Texas Medicaid Therapy Reimbursement Rates – Where the Rubber Meets the Road

Last week the Texas 84th Appropriations Conference Committee unanimously voted to pass through the Senate substitute version of HB 1 – the large budget bill which included Article II Rider 50 c. – Medicaid Funding Reduction and Cost Containment – HHSC shall reform reimbursement methodology to be in line with industry standards …,  via internal work group recommendations. Prior to that, two amended riders (House and Senate versions) were introduced which were meant to guide HHSC into achieving this. The House version introduced by Rep. Bonnen of Galveston/Angleton specifically called for HHSC to utilize the TAMU study and more harmfully, the HHSC interpretive report on it (Review of Texas Medicaid Acute Car Therapy Programs – February 25, 2015) to achieve cuts – achieving various draconian measures to cut therapy rates by double digits approaching 30% if taken literally. A Senate Finance version considered, with input from stakeholder organizations including OPIRA and TAHCH, language which directed that HHSC utilize stakeholder input to achieve the cost containment, including policy changes as done two years ago which had not yet been implemented.

Earlier this Winter, in a paper addressed to legislators (Cost Containment Discussion and Proposals: Medicaid Acute Care Physical, Occupational and Speech Therapy Services), HHSC had presented four proposals to achieve reductions of $201M GF ($449M AF) over the biennial 2016-2017, including graduated rate reductions over a period of up to 5 years at not more than 20% of the rate reduction per year. Stakeholder input was also to be considered in these proposals with a directive from the Legislature. The first proposal considered 8 items for policy change. They are now in the substitute bill verbatim. The second proposal considered changing home health PT/OT units to timed-units by simply dividing the current PT/OT home health fee schedule by 4 and posting those per unit rates. The last two proposals outlined reducing the shortfalls by rate reductions that would total approximately 34%. The last of these two proposals would divide that reduction by 5 and apply those graduated rate reductions over a 5-year period in order to alleviate access to care problems. Now Senate substitute HB 1 has passed through to the chambers for a final vote and subsequent signature from Gov. Abbott. What remains is the implementation of policy changes and their interpretation in the actual real world and actionizing a rate reduction that satisfies their fiscal projections and is in line with national commercial rates (as per the TAMU study and HHSC interpretation). However, note that the bill does not explicitly mention the use of the TAMU study as a tool, whereas the original HB 1 did with the amended Bonnen Rider.

Rider language is fine in the abstract, but numbers speak to the true motives here. Cost containment emanating from therapy services was stated to be $50M ($25M each year), to be saved from policy changes, (i.e. the list of 10 policy change suggestions were given in the Rider language for tighter authorizations, revised treatment and anti-fraud guidelines, etc), and $100M ($50 each year) from rate reductions. With a 100% MCO utilization by early next year, additional savings would be had over those two years. We can project a figure from this based on the savings achieved thus far over 2014-2015, comparing MCO capitated block payments for PMPM to the equivalent traditional Medicaid FFS utilization. Milliman presented a paper to the Texas Assocciation of Health Plans (TAHP) and that was later shared with HHCS and legislators in which they projected a mean annual savings of 10% for traditional Medicaid medical.  If that percentage is used against the 2014 layout from HHSC, then the projected savings per year for the next two years would be $68M/year (see the next section for HHSC’s Medicaid therapy outlay for 2014). Given an unnatural increase in Medicaid rolls over the next two years, that number would be decreased by something like $18M. Note that in all budgeting legislation, the natural Medicaid population increase (from the natural overall population increase) is not addressed. The approximate savings would then be $100M over the next two years from MCO utilization (essentially further discounted rates).

With the 100% MCO utilization in place and accounting for a population increase, we then approximate that the remaining shortfall from just policy changes would then be close to zero over the biennial 2016-2017. HHSC had recently released its therapy costs outlay for 2014 as approximately $680M ($291M GF, $680 AF). The Texas FMAP (matching funds ratio) is currently at 1.33, (i.e., every dollar spend by Texas on Medicaid produces $1.33 of federal matching funding for Texas Medicaid costs). It also works for state cuts as well. So, a reduction of one dollar in state Medicaid funds would produce a reduction of $1.33 in federal funds spending for Medicaid. This FMAP ratio changes based on state average income vs average Fed income stats. This number will change for the next biennial.

