Cartoon of the Day: Drinking The Kool-Aid?

Cartoon of the Day: Drinking The Kool-Aid? - central bank kool aid 06.09.2016


Did you drink the central planning Kool-Aid?

CMS Home Health Prior Auth becomes pre-claim review in fraud-prone states -AMED, LHCG, KND, HLS

Takeaway: CMS backed down from a pre-authorization demo for home health in fraud-prone states and is requiring pre-claim review. Not great, not awful

In early February, CMS sent up a trial balloon in the form of a Paper Work Reduction Act notice in the Federal Register asking for comment on the collection of information for a pilot on pre-authorization of home health services in the fraud-prone states of Florida, Texas, Illinois, Michigan and Massachusetts. That trial balloon was barely aloft when the industry got out the BB guns and started shooting. A grass roots effort turned out the public comments and lobbyists helped circulate a letter opposing the yet-to-be-proposed prior-authorization demonstration that was eventually signed by 116 lawmakers. And you thought no one reads the Federal Register.


Prior authorization for home health services raises the ire of the industry because it can slow beneficiary access to services which can diminish outcomes for the patient. Prior authorization also raises the specter that Medicare fee-for-service home health agencies will be forced to operate in the way they do as members of Medicare Advantage plan networks. Many Medicare Advantage plans require prior authorization before the commencement of home health services and agencies do not recieve the upfront "anticipated payment" that amounts to about 2/3 of the episode reimbursement. On the other hand, CMS is under a lot of pressure to reduce improper payments. Please see our recent report on Recovery Audit Contractors for more on that. Home health is rife with improper payments - largely due to documentation errors. Complete capitulation by CMS was not politically possible, given the OIG's recent demand that CMS come up with a plan to reduce its improper payment rate below 10 percent.


Yesterday, CMS found a way to begin to address the extremely high improper payment rates in home health without going so far as requiring prior authorization. Instead of obtaining prior authorization to admit and treat a patient in home health care, CMS is asking agencies in Florida, Texas, Illinois, Michigan and Massachusetts to submit a "pre-claim" review of documentation that supports the admission of the patient and the level of home health services. They are to submit to pre-claim review after they have submitted their Request for Anticipated Payment. An HHA can submit to a pre-claim review as many times as necessary to get it right. If an HHA does not submit to a pre-claim review and the claim is submitted for payment, then the claim will be subject to prepayment review to determine medical necessity. If after three months of the demonstration being operational, the HHA does not submit documentation for pre-claim review and the claim is later deemed payable, it will be subject to a 25 percent reduction. This demonstration is scheduled to last three years and begin in Illinois no earlier than August 1, 2016.


The industry in the form of the Visiting Nurses Association fo America (VNAA) and the Alliance for Home Health Quality and Innovation (AHHQI) consider CMS's move to be pre-authorization by another name. The Partnership for Quality Home Healthcare (PQHH) which represents many of the publicly traded home health providers agreed. Both issued statements today opposing the effort, suggesting alternatives and pointing out that CMS failed to use the rulemaking procedure to implement the demonstration.


Pre-claim reviews will be handled by the Medicare Administrative Contractors who get mixed reviews from providers on their ability to adequately communicate and educate. HLS, for example, has been plagued by pre-payment reviews of IRF claims that return 100 percent denial rates. So the industry is understandably wary that the MACs will use what is meant as a way to improve on documentation problems to deny claims after services have commenced. Sophisticated, well capitlaized operators will probably have few problems overcoming documentation problems. It is the rest of the industry - the small local operator that make up so many of the HHAs in the US - that is most likely to be negatively impacted.


We tend to think that anything that helps improve the reputation of the industry and pushes it toward consolidation is probably, in the long run, a good thing. We do acknowledge that pre-claim review in a few states may be a big headache but probably not the end of the world for reputable operators like AMED, HLS, LHCG, KND and AFAM.







Capital Brief: Clinton's Courtship... & Trump's Worst Week Ever

Takeaway: Clinton's Courtship; Self-Inflicted Wounds; Extinguishing The Flame;

Capital Brief: Clinton's Courtship... & Trump's Worst Week Ever - capital brief


Editor's Note: Below is a brief excerpt from Hedgeye Potomac Chief Political Strategist JT Taylor's Capital Brief sent to institutional clients each morning. For more information on how you can access our institutional research please email


Capital Brief: Clinton's Courtship... & Trump's Worst Week Ever - clinton sanders


The rivalry between Hillary Clinton and Bernie Sanders moves into a new phase where Clinton hopes to soothe tensions and move the party towards unification and eventually instill enthusiasm among Sanders’ loyalists. It won’t be completely one-sided and no candidate will get their own way – and she’ll likely have to concede more ground on trade, financial services, as well as labor issues.


