Nursing Homes’ Profits Will Plunge Into the Red with More Cuts

Nursing homes are on a track toward negative profit if Congress passes certain end-of-the-year legislation, and it could affect the level of services that are offered, according to analysis by The Moran Company on behalf of the American Health Care Association (AHCA).

The analysts considered the impact of policy changes that include a “clawback” of 2011 revenues from RUG IV implentation, a two-year suspension of market basket adjustments, limiting bad debt payments to 25%, imposing a 5% coinsurance on the first 20 days of skilled nursing care, and capping Medicaid provider taxes at 3.5% of total payments.

Evaluating these policy changes “would turn nursing facility net margins from mildly positive to consistently negative over the forecast period,” the research shows.

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If implemented, resultant industry margin revenue would be at 0.1% in 2012, which would dip to negative 2.9% the following year and still further in 2015 to -3.1%. By 2021, revenue margins would remain negative at -0.8%, according to The Moran Company’s data.

“While our analysis demonstrates the possibility that the industry might be able to weather reductions of this magnitude, it makes clear the substantial degree of uncertainty surrounding the industry’s ability to actually do so,” the analysis concluded.

Taking into account the expected 2% cuts to Medicare payments, as a result of deficit reduction activity, The Moran Company estimates that baseline overall margins will range from 0.64% of revenue in 2012 to 2.11% in 2021.

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If these reimbursement reductions are implemented, the analysts said, the level of services now provided in nursing facilities could also be affected.

“Many may not want to mention margins when it relates to healthcare providers, but the fact of the matter is without a margin, it’s just not possible to keep operating,” said AHCA President and CEO Mark Parkinson in a statement.

The Moran Company’s findings, “Assessing the Financial Implications of Alternative Reimbursement Policies for Nursing Facilities,” can be viewed here.

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Written by Alyssa Gerace