Using that year as a baseline, and a very pessimistic shortfall after policy changes of $10M ($10M more than an anticipated $0 shortfall) reduction per year would equate to an approximate 2% rate reduction per year [2.33*$10M/$680M], all other things being equal and given a straight across-the-board rate reduction. The year 2015 could produce further savings from an increased MCO utilization. So, if that reduction were subtracted from the $10M a year, a lower reduction percentage projection for 2015 could be produced, even given population increases from 2014 to 2015. Nonetheless, even with all our talk of MCO savings, the final budget numbers for saving from therapy services in this bill may have been reduced (from $200M/year in the original language and prior biennial to $150M/year in the current language) and they may already be assuming that approximately $50M will be saved from 100% MCO utilization. In this case, we can then recalculate using $50M/year from rate reductions [2.33*$50M/$680M], this equating to a 17.1% rate reduction over the next two years, everything else being equal and using one across-the-board rate reduction. Hence, depending on HHSC’s acturial assumptions and pessimistic savings, an interval from 2% to 17% for rate reductions is likely.

The other side of the coin from this Rider was that if savings from policy changes are not realized during the first year of the biennial, the savings shortfall would be produced from further rate reductions in the second year. Let us assume pessimistically that the shortfall for that first year equates to $xM (0 < x < 25). Then the second year reduction would be adjusted to the interval of possibilities of [(2+y)%, (17+y)%],  where y = (0.34)x and given everything else equal. Moreover, in the case of extraordinary savings of more than $25M/year, the excess will not be applied to the $50M savings to alleviate the rate reduction part.

HHSC seems to be adopting their own paper to the legislators as a guide for posting rate reductions and the policy change agenda. It makes sense that a likely scenario would present with a graduated rate reduction over a period of time. The original HHSC report to the legislators, proposal 4, calculated savings over a 5-year period at a 6.8% rate reduction per year based on savings near $201M GF during the biennial. The new bill requires savings of $100M GF over that same biennial. If HHSC considers a 6.8% reduction as acceptable for minimal access to therapy care problems, then by using a 17% reduction instead, one can propose a graduated reduction level of 5.67% each year for a 3-year period, producing the same result. Compare this to our earlier analysis of a lower bound of 2% and upper bound of 17%.

Granted, these are numbers being thrown around quite casually here, but they reflect a greater truth to the issue of what I refer to as the “therapy rate reduction compounded problem” – every two years, Medicaid population increases are not taken into account and a greater moving shortfall is calculated for the next round of cuts. This shortfall phenomenon behaves as compounded interest. In addition, these past two years have introduced the ideological wars surrounding the ACA expanded Medicaid non-implementation in Texas. Those added federal funds would have covered most, if not all the therapy shortfall and kept physician rates at their initial ACA levels. This legislature has left both problems unresolved and instead has elected to potentially make large cuts for two of the more prominent provider types in Medicaid medicine in Texas.

In a boundedly-rational economic game, the carrot-on-a-stick incentive of $25M/year is blind since the therapy industry cannot judge the moving savings amount from HHSC. On the other hand, if policies are not followed, no funds will flow to the therapist. Hence, the winning strategy (minimize losses) for the therapist is to follow the more stringent policies. If excess savings are produced at the end of the biennial, the therapy deficit drops towards zero, everything else being equal. Herein lies the problem of the aforementioned therapy rate reduction compound problem. If at the end of the biennial, the Medicaid therapy population increases to numbers that bump the deficit up appreciably (regardless of utilization patterns), rational for another rate reduction ensues and the labor in achieving past savings is diluted. It now is a point of accelerating negative returns in a Medicaid therapy portfolio. Is the end in sight?

Rate reductions for therapy can come in different flavors – across-the-board or carve out fee schedules. Additionally, the usual methodology of separating fee schedules for delivery models based on relative utilization savings will also be examined. In the end, all three therapy delivery models will pick up their HHSC induced share of the remaining crumbs.

For completeness, we state the 10 (8 from HHSC paper to legislators plus two more) policy change suggestions for you to ponder as to their bottom line affect on your operations:

  1. Clarify policy language regarding co-therapy definition, documentation, and billing requirements (OIG recommendation).
  2. Clarify in policy that interns, aides, students, orderlies, and technicians can participate in therapy session when they are directly and appropriately supervised according to provider licensure requirements, but they are not eligible to enroll as providers and bill Texas Medicaid for services (OIG recommendation).
  3. Consolidate Traditional, Comprehensive Care Program (CCP) and Home Health Agency therapy policies into one policy.
  4. Require a primary care or treating physician to initiate a signed order or referral prior to an initial therapy evaluation.
  5. Require a primary care or treating physician to order the therapy services based on the outcomes of the evaluation.
  6. Clarify medical necessity for therapy services to ensure prior authorization staff who are reviewing requests are using guidelines based on the nationally recognized standards of care.
  7. Require licensed Medicaid enrolled therapists to document and support decisions for continued therapy based on professional assessment of a client’s progress relative to their individual treatment plan and in concert with the client’s primary care physician and the individual and/or family.
  8. Ensure appropriate duration of services by aligning authorization periods with national standards (limit the authorization period to 60 calendar days).
  9. Streamline prior authorization processes, and
  10. Implement policies that ensure services are provided in the most cost-efficient and medically appropriate setting, and implementation of other medical or billing policy changes.