If Clinton wants to get a head start on beating Donald Trump in the fall, she and Democratic party chieftains need appeal to him and his most fervent followers who toil outside the traditional boundaries of the Democratic party. As we’ve noted before, look for Senator Elizabeth Warren to play a central role in brokering a deal in the coming days.


Capital Brief: Clinton's Courtship... & Trump's Worst Week Ever - trump sad


Bad week for Trump and the timing couldn’t be worse. Party leaders are admonishing him to avoid controversy and focus on policy issues - and fast. With the Democrats uniting - and with five months to go to election day - they fear that they’ll be dragged down with him if he doesn’t pivot away from his sideshows and focus on what Americans care about.


Sanders hasn’t sacked his campaign, but he is sure to shortly. With DC being the only remaining primary and Clinton’s grip on the nomination all but assured, his campaign has begun laying off staff as a large majority of superdelegates are expected to go public with a Clinton endorsement.


Sanders will meet with President Obama this morning and Minority Leader Harry Reid later in the day -who along with Warren will work to convince Sanders to exit gracefully. Sanders says he’ll remain in the race until next week’s DC primary – but the reality of flipping over 400 superdelegates is starting to sink in...

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The NIRP Effect: How Central Planners Are Pancaking Global Bond Yields

Takeaway: A look at the pancaking of yield curves around the globe.

The NIRP Effect: How Central Planners Are Pancaking Global Bond Yields - bond yields


Below are sovereign bond yields for select countries with negative interest rate policies. The graphs show the yield curves for those sovereign bonds today (green line) versus where they were last year (yellow line).  


German 10yr:


6/9/15: 0.949% 

Today: 0.037%


Click images to enlarge.

The NIRP Effect: How Central Planners Are Pancaking Global Bond Yields - german yield curve


Japanese 10yr:


6/9/15: 0.448%

Today: -0.131%


The NIRP Effect: How Central Planners Are Pancaking Global Bond Yields - japan yield curve


Swiss 10yr:


6/9/15: 0.211%

Today: -0.48%


The NIRP Effect: How Central Planners Are Pancaking Global Bond Yields - switzerland yield curve


How This Whole thing Shakes Out is anyone's guess.

Got Demand?

Takeaway: One thing that is not up for debate is the rate of change in global demand, the growth of which continues to decelerate on a trending basis.

In this morning’s Early Look – which is an absolute must-read for anyone interested in successfully navigating the reflation vs. deflation debate – Keith posited whether or not it’s appropriate to chase reflation-oriented factor exposures higher from here:


“I’ve been much more vocal on the Long Utilities (XLU) vs. Short Financials (XLF) view than I have been on being long Reflation and that’s basically because it was an easier call to make that growth would slow than it was that being right on #GrowthSlowing would get people to chase Reflation Charts that have been blowing investors up for 3 years. I don’t think of this as a mistake yet (this “bull” only started in MAR/APR). I’m actually thinking of it as an opportunity. While I haven’t been short Energy this year (we were last year with our #StrongDollar Deflation call), I haven’t been long it either.


Do I buy something that I’ve initially missed (that’s already had a huge move) that doesn’t have global demand behind it? Maybe. I have no problem buying or selling anything, don’t forget. If Energy stocks (XLE, XOP, OIH, etc.) are about to put on a 6-12 month move (higher) from here, it’s my job not to miss that inasmuch as it’s my job not to get sucked into the allure of its momentum.”


For now we remain squarely in the “no position” camp. While that may not be especially useful for anyone who’s under pressure to put capital to work today, we do think as the authors of the global deflation trade going back to the late-summer/early-fall of 2014, we’ve afforded ourselves some time to wait and watch after having [fortuitously] closed out our bearish biases on energy and industrials in early January on our Q1 Macro Themes Call.


One thing that is not up for debate is the rate of change in global demand – the growth of which continues to decelerate on a trending basis.


Looking at Markit PMI data (something that is admittedly easy to track because the consistent nature of index construction makes it cross-country comparable on an apples-to-apples basis), we see that global growth slowed sequentially in MAY. Moreover, said weakness was perpetuated by sequential slowdowns in both advanced and emerging economies.


Got Demand? - GLOBAL C PMI






Looking at the data more granularly, we see that only 35% of country and regional PMI figures across manufacturing, services and composite readings are both expanding (i.e. > 50) and accelerating sequentially as of last month. The rest are either expanding but decelerating or in outright contraction (i.e. < 50). Furthermore, the latest monthly and 3MMA values (51.1 and 51.4, respectively) for the global composite PMI are only in the 3rd and 5th percentiles, respectively, on a trailing 3Y basis.


