Skilled Nursing, REIT Stocks Tumble After New Payment Model Floated

Already embattled, publicly traded skilled nursing providers and real estate investment trusts (REITs) had an especially tough day on Friday. Shares were down across the sector on the heels of the Centers for Medicare & Medicaid Services (CMS) revealing details of a possible overhaul to the payment system for skilled nursing facilities (SNFs).

The current SNF payment system has been sharply criticized by groups such as the Medicare Payment Advisory Commission (MedPAC) and the Department of Health and Human Services Office of Inspector General (OIG). One major concern is that skilled nursing providers might be pushing too many patients into the highest reimbursement group for therapy based on financial considerations rather than medical necessity.

CMS outlined a new possible payment method in an Advance Notice of Proposed Rulemaking document released Thursday.

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This new system would replace the current two case-mix adjusted components (therapy and nursing) with four components (physical therapy/occupational therapy, speech language pathology, nursing, and non-therapy ancillaries). This would more accurately predict the resource intensity associated with certain resident profiles, and would create a more “resident-centered case-mix adjustment,” according to CMS.

While the new payment system—dubbed the Resident Classification System, Version I (RCS-I)—would not change the total amount of Medicare dollars going to SNFs, it would change how those payments are allocated. For example, for-profit SNFs could expect reimbursements to go down 1.1%, while non-profits would see reimbursements increase 3.1%, according to the Advance Notice of Proposed Rulemaking.

Investors appeared to be less than keen on this proposal. A slew of major skilled nursing providers and REITs saw their shares slide on Friday.

As of market close, The Ensign Group (Nasdaq: ENSG) was down 6.12%, Quality Care Properties (NYSE: QCP) was down 4.93%, Sabra Healthcare REIT (Nasdaq: SBRA) was down 4.83%, Care Capital Properties (NYSE: CCP) was down 3.85%, Omega Healthcare Investors (NYSE: OHI) was down 2.77%, and Genesis HealthCare (NYSE: GEN) was down a more modest 0.41%.

The CMS proposal came on the cusp of these companies’ first-quarter 2017 earnings reports. Ensign is set to kick off, releasing its earnings on Monday.

CMS is soliciting public comments on the payment proposal, with a deadline of June 26. The agency is at liberty to continue pursuing the rulemaking process to implement the new payment system or could halt the process.

In a separate proposed rule, also issued Thursday, CMS floated a 1% Medicare payment rate increase for SNFs in fiscal year 2018.

Written by Tim Mullaney

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