The COVID-19 pandemic placed skilled nursing facilities under an intense, national microscope, while also devastating the industry’s workforce. As such, the cost of skilled care increased, placing more attention on Medicaid, the largest payer of nursing home care. The resources committed to long-term care represent close to 60% of national Medicaid spending. Yet in many states Medicaid rates are woefully less than the costs to care for Medicaid beneficiaries.
How Medicaid will evolve, and what operators can expect, will drive the success that SNFs can have as the pandemic continues, and beyond, says Betsy Rust, Partner and CPA with Plante Moran.
“What happens with Medicaid reimbursement is absolutely critical to the health and welfare of the industry,” Rust says. “The pandemic has had a huge impact on the nursing facility industry, and as a result we need to have meaningful changes to how nursing facilities are paid.”
Why change is necessary
The pandemic has caused migration of workers away from the nursing home industry, driving up wages and contract labor cost. This has encouraged many SNF operators to get creative with regards to their recruitment and retention efforts. One Indiana SNF, for instance, has found ways to offer SNF staff housing and transportation discounts. Infection control costs have also escalated. The ability of nursing homes to weather these rising costs will come down to each state’s willingness to pay for the services rendered.
“CMS allows individual states a lot of flexibility in determining Medicaid payment rates for long-term care, and when you’ve seen one state Medicaid system, you’ve seen one system,” Rust says. “There are simply no two that are alike, and there are vast differences between states in terms of the rate components that they use, and the total daily rate they pay.”
State Medicaid rates are also typically lower than rates paid by Medicare for equivalent services.
Rust notes that a large number of states reimburse using an acuity-based system. In 2019, Medicare shifted the measure of acuity used from RUGs to PDPM. States will also need to shift to PDPM when CMS discontinues support of RUGs, but that date remains uncertain and linked to the end of the pandemic. Some states began to consider ways to overhaul their entire reimbursement approach while transitioning to PDPM. The pandemic put those plans on hold, and states are now bringing those initiatives back into play — albeit to a different resident landscape.
“Residents who are living in our nursing care facilities have far more care needs than they used to,” Rust says. “On the one hand, we have lower-acuity residents shifting to home- and community-based settings, and on the other we are admitting residents who previously would have continued to be cared for in acute or long-term acute (LTAC) hospitals. The net result is an increase in acuity which is also driving up the cost of care, and states are looking at how to pay for it.”
One solution: Medicaid add-ons for higher acuity and complex care. The use of add-ons, such as for ventilator care, wound care or dialysis, is not necessarily new, but increasingly states are utilizing add-ons for behavioral health. Massachusetts recently implemented add-ons to address behavioral health costs associated with substance abuse and homelessness.
“The trend here with state reimbursement systems is that we’re going to see more recognition for higher care needs,” Rust says.
An emphasis on pay for performance
The increase in higher care needs combined with the increase in cost of care will lead to a greater emphasis on pay for performance, Rust says, with reimbursement increasingly tied to quality outcomes and staffing levels.
“In terms of emphasizing pay for performance, many states currently have quality incentives and other mechanisms to incentivize providers and to reward for performance,” she says. “We anticipate that the amount of funding set aside for these types of initiatives will grow significantly in response to the pandemic.”
One big driver of those incentives is the staffing crisis. Just as states are using add-ons to address complex care needs, with an emphasis on new areas of care, states are also considering linking reimbursement to staffing levels.
“Reimbursement specifically for staffing wages can be accomplished with directed payments to the workforce through wage pass-throughs to nursing homes,” Rust says. “Linking payment to staffing levels is also an option.”
In Illinois, for instance, “a significant portion” of the reimbursement rate will now be linked to how closely a provider’s actual staffing level equals the expected staffing level based on the acuity of the resident of the population as documented on the resident MDS assessment.
In short, higher staffing will lead to higher reimbursement rates and additional funding will be paid when staffing levels exceed expected amounts. In 2019, the Medicaid Payment and Access Commission published a summary of State Medicaid reimbursement systems, revealing that less than 50% of states were using quality incentives.
“We really expect to see significant growth in the number of states utilizing quality and pay-for-performance measures and in the percentage of the payment rate that is linked to these measures,” Rust says.
Incentives for infection control and patient safety
Many SNFs continue to operate with three- to four-bed ward rooms. Not surprisingly, the pandemic increased attention paid to infection control, and as such renewed the discussion on single vs. multi-occupancy rooms. A 2021 study by Health Management Associates highlighted numerous benefits from single resident rooms including improved infection control, improved sleep patterns and behavior among people with dementia and higher resident and family satisfaction.
“President Biden has also weighed in on the conversation, citing overcrowding in SNFs as having an impact on patient health and safety,” Rust says. “We expect states to consider policies that will encourage or require a reduction in the number of residents per room. While there are substantial benefits to such policies, there are also significant increases in the operating costs per resident that will need to be funded.”
Transitioning from COVID add-ons to permanent Medicaid increases
Many states have really stepped up their funding throughout the pandemic, providing significant add-ons related to staffing, supplies and testing. The question now is how much of these temporary add-ons will become permanent and how fast will states adopt pay for performance initiatives.
“Our industry is prepared to handle the challenges associated with the increased clinical care needs of our residents, the labor force crisis and the need to innovate – but we can’t do it without the financial support and funding of Medicare and Medicaid.”
This Views article is sponsored by Plante Moran. To learn more about changes to Medicaid, visit plantemoran.com.
The Views Series is a sponsored content program featuring leading companies’ news, views, case studies and announcements pertinent to their organization and the industry at large. For more information on Views, please contact [email protected].