When one examines these suggestions more closer, it becomes apparent that MCO policies are mostly administering them already. The 100% MCO scenario almost guarantees that those policies will be implemented for Medicaid therapy and hence for all of Medicaid therapy.

A means to an end – how do Medicaid reimbursement shortfalls affect the end client? Given a particular Medicaid fee schedule for a particular therapy delivery model, therapy revenue model (the portfolio of payers for a therapy organization) and a particular therapy business location, what numbers will lead to either a remarkable access to therapy care catastrophe, to folding industries, and/or to vast professional therapist shortages? We remain committed to establishing that an operational GPM (gross profit margin) interval of between 3% and 6% corresponds to a spectrum of surviving to thriving therapy businesses in Texas where an access to therapy care problem is held in check. In my paper written 3 years ago, I calculated how a certain rate reduction would affect that operational GPM for a therapy business. Everything else being equal, (i.e., modest leading economic indicator changes, population increases, uniform payer portfolio, unremarkable client roll decreases, and an adequate workforce), this operational range for a GPM is sustained only under lower uniform (across-the-board) rate reductions of approximately 2% – 5%.

The real financial means to an end here is that the value of a unit operational therapy dollar for the taxpayer is increasing at a much faster rate than the unit cost of operational functionality inflation for therapy businesses and so, continual biennial reductions are unsustainable for any therapy delivery model and Medicaid therapy client in Texas. Politically, the end game seems to be the realization of sub-Medicare equivalent rates and/or a massive reduction of Medicaid rolls both of which would lead to SCOTUS case litigations and social and physical health malaise among the poor that would propagate to the middle class via a more general access to therapy care problem. Texas legislators that supported this Rider state that therapists are paid more in Texas for Medicaid than other states. This seed was sowed by the TAMU study and more egregiously by the follow-up HHSC interpretive report on it. We have pointed out the fallacies of both in the past and nothing has changed since. So the premise used that therapists in Texas are being overpaid for Medicaid services is a false one if using all national data and equitable and harmonized billing methodologies from each state. It turned out to be a most convenient political tool to use in order to unilaterally reduce Medicaid therapy costs despite the fact that bill language excluded the mention of the study. Other rational used has stated that the number of therapists in Texas has grown in the past few years. This coupled with the fact that Medicaid therapy rates are still higher than other payer’s therapy rates implies that access to therapy care will not suffer. This is again, numbers being thrown out over a course of time, not being normalized to the current issues. Increased population produces increased providers and clients. Different regions in Texas experience different economic up and down swings, many lagging by the actions of other larger regions. If a therapy business has a certain portfolio of

Other rational used has stated that the number of therapists in Texas has grown in the past few years. This coupled with the fact that Medicaid therapy rates are still higher than other payer’s therapy rates implies that access to therapy care will not suffer. This is again, numbers being thrown out over a course of time, not being normalized to the current population needs. Increased population produces increased providers and clients. Different regions in Texas experience different economic up and down swings, many lagging by the actions of other larger regions, and the national and world economies. If a therapy business has a certain portfolio of payors which is diversified (of which they should if they expect to survive in this current economic climate), then the reduction of revenues from just one payor will shift their healthy or even surviving GPMs appreciably downwards. This downward shift of even a few tenths of a percentage in GPM is the difference between surviving, breaking even or folding.

Here, we have not even addressed the issue of decreased, but sustained levels of access to therapy care. Differences of as little as a few visits per month may spell disaster for particular subpopulations of disabled and/or poor children. Assuming that the economics of how therapists graduate, prosper, and then flourish (or not) through selecting a particular delivery model to use for their practice and then building their payor portfolio and referral sources, points to how a zero-sum game for therapist unravels itself – the state agencies and legislators predict free market efficiencies for Medicaid clients and the taxpayer. One must put this scenario in its proper perspective. A mere $100M savings is a drop in the bucket for the transportation budget or Rainy Days Fund (RDF). One partially less state highway paved would have saved thousands of therapy patients. One mid-sized energy company would have produced more than enough in tax revenue in two years to the state to again fill up the coffers of the RDF covering that missing $100M.

In the next few weeks, HHSC will be seeking versions of stakeholder input via in-person meetings in Austin and then turn their agency cogwheels to wrap themselves around the shortfall equivalents to therapy operational policy changes and/or rate reduction numbers. Is there a happy medium between these two proposals? For example, by implementing policy changes (with all that it entails), will greater than $50M savings crystallize? If a rate reduction is proposed, will a measure of access to therapy care be accurately calculated to justify it? Even the TAMU study pointed out grave consequences of applying abrupt large cuts to therapy rates, resulting in the reduction of therapy business financial health and sustainability and how that is directly proportional to the number of Medicaid children served adequately by those businesses.