MedPAC: Congress Should Cut Medicare Rates for Skilled Nursing Facilities

Citing high Medicare margins and concerns over therapy services, the Medicare Payment Advisory Commission (MedPAC) has asked Congress to cut reimbursement rates for skilled nursing facilities.

The non-partisan agency called on Congress to scrap the Medicare market basket rate increases for fiscal years 2019 and 2020 — which would amount to 2% and 2.1%, respectively — then work toward developing a new prospective payment system (PPS) for SNFs in 2019.

Those moves would reduce overall Medicare spending by $750 million to $2 billion in fiscal 2019, MedPAC estimated, with a cut of more than $10 billion over five years.


When the recent Republican-led tax plan resulted in a lower-than-expected increase in the market basket rate, the Congressional Budget Office predicted a $2 billion reduction in Medicare spending over the coming 10-year period — a cut that operators described as “unsustainable.”

“With the current Medicare margin at over 11% and the projected Medicare margin in 2018 at 9%, Medicare payments appear more than adequate to accommodate SNF cost growth without updates,” MedPAC wrote in its most recent Medicare Payment Policy report to Congress.

The agency also pointed to the fact that skilled nursing facilities can and will accept much lower rates from Medicare Advantage plans, leading MedPAC to determine that current fee-for-serivce reimbursement rates are simply too high: For instance, across three publicly traded nursing home companies, Medicare fee-for-service reimbursements were 21% higher than those offered through managed Medicare plans.


In addition, MedPAC called out providers for pulling in significant reimbursements by providing therapy services.

“The persistently high Medicare margins and their wide variation indicate that the PPS needs to be revised and rebased so that payments more closely match patient characteristics, not the services provided to them,” MedPAC wrote, noting that a quarter of freestanding SNFs in 2016 had Medicare margins of 20.2% or more — while another quarter had margins at 0.7% or lower.

And while Medicare is a key payor for skilled nursing providers, MedPAC identified other sources of funding available to operators.

“Access to capital was adequate in 2017 and is expected to remain so in 2018,” the agency wrote. “Lending wariness reflects broad changes in post-acute care, not the adequacy of Medicare’s payments.”

Congress is not required to accept MedPAC’s recommendations.

Read the full report at MedPAC’s website; the chapter on post-acute care begins on page 187, while the skilled nursing portion starts on page 205.

Editor’s Note: An earlier version of this story characterized the Medicare market basket increase under the new tax bill as a freeze. The article has since been updated to clarify that the increase was lower than many in the industry expected, and not strictly a freeze. 

Written by Alex Spanko

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