Profits for Skilled Nursing Facilities will Flatline from Medicare Cuts

Profits for skilled nursing facilities will flatline as a result of the 11.1% reduction in Medicare reimbursement rates, a new Avalere Health analysis says.

Funded by the Alliance for Quality Nursing Home Care (AQNHC), the report estimates that the payment reduction and group therapy changes in the fiscal year 2012 skilled nursing facility final rule will reduce facilities’ overall margin, industry-wide, from 3.8% to zero in FY 2012. By 2014, the estimate remains bleak, going from 4.4% to 0.4%.

The study also found that in the event the congressional “Super Committee” is unable to find ways to trim the debt deficit by $1.2 trillion, automatically triggering a further 2% Medicare cut in FY 2013, industry-wide margins would be reduced still more to -0.1% by FY 2014.

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Lastly, an overall freeze in Medicaid payments to nursing facilities, combined with the impacts of the 11.1% reduction and possible 2% cut, would reduce the industry’s margin to -1.4%. If Medicaid payments to facilities were reduced annually by 1% beginning in FY 2013, Avalere found, it would further reduce the overall sector margin to -2.2 percent in FY 2014.

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Source: Avalere Health analysis

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“All healthcare institutions, whether non-profit or for-profit, need some profit margin to survive,” Dan Mendelson, CEO of Avalere, said in a statement. “Our analysis shows that further payment reductions in skilled nursing would likely push margins—already the lowest of any type of healthcare provider—into negative territory.”

This follows a previous Avalere finding, also conducted for the AQNHC, that the Center for Medicare and Medicaid Services (CMS) cuts will reduce Medicare payments to skilled nursing facilities by $79 billion in the next decade.

“The ominous prospect of yet more funding cuts from Congress on top of the Medicare and Medicaid cutbacks imposed over the past several years places seniors’ care, local jobs and sector stability in deep jeopardy,” said Alan Rosenbloom, president of AQNHC, in a statement.

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View Avalere’s report here.

Written by Alyssa Gerace