The skilled nursing sector is under increasing pain due to the growth of Medicare Advantage, with the industry losing hundreds of millions of dollars while operators also are contending with a host of operational burdens. 

This was a message delivered repeatedly Wednesday at the “Roaring Reimbursement” conference held by Zimmet Healthcare Services Group (ZHSG) in Connecticut.

“It’s painful — it’s getting worse,” ZHSG President Marc Zimmet said during the event’s keynote, referring to Medicare Advantage.

The pain is deepening as the growth of fee-for-service (FFS) Medicare has stalled and contracted amid an acceleration in MA enrollment, Zimmet said. In addition to reimbursing providers at lower rates than FFS, Medicare Advantage is associated with lower length of stay (LOS) and more intensive administrative requirements.

Leaders with ZHSG and skilled nursing operators warned that a breaking point may be approaching.

“One of the things that we’re seeing is a lot of managed care audits, and it seems like they’re clawing back just as much as they’re paying, and with it being such a decrease in the reimbursement from traditional Medicare, it almost makes it impossible,” said Jolene Johnson, vice president of clinical reimbursement with The Springs of Arkansas, which operates about 20 facilities across the state.

Focused Post Acute Care Partners, which operates 30 facilities across Texas, is similarly contending with Medicare Advantage audits, according to Vice President of Clinical Reimbursement Kristal Prather.

“We’re seeing the same thing … probably worse than the recent audits they started doing for traditional Medicare,” Prather told Skilled Nursing News.

A $275M drain

For a number of years, as Medicare Advantage enrollment increased, so too did enrollment in FFS Medicare, as the population of older adults grew in the United States. But the situation has changed, Zimmet pointed out in his keynote.

Even though the older adult population continues to expand, the number of people enrolled in FFS Medicare is declining as MA takes an ever-larger share of beneficiaries.

For every 100 new Medicare Advantage elections between Jan. 1, 2022 and June 30, 2023, fee-for-service enrollment declined by 44 on a net basis, for a “Medicare attrition rate” of negative-0.44, according to Zimmet’s calculations. He determined the attrition rate by ​​dividing the change in FFS enrollment by the change in Medicare Advantage enrollment.

In an attempt to quantify the financial implications of this trend for skilled nursing, Zimmet analyzed 2019 data, determining that Medicare Advantage spent about $393 less per year per beneficiary than FFS Medicare. 

Trended to 2023, this means that for every 1 percentage point increase in the total proportion of Medicare beneficiaries enrolled in MA, the skilled nursing sector is losing about $275 million annually, according to Zimmet.

This is a staggering figure and highlights just how high the stakes are for the industry, Zimmet said, arguing that the annual FFS Medicare rate update from CMS actually has a far more muted effect on providers despite commanding a great deal of attention.

Emphasizing this point, he shared the results of a financial performance analysis he conducted for the 2021-2022 time period, focused on about 10,100 certified freestanding SNFs with at least 30 beds, excluding continuing care retirement communities (CCRCs), government or CAH/swing-beds, and facilities with a mid-year change of ownership.

Counting only patient-service revenue, and excluding funding such as CARES Act or PPP loans, with related party transactions added back in and “under agreement” billing (such as for hospice services) excluded, he found that about 3,800 SNFs were profitable and about 6,300 were not.

“What blew me away was the number of facilities — not the ones that make crazy money or lost crazy money — but the ones that lost $100,000 to $600,000, if you look at the breakdown, the major differential is Medicare versus Medicare Advantage,” Zimmet told SNN.

About a four percentage point shift in the volume of MA revenue into FFS revenue would have been enough to flip facilities that lost money into the profitable category, he said.

While the rise of Medicare Advantage is straining the industry as a whole, the situation varies by state. To illustrate this point, Zimmet calculated the 2023 Medicare attrition rate on a state-by-state basis.

Many states are losing FFS beneficiaries to MA at a faster clip than the national rate of negative-0.44. West Virginia, for instance, has an attrition rate of negative-0.82. This is notable given that the state is seen as having a highly favorable reimbursement environment — which is true at the moment, Zimmet said. But operators, investors and other stakeholders would be well advised to note the managed care trend as they plan for the future.

North Carolina was another state that Zimmet highlighted. Given the diminishing enrollment in FFS, Zimmet excluded Part A revenue and analyzed all other payment sources related to patient services for SNFs — such as Medicaid, managed care, Medicare Part B, VA, etc. — in each state, to determine the favorability of their reimbursement environment. He also examined how those reimbursement environments trended between 2019 and 2022, which was a period when many states pursued Medicaid rebasing and other changes. North Carolina was among the states with the greatest improvement in the reimbursement environment in those years.

