MedPAC: Medicare Margins for SNFs Will Range Between 12-14% in 2013

| March 15, 2013

Medicare margins in skilled nursing facilities are expected to range between 12% and 14% in 2013, according to the Medicare Payment Advisory Commission (MedPAC) in its  most recent report to Congress, which it says indicates that the sector’s payment system’s need to be restructured and rebased.

With Medicare margins in the double digits since 2000, MedPAC recommended revising the skilled nursing facility Prospective Payment System (PPS) for 2014. This would result in an additional cut of at least 4%, according to nursing home trade group The Alliance for Quality Nursing Home Care, on top of the 2% cut in Medicare reimbursements healthcare providers must absorb due to sequestration.

In MedPAC’s March 2012 report to Congress, the commission recommended restructuring the skilled nursing payment system and then to rebase payments the following year, with no update to that year’s payment rate.

The commission based that recommendation off of several factors, it says, including “high and sustained” Medicare margins, widely varying costs unrelated to case mix and wages, cost growth “well above” the market basket, reflecting “little fiscal pressure from the Medicare program,” and the ability of many skilled nursing facilities to have consistently below-average costs while providing above-average care.

The industry has demonstrated a continued ability to maintain high margins despite changing policies, MedPAC said. The report also cites some Medicare Advantage payments to facilities that were “considerably lower” than Medicare’s fee-for-service (FFS) payments, which the commission believes indicates a willingness to accept rates much lower than FFS payments for beneficiaries.

“No policy changes have been made that would materially affect the trajectory of these findings going forward,” MedPAC writes of their previous recommendations in the 2013 report. “Therefore, the Commission maintains its position with respect to the SNF PPS and urges the Congress as soon as practicable to direct the Secretary to revise the PPS and begin a process of rebasing payments.”

Nursing home trade groups are opposed to MedPAC’s recommendations, citing already slim operating margins when considering enormous shortfalls from Medicaid underpayments.

“Considering the fact 40 states have cut or frozen state Medicaid SNF rates since 2009, today’s MedPAC recommendation, as it does annually, fails to properly evaluate overall Medicare-Medicaid operating margins—the lowest of any provider group,” said Alan Rosenbloom, President of the Alliance for Quality Nursing Home Care, in a statement.

The sector is currently facing $65.6 billion in “unsustainable” Medicare cuts over the next ten years, Rosenbloom said

Non-Medicare margins (Medicaid and private pay) in 2011 ranged from an estimated –1% to –3%, MedPAC found, while total margins ranged from 4-6% considering all payers and lines of business.

Increases in payments between 2010 and 2011 outpaced increases in providers’ costs, the commission found, reflected in the continued concentration of days in the highest payment case-mix groups.

Payments in 2011 were “unusually high” because of overpayments resulting from an adjustment made with the implementation of the new case-mix groups, said MedPAC, which were then followed by an average 11.1% reimbursement rate reduction effective Oct. 1, 2011.

Margins in the skilled nursing industry ranged between 22-24% in 2011, MedPAC estimated—the eleventh year in a row Medicare margins were above 10%. However, the commission noted those margins were estimated without Medicare cost reports, which hadn’t been available in time for the MedPAC report.

Medicare spending in skilled nursing facilities for 2011 was $31.3 billion and comprised about 6% of the program’s overall spending, estimates the Office of the Actuary. For 2012, spending will be an estimated $30.4 billion.

View MedPAC’s March 2013 report.

Written by Alyssa Gerace


Category: Data, Medicare and Medicaid, Nursing Homes, Senior Care, Skilled Nursing

Comments (1)

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  1. Chris_Foley says:

    The MedPac article above has the commission claiming that reimbursement rates are high because of “high and sustained Medicare margins" in the "double-digits." One wonders what the definition of "margin" is because a double-digit operating margin is usually required for any business to remain in business.

    Once a business' operating margin gets into the single digits, it's often difficult to make the necessary investments in non-operating costs like financing renovations & technology investments, paying for raises, having appropriate back-office support like management oversight of operations and expansion into new business lines (such as a nursing home reducing its business risk by purchasing or starting home health services).

    The MedPac report seems like a very detailed report but even with the details presented, may not give a full picture of the payment and cost structure of any single nursing home who caters to multiple payor sources.
    Chris Foley
    CPA (Retired)
    Sr. V. P.
    Equity National Seniors Housing Brokerage & Advisors
    cfoley@Equity.net