MedPAC Calls for 4% SNF Medicare Cuts, Home Health Incentives

As Medicare margins continue their double-digit residency for skilled nursing facilities (SNFs), the Medicare Payment Advisory Commission (MedPAC) is recommending that Congress mandate a 4% payment reduction to providers starting in 2015, among other policy changes within the post-acute care space. 

Despite recent reductions to SNF payments, Medicare margins remained high in 2012 at 13.8%, according to the MedPAC March 2014 report. While this is down from 21.2% in 2011, 2012 marked the 13th consecutive year where Medicare margins for SNFs were over 10%.

To minimize Medicare spending on SNFs, MedPac recommends a revision to the sector’s prospective payment system that begins with an initial reduction of 4% beginning in 2015. 


These reforms would occur in stages following the initial 4% reduction, with subsequent reductions taking place over a transition period until Medicare’s payments are “better aligned” with providers’ costs, the report notes.

A central aim of the revision would be to redistribute payments away from intensive therapy care that is unrelated to patient care needs and toward medically complex care. 

As a result, MedPAC expects Medicare margins would rise for low-margin facilities and fall for those with high-margins. 


“Because payments would be based on a patient’s care needs, the design would allow for high payments if a patient required many services but would not address disparities across providers that result from their inefficiencies,” the report writes.

In 2012, total margins for the nursing home industry was 1.8%, while non-Medicare SNF margins were negative 2%—decreases MedPAC attributes to the impact of Patient Protection and Affordable Care Act of 2012 reductions to Medicare payments since 2010, as well as a growing share of managed care payments. 

For 2014, MedPAC projects the Medicare margin for this sector will be 12%, however, when factoring in the sequester the margin stands to be 2 percentage points lower.

MedPAC also made some recommendations to revise the prospective payment system for Medicare home health providers. 

As for others in the post-acute care sector, like home health, MedPAC reiterated recommendations it made in 2011 to revise and rebase home health payments. 

Rebasing cuts have caught the ire of many home health industry players, as it plans to reduce Medicare payments to home health agencies by 14% until 2017.

“Implementing the Commission’s prior recommendation for rebasing would reduce payments and better align Medicare’s payments with the actual costs of providing home health services,” MedPAC notes. 

The Commission also makes a new recommendation in its March report that Medicare establish a program to incentivize home health agencies to reduce hospital readmissions. 

Implementing such a policy, MedPAC suggests, could improve care for beneficiaries, lower Medicare spending, and prepare agencies to participate in coordinated care models such as Accountable Care Organizations. 

View the MedPAC March 2014 report

Written by Jason Oliva

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