Fiscal Cliff Potentially “Disastrous” for Senior Care Providers

Healthcare reform provisions, frozen or reduced Medicaid budgets, and the looming possibility of fiscal cliff-related Medicare cuts are all on the road ahead for the skilled nursing industry, and the uncertainty of it all makes matters even worse for providers—and potentially disastrous. 

While across-the-board spending cuts triggered by the upcoming sequestration would wipe out the 1.8% Medicare reimbursement update to skilled nursing facilities in 2013, a 2% cut may actually be preferable to other, deeper cuts that may be proposed as the president and Congress try to agree on a budget, and CMS may be able to delay or customize how it’s implemented. 

“It’s very unclear what happens, if we do ‘go over the fiscal cliff’ in terms of Medicare payments,” says Alan Rosenbloom, president of the Alliance for Quality Nursing Home Care. “It depends on where we are in [budget] negotiations and how the CMS chooses to implement [the cut].” 

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Skilled nursing facilities are already facing nearly $4 billion in Medicare funding cuts in the upcoming 2013-2014 fiscal year, according to the Alliance, and a $65 billion reduction in the next 10 years resulting from several federal budgetary actions and regulations made by Congress and the Centers for Medicare & Medicaid Services since 2009. 

More than 80% of the industry’s reimbursements come from either Medicare or Medicaid, and about 65% is from the latter. “Most agree: Medicaid underpays the actual cost of taking care of residents,” says Gov. Mark Parkinson, president and CEO of the American Health Care Association (AHCA). “For every Medicaid resident you take, you’re going to be losing money. The way the industry has survived is that Medicare payments have provided some margin—taken together, it adds up to a very small margin.” 

That’s why an additional cut to Medicare payments could end up being a big deal, he says. In an industry where the margin is no more than 2%, it “makes all the difference in the world.” 

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“Almost all of our reimbursement is from Medicare and Medicaid, and our margins are so incredibly small that even what might appear to be relatively small cuts may have disastrous impacts,” Parkinson says.

One of the biggest issues, says Rosenbloom, is that Congress will likely look to the Medicare Payment Advisory Commission’s (MedPAC) report to inform its decision. However, the advisory board focuses exclusively on Medicare, and has said in its annual report that skilled nursing facilities have high Medicare margins, at about 14.6%. 

“[Congress] fails to look at where skilled nursing facilities are in the overall margin—they usually have the lowest margin of all healthcare providers” because of a large Medicaid census, Rosenbloom says.

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The primary message at this point for skilled nursing providers is one of uncertainty, he says, whether or not a deal is cut to prevent sequestration from happening. Threats of further cuts are layered on top of last year’s average 11.1% reduction in payments to nursing homes, along with the Affordable Care Act reducing payments to nursing homes by about $15 billion in a 10-year span. 

There are more rational methods to lower Medicare spending than sequestration, Rosenbloom and Parkinson agree, including developing and implementing a “site neutral” payment system for post-acute care. The four main post-acute care settings—inpatient rehabilitation facilities, long-term acute care hospitals, home healthcare, and skilled nursing facilities—are currently all paid for on four different systems.

“More than half the patients [they serve] could be cared for equally well in at least two of the settings, or possibly more, depending on the patient,” Rosenbloom says. “Why do we pay twice as much in one particular setting? It doesn’t make sense when you’re trying to save money.” 

At this point, even if a deal is struck before the end of the year to prevent the nation from ‘falling off the fiscal cliff,’ it’s not likely the general public—including healthcare providers—will know the details. “There’s tremendous uncertainty and risk,” he says, “particularly because so few details are available.”

That could spell trouble for many skilled nursing providers, up to half of whom may be facing a death knell.

“What I think is likely to happen, consistent with other factors, is that smaller operators will be forced to think about consolidating or being bought out,” says Rosenbloom. “For some, that’ll work. But for others it won’t, because they’re not in markets that are attractive to larger players.”

Nursing home owners and operators need to be aware of industry trends, he says, and try to figure out how to position individual facilities or portfolios to be attractive players in their marketplace. “That’s where [their] future lies, in figuring out where the system is going and where they can have an effective role to be a provider of choice,” he says. 

Written by Alyssa Gerace