‘Many hours that we have to fight this’

While Zimmet quantified the pain related to MA growth through data analysis, operators who were at the conference described their particular struggles with Medicare Advantage expansion.

The growth of MA as a payer has been dramatic since the pre-Covid period for The Springs of Arkansas, going from around 25% to at least 50% of case mix, Johnson told Skilled Nursing News. Focused Post Acute Care Partners also has seen MA grow to the same level of about 50%, Prather told SNN.

And both Prather and Johnson are particularly concerned about the administrative demands of managed care, the insufficiency of payment rates, the frequency and outcomes of audits, and the toll that managed care is taking on the workforce.

For example, Prather cited the situation of managed care payers strictly defining what health insurance prospective payment system (HIPPS) codes they will cover, which can leave the facility on the hook financially for higher-acuity care. Prather cited the example of coding IV fluids from the hospital for the nursing component, which could be a difference of about $100 a day.

“For Medicare, we’re going to get paid that, but for managed care, if that’s not the HIPPS they gave you initially — and not all of them do [this], but the majority I see are doing it now — if that’s not what they give you, then you may be losing $100 a day,” she said.

In addition to these types of financial concerns, the cycle of preorders, updates, denials, appeals and audits also is leading to staff discontentment and burnout, Prather and Johnson said.

An update alone — which is not required for FFS Medicare — can take up to 45 minutes depending on the particular situation, as all members of the interdisciplinary team become involved, Johnson said. And battling denials of medical coverage is a time-consuming and costly process, particularly when appeals have to be conducted over weekends.

“It’s many hours that we’re having to fight this, to gather all of the documentation so that it can be submitted to the managed care company,” she said.

Johnson and Prather also are frustrated by audits related to the levels defined by managed care contracts.

“When they make a coverage determination, this patient meets the criteria for level one or level two, then they should not be able to come back and audit it and say, ‘No, we shouldn’t have told you a level two, we should have told you a level one,’” Johnson said. “Tell us what you’re going to pay up front and not audit us on the back end, especially when it’s leveled.”

The added work and frustrating outcomes related to managed care are driving some key nursing home professionals from their jobs. This is a particularly troubling trend given current workforce shortages, the pressing need for revenue optimization and stability in light of rising operational expenses, and coming MDS changes that demand experienced leaders to drive training and guide the transition in the fall.

“I see lots of MDS coordinators that have vocalized, ‘I’m not leaving because I don’t like the job. I’m leaving because I don’t want to deal with managed care,’” Johnson said.

Urgent calls for change

Skilled nursing leaders are optimistic about certain developments and directives aimed at regulating Medicare Advantage more tightly. For instance, CMS late last proposed a rule to stem the practice of managed care payers denying nursing home coverage in favor of home health, for patients who meet the Medicare criteria for a nursing home stay.

But when asked by presenters at the ZHSG event whether they have seen any difference in managed care practices in the months since CMS proposed that rule, no providers in the large and well-attended session raised their hand.

Johnson proposed that one positive change would be involving third-party reviewers — such as Medicare Administrative Contractors (MACs) — for managed care audits, with escalation to an administrative law judge (ALJ) as a further step, and penalties for insurance companies if their determinations are overturned.

“I think that would … keep providers from saying that they’re taking money back when they shouldn’t, and then you’ve got managed care saying, no, we’re not,” Johnson said.

She and Prather also noted how hamstrung nursing home operators are in advocating for their own interests, given that they need to maintain the flow of managed care patients — particularly as MA enrollment soars — and have little leverage with the mammoth MA insurers.

It’s a point that Zimmet also made, noting that other types of providers — say, large hospital systems — have significantly more negotiating power with the managed care companies.

Zimmet believes two policies in particular are essential. The first is rate protection, mandating that Medicare Advantage has to pay a particular percentage of the FFS rate. The second is an “any willing provider” protection, which would guarantee that an MA insurer must contract with any willing provider that meets a particular quality threshold — say, having at least three stars on Care Compare.

“Those are my two biggest asks, period, in the industry, reimbursement-wise,” Zimmet told SNN.

He has many other reimbursement-related concerns, particularly related to rate construction — for example, he is highly critical of how the wage index adjustment affects SNF Medicare payments unevenly across markets, and calls for a SNF-specific wage index to be created as Congress long ago directed. But he believes the Medicare Advantage protections are paramount to the future of the sector, given the enrollment trends and vast amount of money at stake — now being tracked on a “debt clock” created by Zimmet.

As he put it during his keynote: “Medicare Advantage is absolutely killing us.”