Changes Keep Coming for the Nursing Home Industry

Brett Seekins, Healthcare Consulting Senior Manager
October 2015

The nursing home industry may feel under siege given the number of changes, both proposed and finalized, coming out of Washington this year. 

On July 15, 2016 a Federal Register was issued proposing over 90 programmatic changes to a nursing home’s Conditions of Participation.  If finalized, this would be the first major re-write of that program since 1991.  And, perhaps, while the modernization and updates may be justified, CMS determined that the changes in total – did not warrant a rate increase. 

Another Federal Register was issued later that month to update SNF PPS Medicare Rates for federal year 2016.  Any uptick in the rate was essentially eroded by the on-going 2% Sequestration Rate Adjustment, flat funding the SNF Medicare payments, again.  However, the nugget in this release was that CMS was initiating a Value Based Payment demonstration program for SNFs in a number of states.  This is significant, as CMS is finally rolling out this change in philosophy, value-based versus volume-based, to the post-acute world. 

As if that wasn’t enough, the Department of Health and Human Services Office of Inspector General (OIG) issued a report in September reporting “…the need for the Centers for Medicare & Medicaid Services to reevaluate the Medicare SNF payment system.” (The Medicare Payment System for Skilled Nursing Facilities Needs to be Reevaluated, September 2015, DHHS OIG, Daniel R. Levinson, Inspector General)

This report took dead aim at up-coding, case-mix creep and the finding that “Medicare payments for therapy greatly exceeded SNFs’ costs for therapy.”

Further, the OIG stated that “Payment reform could save Medicare billions of dollars and encourage SNFs to provide services that are better aligned with beneficiaries’ care needs.”  This time, CMS has agreed with the OIG findings.

Based upon study and review of a decades-worth of cost reports and billing claims, the OIG has analyzed cost finding theory and compared that to the composite make-up score of federal RUG payments to support their findings. 

For instance, the OIG was able to determine that Ultra High levels of therapy were paid out at an average of $231 per day but the average cost of service was $165 - a $66 dollar (29%) gain on the RUG payment (FY 2012).  The lowest level therapy RUGs produced a 30% payment increase over cost per day.

Additionally, the OIG has been measuring Therapy Medicare Margins.  In 2002 the average margin was 25%, in 2012 it increased to 29%.  The OIG does offer that “SNFs increasingly billed for higher levels of therapy” over that timeframe but also there were market basket adjustments to the rates that had an effect to “reflect changes over time in the prices of goods and services.”  And, while therapy payments may have decreased in FY 2011 “they continued to greatly exceed SNFs’ costs for therapy.”

SNF Medicare payment models will continue to be reviewed in Washington, especially given the push to move to a value based patient-centered care focus. 

More information on the OIG Report can be found here.