After delaying cuts last year due to Covid, the Centers for Medicare & Medicaid Services (CMS) announced last week that it is moving forward with proposed cuts to Medicare funding for nursing homes.
The CMS proposal includes a 3.9% Medicare rate increase for skilled nursing facilities, but the agency announced cutbacks to PDPM payments by 4.6%, effectively reducing overall payments by 0.7% or $320 million.
Though the CMS proposed payment rule has until the summer to be finalized before its implementation in October, the government agency indicated that there will not likely be any further delays or a phased-in implementation.
CMS believes it is “imperative” to act in an expedient manner once excess payments are identified, according to the proposed rule as published in the federal register.
“After careful consideration, we are proposing to recalibrate the parity adjustment in FY 2023 with no delayed implementation or phase-in period, particularly after considering that we have already granted a 1-year delayed implementation by not proposing or finalizing the parity adjustment in the FY 2022 SNF PPS proposed and final rules,” CMS officials wrote.
Stifel analysts in a note published on April 17 indicated that while tweaks of the rates are possible, they did not believe CMS would delay cuts an additional year.
“We think the proposal adds to financial stress the SNF industry is facing, from slow recovery of occupancy to unprecedented labor pressure,” the Stifel analysts wrote.
In light of the current operating environment that SNFs face, Marc Zimmet, president and CEO of Zimmet Healthcare Services Group, said the parity adjustment would be at best counterproductive and at worst dangerous, as revenue distribution continues to be the greatest threat to stability.
“SNFs were uniquely burdened by the pandemic. CMS should consider the outsized role skilled nursing played through the pandemic by treating-in-place and caring for higher acuity patients,” Zimmet wrote in an analysis of the proposed recalibration, shared on LinkedIn on Monday.
Zimmet felt CMS’s recalibration would be “apocryphal” as the overpayments are based on the average gross PDPM rate per day, benchmarked against a modeled RUG-IV per diem.
He felt CMS should better factor reimbursement-sensitive realities of the sector – such as the elevation of acuity seen across the space and the rise of hospital-based transitional care units – when determining its budget-neutral equation to ensure equitable payment for SNF services.
Zimmet said that SNF efforts resulted in significant savings to Medicaid, Medicare Part B and Medicare Part D and that SNFs deserve credit for overall savings. At the same time, CMS bears responsibility for the undue enrichment of insurance companies at the expense of SNF providers, he said.
CMS cited MedPAC’s March 2022 report to Congress which found that since 2020, the aggregate Medicare margin for freestanding SNFs has consistently been about 10% each year. The aggregate margin in 2020 increased to an estimated 19.2% when including Public Health Emergency (PHE) COVID-19 relief funds.
“Given these high Medicare margins, we do not believe that a delayed implementation or a phase-in approach is needed,” CMS noted.
CMS went on to say that the parity adjustment recalibration would “remove an unintended increase in payments from moving to a new case mix classification system, rather than decreasing an otherwise appropriate payment amount.”
“Thus, we do not believe that the recalibration should negatively affect facilities, beneficiaries, and quality of care, or create an undue hardship on providers,” CMS wrote.
Medicare cuts may increase operator divide but Ensign is poised to grow
With several government relief programs expected to be phased out soon – including several waivers tied to the pandemic – and more federal regulations coming down the pipeline, the proposed cut may further widen the divide between strong and weak operators, and speed up consolidations.
Several county-owned nursing homes across the country have announced plans to close in recent weeks as a report from USA Today released on Monday indicated that at least 300 nursing homes have closed or are winding down operations since the start of the pandemic.
“The proposal is a negative for REITs with significant SNF exposure as the industry has been plagued by a tight labor market, which has elevated expenses and constrained the occupancy recovery,” the Stifel note indicated.
While that may be the case, analysts suggested The Ensign Group (Nasdaq: ENSG) is poised to further separate itself from the pack given all the uncertainty ahead.
Ensign has been aggressive on the acquisition front in recent months, expanding its footprint in Texas with the purchase of the Waterton Healthcare and Rehabilitation, a 74-bed skilled nursing facility in Texas.
Stifel analysts believe Ensign is “best positioned to capitalize on the added external growth opportunities.”
Recent moves, such as adding $250M to its credit facility and setting aside $34.2 million for a bonus pool for caregivers and facility employees, further position the company for growth.
Stifel analysts think the bonus pool further enhances the competitiveness of Ensign’s operations in a tough labor market, which will only strengthen its local leadership.
With some states increasingly tying funding to staff pay, allocating enhanced Medicaid revenue to front-line teams is a “smart strategy”, according to Stifel.
Companies featured in this article:
Ensign Group, MedPAC, Stifel, Zimmet Healthcare Services Group
