MedPAC Wants Nursing Home Industry’s 1.8% Margin to be Smaller

Despite an overall profit margin of less than 2% in 2012, an advisory committee is doubling down on recommendations for Congress to cut Medicare reimbursements to the nursing home industry in the coming years.

The total margin for the nursing home industry was 1.8% last year, according to the Medicare Payment Advisory Commission (MedPAC), not taking into account the 2% sequestration cuts to Medicare reimbursements. Not counting Medicare payments, nursing homes had a negative 2% margin in 2012. 

“The data released today by MedPAC validates what the skilled nursing profession has reported for months: cuts over the last five years, combined with stagnant or declining Medicaid rates, have resulted in little or no margin in the skilled nursing sector,” said Mark Parkinson, president and CEO of nursing home trade group the American Health Care Association.


But looking at freestanding skilled nursing facility Medicare margins, nursing homes had a 13.8% margin in 2012, marking the 13th year of profits above 10%, according to a MedPAC presentation during a Dec. 12-13 Meeting Brief. 

MedPAC has long held that Medicare reimbursements should not be used to offset Medicaid underpayments, adding in the December 2013 presentation that “subsidizing Medicaid through Medicare payments is poor policy.” 

Doing so is a poor targeting of funds, could encourage states to lower their payments, and diverts Medicare Trust Fund dollars to subsidize Medicaid and private payments, the presentation continues. 


MedPAC has previously called for rebasing Medicare‘s prospective payment system (PPS) for skilled nursing facilities and reducing reimbursements by 4% in 2016 with additional reductions in subsequent years, and is now renewing that recommendation. 

Corrections to “known shortcomings” of the prospective payment system could look like basing therapy payments on care needs rather than service provision and establishing a separate component for nontherapy ancillary services, MedPAC said in the presentation.

But AHCA, the nursing home industry’s largest trade group, says MedPAC’s recommendation to Congress could be harmful to the industry if implemented, especially considering a mandate in the Wyden amendment to the Affordable Care Act requiring the commission to consider all major payment forms—including Medicaid—when making recommendations. 

“Unfortunately, MedPAC’s recommendation to reduce skilled nursing payments by four percent in 2016, with additional reductions in later years, doesn’t fully account for this overall [1.8%] margin and would threaten access to care for millions of people,” Parkinson said in a statement. “Further cuts to skilled nursing, such as those recommended by MedPAC, would be debilitating to providers already operating on razor-thin margins.” 

Written by Alyssa Gerace

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