MedPAC Again Calls for $2B in SNF Cuts, But Also Urges Caution Amid PDPM Shift

The Medicare Payment Advisory Commission (MedPAC) on Friday again called for up to $2 billion in cuts to skilled nursing reimbursements under Medicare — but with a caveat that the new payment model could cause significant changes for operators moving forward.

The nation’s more than 15,000 skilled nursing facilities should not receive a scheduled 2.6% Medicare market basket update in fiscal 2020, MedPAC wrote in its twice-annual report to Congress, citing a variety of positive benchmarks for the industry.

The average Medicare margin for SNFs came in at 11.2% in 2017, according to the non-partisan agency, while investors’ appetite for properties remains unabated in the face of macro-level changes to reimbursements and consumer preferences.


“Access to capital was adequate in 2018 and is expected to remain so in 2019,” MedPAC officials wrote in the report. “Lending wariness reflects broad changes in post-acute care, not the adequacy of Medicare’s payments. Medicare is regarded as a preferred payer of SNF services.”

MedPAC had already approved this recommendation back in January, along with a suggestion that the Centers for Medicare & Medicaid Services (CMS) update its case-mix weights under the new Patient-Driven Payment Model (PDPM) annually to prevent over-provision of certain services. Together, the changes would slash $750 million to $2 billion in Medicare funding to SNFs in fiscal 2020 alone, for a total of $5 billion to $10 billion over the coming five-year period.

But the Friday release comes with a twist: an acknowledgement that the coming Patient-Driven Payment Model could change the overall outlook for Medicare reimbursements to skilled nursing facilities.


“Given the impending changes, the Commission will proceed cautiously in recommending reductions to payments,” MedPAC wrote in affirming its call for the cuts. “A zero update would begin to align payments with cost while exerting pressure on providers to keep their cost growth low.”

The conclusion should come as nothing new for many players in the nursing home space, especially during the Ides of March: MedPAC has frequently used its required reports to Congress to call for cuts, issuing the same recommendation on the exact same date, March 15, in 2018. The group also criticized CMS last June for waiting until fiscal 2020 to roll out PDPM, citing its similarity with the now-scrapped RCS-I system for which the industry had already begun preparing.

Congress is under no obligation to follow MedPAC’s suggestions, and lawmakers frequently ignore them; providers received that market basket increase in fiscal 2019 as scheduled, for instance.

In addition, even while criticizing the current rates, MedPAC acknowledged that Medicare margins vary wildly across individual providers: For-profits average a 13.7% margin against just 1.7% for non-profits, while the gulf between small and large SNFs ranges from -0.3% to 12.6%, respectively.

In MedPAC’s estimation, these inconsistent incentives and margin outcomes stems directly from overpayment.

“The persistently high Medicare margins and their wide variations 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.

But MedPAC also noted that Medicare is just one part of the average SNF’s reimbursement picture, with Medicaid typically forming the backbone along with managed care payers — and the numbers are far less favorable to the industry among this group. In 2017, the median total margin for nursing homes sat at 0.6%, with a range of -5.3% to 5.5% between the 25th and 75th percentiles.

When taking Medicare out of the equation entirely, SNFs had an average margin of -2.4% when working with all other payers.

“Beneficiaries receiving skilled nursing services are increasingly enrolled in alternative payment models (including bundled payments and ACOs) and MA plans, which typically seek to shorten stays or avoid this setting entirely,” MedPAC wrote in acknowledging declining overall margins.

The advisory group isn’t alone in observing this trend: Multiple third-party advisory firms have found nursing home margins hovering around zero in recent years, from CliftonLarsonAllen’s estimate of 0% to Marcum LLP’s determination that the average building loses four cents per day on every resident.

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