The nursing home industry hasn’t exactly had the easiest of paths for the past fifteen or so years, especially after Congress’s Balanced Budget Act of 1997 attempted to restructure the Medicare reimbursement system and ended up cutting about $16 billion from the program, instead of the originally intended reduction of about $9-10 million.
Alan G. Rosenbloom, the president of nursing home trade group The Alliance for Quality Nursing Home Care, believes this most recent round of budget discussions and negotiations might be a case of history repeating itself, even if cut funding is eventually restored. Whether the nation ends up going off the “fiscal cliff,” thereby triggering 2% across-the-board sequestration cuts, or Congress somehow agrees on and passes a budget, there will likely be some overreach and unintended consequences that might take years to overcome and correct.
However, despite the tremendous amount of uncertainty it’s faced with, says Rosenbloom, the skilled nursing industry ultimately has a bright and promising future. Read on to find out why:
Senior Housing News: Describe what’s going on in the skilled nursing industry.
Alan Rosenbloom: There’s a broader trend of healthcare reform—not simply the Affordable Care Act—that is in the process of restructuring not only the market for nursing homes, but also for everyone. The government is trying to control what it’s spending by shifting risks to someone else. Whether it’s called managed care, or bundling, or accountable care organizations, or medical homes, it’s a pool of money that Medicare currently spends on separate services, and instead [reforms will] combine those services and how they’re paid for.
The government wants to spend less for what it’s buying, and there are various ways it’s trying to do that. The final key is increasingly tying payments to quality outcomes. Rehospitalizations are a hot button item right now: How do we create financial incentives to encourage, promote, prompt, or penalize providers?
SHN: What are some ways the ACA will affect senior care providers?
AR: Provisions in the ACA are going to kick in for employers with more than 75 employees that will undoubtedly raise the costs of providing care. Skilled nursing has low margins, anyway, especially with 70% of costs related to staffing. Even companies who have been providing fairly good health insurance programs will have to expand the nature of their coverage. At the same time, the regulatory environment that’s ratcheting down payments is imposing increased operating costs, along with the increased costs associated with the ACA.
What that translates into is the likelihood of higher costs, that probably won’t be recognized by the payment system, and a bunch of uncertainty that probably won’t be resolved for years until all of the details are worked out by CMS.
SHN: Is Medicaid in for some changes along with Medicare?
AR: It’s unclear whether Medicaid is on the table [for budget discussions]. One of the little understood techniques the Democrats have used to protect the program is the provider tax. Especially as the economy heads south, states are increasingly relying on the provider tax, and that’s especially true for nursing homes. People think it’s a scam, but here’s how it works: If I own a nursing home, I pay a tax that’s used to generate federal matching funds. Some of those funds are used to fund the Medicaid program. As a tax-paying facility, I’m not guaranteed I get my money back. Provider tax law is very clear that you can’t guarantee the nursing home that pays in, will get as much back, because the tax isn’t based on how much Medicaid you do, it’s based on whatever the Medicaid program pays. There are winners and losers; I fail to see what it’s a scam, if I’m the payer and I’m not guaranteed to get my money back.
Nursing homes don’t get any extra share payments like hospitals do for disproportionate care payments, etc. The hospital sector has much more political clout than the nursing homes; as a result, relatively speaking, they’re safer [from cuts] and have less need to rely on provider tax. If provider taxes are used as curtailed in some ways, it’s going to hurt nursing homes disproportionately.
SHN: Does this spell change for the industry? What might happen?
AR: We’d be much better off as a regulated public utility [where it's like] ‘Here’s what you’re getting paid: If you want rate increases, you’ll petition the government.’ What any business needs, including skilled nursing, is stability and predictability. What we don’t have, on either Medicare or Medicaid, is certainty or predictability. It’s a very volatile time. There’s lots of risk, and tremendous uncertainty. I’m not sure we’re going to resolve very much between now and the end of the year.
What will that mean to nursing facilities and hospitals? I do think there will be tremendous pushes to consolidate; to get as many economies of scale as we can. As the dust settles, you’ll see Congress taking corrective action to fix overreach, for the unintended but almost completely predictable consequences of many of the things that seem to be in the mix—but who knows that’s in the mix?
It’s frustrating — if something comes together in the next three weeks, people are going to know almost none of the details until after the fact. That’s exactly [what happened in] 1997: We can see history repeating itself, and the whole healthcare industry is affected.
SHN: How well is the industry prepared for possible sequestration and cuts, especially smaller operators?
AR: My suspicion is that smaller operators are not fully aware of what’s going to hit them. Mid-size companies, I think, have been making positioning moves, whether technological, or growing, or positioning themselves to invest in the best properties that are likely to fit into the future. All of that has been going on, and to some degree accelerating, but it’s also limited to all the uncertainty, because investors aren’t thrilled with uncertainty and putting their money there. I think a lot of very small companies are to some degree not even focused on [the upcoming changes].
SHN: Will sequestration’s impact differ depending on the type of provider?
AR: There are some distinctions between the way the non-profit and for-profits think about this. On the non-profit side, there are a certain number of nursing facilities with a large chunk of senior housing and services [such as continuing care retirement communities]. CCRCs [have] almost no Medicaid or Medicare beneficiaries, so it’s a very different worldview.
SHN: When will providers know what’s coming?
AR: If a deal comes together, it would happen either Dec. 24 or 31, and even then it would be incomplete, I would say. There are plenty of details we won’t know, and it won’t play out until next year. My bet is, we’ll start to see short-term certainty by April—that’s when CMS is going to make significant changes to the payment program.
SHN: What do you recommend for owner/operators?
AR: Try to be aware of the bigger trends [happening in the skilled nursing industry] and how to position individual facilities or portfolios in such a way that you’re an attractive player in each marketplace you’re in. That’s where your future lies: in figuring out where the system is going, and where you can have an effective role, where you’ll be a provider of choice.
On the skilled nursing industry’s bright future: Particularly for post-acute patients, skilled nursing facilities are often the lowest-cost setting. We know the demographics [trending in the U.S.]. If somehow the sector is going to get through what’s going to be two, three, maybe four rocky years, there’s a very bright future for this sector. It’s not like, ‘Do we die next year, or in three years?’ It’s actually, ‘What’s my survival strategy to get me to a point where I have opportunity?’