Will “Bad Debt” Cuts to Nursing Homes Backfire, Cost Medicare More?

President Obama’s fiscal year 2013 budget recommendations to Congress included provisions cutting “bad debt” reimbursements to nursing homes in an effort to save Medicare dollars, but it might end up backfiring and costing the system more. 

Let’s say Mrs. Smith, who is dually eligible for Medicare and Medicaid, goes to the hospital after breaking her hip. After a couple days of treatment, she’s discharged into a nursing home for rehabilitation, where Medicare pays for the first 20 days of her stay.

Mrs. Smith’s recovery takes longer than 20 days, and because Medicare is no longer covering the cost of her care, she transitions to Medicaid. But the state Medicaid program doesn’t fully reimburse the nursing home the true cost of her Medicaid bed, and she’s unable the pay the balance herself, leaving the facility with what’s called “bad debt”—money it’s owed for services provided, but can’t legally collect from either the patient or Medicaid.


However, thanks to Mrs. Smith’s “dual eligible” status, the nursing home is able to partially cover the balance of her care through “bad debt” reimbursements from Medicare. Across the nation, many facilities use the Medicare program to subsidize their Medicaid residents, but new “bad debt” provisions contained in Congressional and Presidential budget proposals would cut the amount of reimbursement nursing homes can receive from Medicare for “bad debt.” 

When budget cuts take effect (pending Congressional approval), nursing homes may begin accepting fewer Medicaid patients in an effort to staunch the amount of money they lose on those beds, writes the Sarasota Herald-Tribune.

In Florida, nursing homes are facing an estimated $60.5 million cut to Medicare reimbursements, according to a study commissioned by a nursing home trade group. Other states, including Ohio, Illinois, Pennsylvania, and North Carolina, are also expecting to be heavily impacted by the “bad debt” provisions. 


“Without enough money for the system that exists, nursing home beds for Medicaid patients are quietly disappearing,” says the article. “As a result, more aging Floridians, with less family support and smaller savings than the generation before them, will find themselves stuck in the hospital with nowhere to go.”

This echoes a January New York Times article and an April MSNBC investigation about people lacking alternative care options who end up lingering in hospitals, considered “permanent” patients, at an enormous expense.

While this isn’t happening yet, there is a risk that admissions into nursing homes will be delayed as payments decrease, according to the article.

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“This could mean Medicare, in trying to shift its spending of tax dollars away from nursing homes, may wind up wasting them on hospital stays,” the Herald-Tribune says, adding that hospitals generally far exceed nursing home care in cost. 

The effort to reduce Medicare outlays by cutting “bad debt” payments could actually cost the program more if it has to pay for someone’s care in a setting that’s more expensive than a nursing home, whether it’s a regular hospital, a long-term acute care hospital, or an in-patient rehabilitation facility (IRF). 

“If you have an individual who’s unable to pay and can’t make their co-pay while the facility is providing services, our members are prohibited from seeking co-payment, and it stands to reason that eventually they’ll be facing financial hardships—maybe even to the point that they can’t keep their doors open,” says Greg Crist, vice president of public affairs at nursing home trade group the American Health Care Association (AHCA). 

Facilities are already bearing the brunt of many patients’ inability to pay for their care, and they can’t stay financially viable if reimbursements keep getting cut, he adds. 

There hasn’t been any forecasted data or research as to whether the “bad debt” reimbursement cuts will result in fewer Medicaid beds, sending hospital patients in more expensive alternatives to nursing homes, so it’s impossible to say if the provision will backfire and end up costing the Medicare program more.

Nevertheless, it’s a potential concern that’s “certainly one to contemplate,” Crist says.

Especially in rural areas with disproportionately high Medicaid populations, he says, the nursing home industry’s already-slim margins (estimated at 0.75% in 2009 according to The Moran Company) can’t keep absorbing unmet co-pays without financial ramifications. 

Written by Alyssa Gerace

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