme Court’s decision was a “step in the right direction.” She stated, “The bottom line is the Legislature has forced people to go this route. Had we acted last year, had we reacted to patients, we wouldn’t be in this situation.”