MedPAC Unanimously Calls for $2 Billion in Skilled Nursing Payment Cuts in 2020

After floating a proposed recommendation to slash nursing homes’ Medicare reimbursements for fiscal 2020, a leading legislative voice on health care issues made it final last week.

The Medicare Payment Advisory Commission (MedPAC) called on Congress to reduce funding for skilled nursing facilities by up to $2 billion in the next fiscal year, citing sufficient existing margins on Medicare services and upcoming changes to therapy reimbursements under the Patient-Driven Payment Model.

“For efficient providers, those with relatively low cost and high quality, the average Medicare margin was 18%, further evidence that Medicare overpays for SNF care,” MedPAC principal policy analyst Carol Carter said during the commission’s January public meeting, held in Washington last week. “We project the 2019 margin to be 10%.”

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MedPAC thus recommended that Congress should nix the planned Medicare rate increase for skilled nursing facilities in 2020, while also updating case-mix weights under PDPM annually to prevent overpayments for certain services. That plan would reduce overall spending by $750 million to $2 billion in fiscal 2020, with $5 billion to $10 billion in cuts over the next five years.

“First, the SNF PPS continues to favor the provision of therapy and needs to be revised. Further, to keep payments and costs aligned, the relative weights of the case-mix groups should be updated annually,” Carter said. “Second, the level of payments is too high, given the costs of treating beneficiaries.”

MedPAC’s members approved the recommendations unanimously, but Congress is under no obligation to incorporate the requests into actual policy.

“Given the high level of Medicare’s payments, we do not expect adverse impacts on beneficiaries,” Carter said. “Providers should continue to be willing and able to treat beneficiaries.”

This isn’t the first time that the commission, which advises Congress on matters of Medicare policy, has called to slash SNF funding. MedPAC last year criticized Congress for approving a 2.4% market basket boost for fiscal 2019, and had previously advocated for scrapping increases in both 2019 and 2020.

While Medicare margins for skilled nursing facilities may be high, about 62% of residents in the nation’s nursing homes are covered by Medicaid, which offers substantially lower reimbursements for long-term services. Across the board, the median operating margin for skilled nursing operators dropped to zero in 2017, according to a fall 2018 analysis by accounting firm CliftonLarsonAllen.

“Medicare and many Medicare Advantage plans are implementing more value-based payment mechanisms, which highlight the need for facilities to monitor and improve quality metrics,” CLA noted in its report.

Still, MedPAC described the overall landscape for skilled nursing providers as “positive” over the past few years, citing steady supply of facilities and “adequate” access to capital.

“Even though covered admissions and days decreased between ’16 and ’17, these trends are consistent with the decline in inpatient hospital stays that were three days or expanded MA enrollment and alternative payment models, which are likely to use fewer SNF services,” Carter said. “The marginal profit, an indicator of the financial incentive to treat Medicare beneficiaries, was 19.1%.”

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