Got Demand? - 4

Got Demand? - 5


Got Demand? - 6


We’ve been hearing that “global PMIs are bottoming” every month since OCT, so we’re not exactly sensitive to that view. That said, however, if you feel you’re aware of a near-term catalyst to get the aforementioned indicators to inflect sustainably (other than eventual mean reversion as all diffusion indices eventually do), we’re all ears. Feel free to email us and we can discuss further.


Best of luck out there navigating the ongoing slowdown in global growth.




Darius Dale


CALL REPLAY | Brexit: Should I Stay or Should I Go?

Yesterday Hedgeye Potomac hosted a timely call with Alexander Nicoll to discuss Brexit – will the UK vote to stay or leave the EU on June 23rd? 


Nicoll, a consulting member of the London-based think tank International Institute for Strategic Studies, walked through a seven point framework to contextualize the events leading up to the UK vote and what the outcome of the vote spells for the UK and EU.


The call included a very lively question and answer session that was moderated by our own James Taylor (on the financial and political implications of the vote) and our own Lieutenant General Emo Gardner (on security and defense considerations).


Replay of the one hour call (click here).

Presentation Materials (click here).


While opinion polls currently reveal a near dead heat on the Brexit vote (see the Poll of Polls below), ultimately, Nicoll shares our opinion that UK voters will tip towards the Remain camp.  To review our thoughts on Brexit, including the market and FX impacts, see our note titled Got Brexit? Nope!


Below we summarize some of the salient points discussed in Nicoll’s prepared remarks and the Q&A.

CALL REPLAY | Brexit: Should I Stay or Should I Go? - Poll of Polls


Summary Points:

  • No country has ever left the EU. Should the UK leave, it would deal a huge blow to the ‘European Project’, namely a common market for free trade and a customs union, and the shared set of values, laws, and regulations established to increase security and advance democracy.
  • Why the Referendum?  Grounded in domestic politics, it resulted from a long standing split in the Conservative Party.  Since 1990 there has been a strong anti-Europe/Eurosceptic wing of the Conservative party. Given the rise of the right-wing populist party, the UK Independence Party (UKIP), PM David Cameron has made a series of concessions to prevent conservative members of Parliament from defecting to UKIP.  Cameron’s Remain or Leave vote is therefore not coming from a popular groundswell of opinion but rather Conservative politics.   
  • Eurosceptics.  Main Positions: 1) The UK has lost its sovereignty - Brussels overrules Westminster, and 2) Immigration - overrun by excess immigration, especially from Eastern Europe.  Eurosceptics are running a very emotional campaign, tapping into sentiment that a European identity doesn’t exit. Their slogan: “Take back control”. 
  • Remain Camp. Strongly focused on the British economy argument, it states that the UK is economically stronger in the EU vs outside. This position is supported by hundreds of independent economists, the Bank of England, IMF, and OECD.  There's strong support from key partners of Germany and France to Remain.
  • Who Will Win?  Cliffhanger. Poll of Polls show a near dead heat between Remain and Leave parties. Bookmakers’ odds suggest stronger probability of Remain. 
  • Defense Stronger in EU?  On defense, the EU has not made much progress on military matters, so UK’s presence in or out of the EU does not make much of a difference.
  • Security.  Given terrorism through the world, global threats need international cooperation.  In crisis, a UK in the EU is better able to bring resources together that can be impactful in negotiating with other nations. However, should the UK Leave, its main alliance option may be a closer cooperation with NATO.
  • Impact on Relations and Business with the U.S.?  The EU is seen as a much more important entity under President Obama vs prior administrations.  Washington’s view is that the UK is isolating itself if it votes Brexit. Manufacturing, including Aerospace & Automobiles in particular, and Financial Services (London enjoys Financial Capital status) would be the industries most impacted from a Brexit.
  • Contagion?  There’s no exact parallel to the UK’s current Brexit vote.  The National Front in France is a big threat, yet France and Germany remain very strong Pro-European countries.  Euroscepticism, however, is percolating in Finland and Denmark, and also in Spain and Italy – should the UK exit, it throws the entire framework of ‘what is the EU’ into question, and the extent, if any, of a splintering across the continent is difficult to determine.   
  • Roadmap for Trade Relationships if the UK Exits?  The Leave camp says it can strike agreements with whomever it wants – and in general presents the UK as having much more freedom in how it deals with countries throughout the world.  In contrast, the Remain camp presents the benefits of the huge free trade agreement afforded to all EU member states.  The Remain camp underlines the ~ 45% of British exports that go to EU and the ~ 53% of imports to the UK that come from the EU, suggesting that by all estimates, this relationship has increased trade and investment. It presses that the alternative, namely no knowing what future trade agreements could be completed and under what terms, as a great risk to fade. 

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