Reimbursement for assisted-living providers historically has been private pay. While that continues to be the case, over the last decade there has been an expansion in the number of states that contribute Medicaid dollars for some services.
On a macro level, expanding Medicaid reimbursement for AL will result in higher demand across the board. Residents who previously had no other option but to live in a nursing home may now choose assisted living instead. As a result, some demand is shifting from SNFs to ALFs.
This is positive for the entire AL industry. Most state HCBS waiver plans have long waiting lists of residents looking to participate, so there is strong demand. The effect will be even greater in states that amend their Medicaid programs to create an entitlement as this makes the pie even bigger.
Providers who accept Medicaid stand to benefit from more stable occupancy. A Medicaid resident’s ability to pay is not dependent on income or assets. Medicaid demand is driven solely by the need for assistance with ADLs. While private-pay demand decreases in a down economy for financial reasons, Medicaid demand should remain steady. Consistent demand leads to less volatile occupancy and, therefore, lowers risk. Revenue diversification can soften the blow in the event of another shock to the real-estate market or the broader economy.
But there are drawbacks as well. While reimbursement varies by state, Medicaid rates are typically below the available private-pay rate. They also are subject to change at the whim of legislators, whereas private-pay rates are determined by the market. Additional regulatory and reporting requirements will accompany Medicaid residents. For example, facilities would have to meet quality-assurance standards, keep resident records and have a mechanism for feedback. A facility may be required to set aside a certain number of units for Medicaid residents. There also may be physical-plant requirements, such as a kitchenette, adequate common space and single-occupancy units. But many of these requirements will be met by default.
Serving Medicaid residents is not for every provider, but may be very beneficial to some. New, high-end facilities with waiting lists would not see the benefit that a mature facility with lower occupancy might. Facilities with lower occupancy have the most to gain by serving Medicaid residents. Units that otherwise would be vacant could be filled, albeit at a lower margin. In states where Medicaid reimbursement is competitive with private-pay rates, the benefit is even greater.
This is an ever-evolving topic, but the trend seems to be moving in the direction of expanding Medicaid reimbursement for AL. It is state specific, so providers should evaluate the programs in the states where they are located. Agile providers who position their facilities to accept Medicaid residents could stand to benefit from more stable occupancy and consistent revenue
This article was written by Kevin Tholke, an associate with Lancaster Pollard out of the firm’s Los Angeles office, and reprinted with permission from The Capital Issue. Read the full piece at www.lancasterpollard.com.
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