Skilled Nursing Operators Face Down ‘Unsustainable’ $2 Billion Cut

Now that the Senate’s compromise spending plan has become law, skilled nursing providers must figure out how to make do with fewer Medicare dollars over the next 10 years.

The decline comes from a freeze in the Medicare market basket rate, which the new budget has set at 2.4% in fiscal 2019. The industry had expected a larger increase in the index, according to a spokesperson for the American Health Care Association.

As a result, the Congressional Budget Office has estimated a $1.9 billion reduction in Medicare spending over the next decade. The 2019 fiscal year begins October 1 of this year.

“The last thing we need is another reduction in Medicare,” Dan Holdhusen, director of government relations at the The Evangelical Lutheran Good Samaritan Society, told Skilled Nursing News.

Kathy Gallin, director of legislative affairs at Signature HealthCARE, which provides skilled nursing and other long-term care services across 11 states, also expressed disappointment with the rate freeze.

“It’s unsustainable to an industry that already operates on such thin margins,” she told SNN. “Our cost of doing business doesn’t decrease over the years, our expenses don’t decrease; costs of supplies go up, wages go up.”

Good Samaritan, the largest not-for-profit senior care provider in the U.S., has approximately 180 nursing homes. About 60% of residents in those homes are Medicaid patients, while about 15% are on Medicare, though this number can fluctuate due to various factors, including shorter-term stays by Medicare residents, Holdhusen said.

As with other nonprofits, Medicaid is a major pain point for the Sioux Falls, S.D.-based Good Samaritan, with the provider getting roughly 89 cents of reimbursement for every dollar spent on Medicaid patients, Holdhusen told SNN. Because of that, any reduction of revenue, even if it’s spread out over 10 years, hits the skilled nursing industry hard, he said.

To calculate the Medicare market basket rate, the Centers for Medicare & Medicaid Services’ (CMS) Office of the Actuary considers the costs of various products and commodities. Though there are some minor variations, it’s generally the same across various Medicare providers, Holdhusen explained. More specifically, individual market baskets are produced for several payment systems, including the Skilled Nursing Facility Prospective Payment System (PPS), to measure the price changes providers are dealing with, according to CMS.

The exact market basket rate isn’t known until the Medicare reimbursement rule is issued, and the rule itself won’t go into effect until after Oct. 1. But the adjusted rate for fiscal 2019 was expected to be about 2.7%, Holdhusen said.

“They will use that calculation, whatever it might be, to add into the escalator on the rates,” he said. “And in this case, what they did is hardwired, or artificially decreased, the amount of the market basket.”

The freeze to 2.4% is not the first cut to the rate. When the so-called “permanent doc fix” — part of the the Medicare Access and CHIP Reauthorization Act that blocked a 21% cut in Medicare payments to doctors, according to CBS and the Associated Press — was passed in 2015, the basket rate rate took an artificial cut in fiscal 2018 to 1% to offset part of the cost.

Combine that with the new rate freeze, low Medicaid reimbursement rates, regulatory uncertainty over the Affordable Care Act (ACA) and the efforts to repeal it, an aging population, and general pressure on SNFs, and the cumulative effect is “a pretty big blow,” Holdhusen said.

“I’m not necessarily wringing my hands and lamenting,” he said. “But at the same time there are challenges that wer’e doing to have to meet to care for the growing number of residents that need care.”

Not a total loss

The industry tentatively celebrated the budget proposal after both the House and Senate included a provision to repeal the controversial cap on Medicare-funded physical therapy services. But according to LeadingAge, a nationwide trade group that represents non-profit long-term care providers, that victory came at a cost.

“The offsets it requires will impact home health, hospice, and nursing home providers — as well as the older adults they serve — negatively,” LeadingAge said in a statement to SNN Friday. “What’s more, our members know from experience that across-the-board cuts to skilled nursing facilities and home health hurt good providers’ ability to continue delivering high-quality care to older Americans.”

Gallin also praised the repeal of the therapy caps, contrasting how that issue was handled with the market basket freeze.

“The therapy caps, that was done with so much thought and that was done with leadership,” she said. “The fact that there’s a permanent repeal on the therapy caps is wonderful… but [the rate freeze] was passed with a large decrease to funding for skilled providers and a large negative impact to the industry.”

Still, at least one skilled nursing CEO remained relatively upbeat about the developments. Speaking on his company’s fourth-quarter earnings call Friday afternoon, Ensign Group (NASDAQ: ENSG) CEO Christopher Christensen described the 2.4% rate increase as “healthy,” while acknowledging that it was lower than expected.

“That’s what we’ve been accustomed to,” Christensen said. “In fact, we’ve been accustomed to less than that, a few years. I don’t think any of it is concerning.”

Written by Maggie Flynn and Alex Spanko

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Alex Spanko
Assistant Editor at Aging Media Network
Alex covers the skilled nursing and reverse mortgage industries for Aging Media. Outside of work, he reads nonfiction, yells at Mets games from his couch, and enjoys pretty much any type of whiskey or scotch — often all at once.

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