CMS Medicare Cuts Drive Nursing Home Operators to Economic “Tipping Point”

Health care providers are trying to make a case against funding cuts to policymakers, who they say don’t seem to understand the price of care that nursing homes are providing, and the impact those cuts could have to the quality of that care, and to the economy.

With the Centers for Medicare and Medicaid Services (CMS) reducing Medicare reimbursement rates by 11.1%, effective October 1, and the possibility of further cuts looming in the future, some providers are wondering how they’re supposed to finance caring for more than 1 million nursing home residents, and an overall aging population. Data from the 2010 Census Bureau shows the 65 and older demographic increasing nearly 80% by 2030, and along with aging comes an increased need for health care.

“There comes a point in any sector when additional cuts can no longer be shifted, absorbed, or passed through to others.  For our profession, that tipping point is right now,” said Mark Parkinson, President and CEO of the American Health Care Association, in a statement.


The problem is that many policymakers have a skewed perception of the types of care given to residents in nursing homes, says Greg Crist, the head of public affairs for the American Health Care Association (AHCA).

“They have a viewpoint of their grandparents, or their elderly mother, who may have gone into a nursing home because there weren’t any alternatives,” says Crist. “That view doesn’t capture how facilities are revolving.”

Nursing homes often get high-acuity patients transitioning out of hospitals for rehabilitation purposes, as well as those who require high levels of care on a regular, and permanent, basis, as opposed to fairly active, independent seniors who are increasingly choosing alternatives like assisted living.


Most nursing homes depend on Medicaid reimbursements, and about 64% of nursing home residents are on the program, says Crist. The issue is that Medicaid reimbursements don’t fully cover the cost of care for those in the program.

“The average daily pay rate of Medicaid, per patient per day, is less than minimum wage under Medicaid for nursing home care,” he says. “That’s difficult to maintain, so a lot of nursing home facilities supplement that with Medicare funding, and that’s how they get by.”

With less Medicare funding, nursing homes’ operating margins will get even slimmer, and this will pose a hit to the overall economy, Crist added..

The CMS cuts will slash economic activity by $6.75 billion in fiscal year 2012, found a recent report conducted by Avalere Healthcare and funded by the Alliance for Quality Nursing Home Care.

“Over 40% of our owners and operators are, in effect, small business owners,” says Crist. “This is important because the economy is king. We created 63,000 new jobs in 2010; at a time when many industries or sectors are cutting, the long term sector is creating jobs.”

And, he continues, if the government is cutting employers’ budgets, it’s going to have far-reaching consequences.

“When you have a reduction of [billions of dollars] in that sector, it’s going to have implications on the economy, and we want to make sure the policy makers understand that,” says Crist.

CMS disputes this, however, saying that when facilities were receiving additional payments, they weren’t necessarily using those funds to hire more staff.

“The payment adjustments in the SNF rule eliminate overpayments resulting from implementation of the new classification system,” a CMS spokesperson told SHN in an email. “The rule also improves the integrity of the payment system to prevent the need for future adjustments of this size.  Our survey data is clear that the additional payments did not lead to an uptick in hiring.”

If a congressional “Super Committee” can’t reach an agreement as to how to trim the nation’s deficit, Medicare funding will automatically be cut 2%, and while this may not seem like a lot, says Crist, that averages out to about a $50,000 loss per facility.

In light of this, Crist says they’re trying to make a case on the Hill with policymakers.

“August is the month when Congress goes home and holds town halls. We’re attending those town halls, and asking respectful questions about what the cuts will do,” says Crist.

Written by Alyssa Gerace