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How Will Medicare Changes Impact Your Skilled Nursing Facility’s Profitability?

August 30, 2017

George W. Thomas, CPA, CHFP
Principal

For most skilled nursing homes, Medicare is a small portion of the overall patient mix. It usually falls within the 15% to 25% range of total patient days—but that small percentage can have a powerful effect on the overall profitability of the facility.

There are a number of pending Medicare reimbursement changes that are scheduled to take effect over the next two years. Based on the details released to date, these changes could have a significant impact on the overall financial results for most skilled nursing homes.

Market Basket Increase

The traditional market basket increase for skilled nursing homes will go into effect on October 1, 2017. The national increase for this year is 1%—lower than the industry has seen in recent years. In addition, this national increase figure is impacted by local wage factors. As a result, many areas will see an increase much lower than 1%, and some areas could see actual rate reductions.

Quality Reporting Initiative

Also beginning October 1, 2017 is the Quality Reporting Initiative. If a facility has not met the previously established requirements of reporting on the three required MDS Measurements, a 2% rate reduction could occur. Your facility should have been notified already if you are at risk of receiving this rate reduction.

Value Based Purchasing Initiative

On October 1, 2018, Medicare’s Value Based Purchasing Initiative begins. For this first year, the only benchmark to be measured relates to hospital readmissions. Each facility will be scored based on its 2017 readmissions versus its 2015 readmissions. In addition, each facility’s 2017 readmissions will be compared to national benchmarks. Under this Value Based Purchasing Initiative, all facilities will have a 2% rate reduction. Centers for Medicare and Medicaid Services (CMS) will keep 40% of the reduced amount and facilities can earn back rate increases to recover a portion of their 2%.

As you are aware, skilled nursing facilities are still receiving a 2% reduced payment due to the sequestration adjustment, so the potential for additional reductions from such initiatives is of concern to many providers.

RCS I

RCS I is proposed to begin on October 1, 2018 and will replace the current Medicare RUG reimbursement model. This change will modify the current Case-Mix component of nursing and therapy of the RUG’s methodology to a nursing, therapy, non-therapy ancillary and SLP mix. As currently proposed, RCS I will diminish the impact of the therapy services on the Medicare rate and will incorporate age, complexity of care, cognitive impairment and comorbid conditions into the reimbursement formula.

As a final note, mandatory bundling of cardiac cases remains on hold at this time and will likely be discontinued. Orthopedic mandatory bundling could be scaled back.

What Should You Do?

From an operational perspective, these changes can cause upheaval in your business. Skilled nursing facilities should make sure that processes are in place to capture the required data for current and expected additional quality reporting data metrics and to allow continued monitoring of readmissions and coordination with home care agencies and hospitals to meet the Value Based Purchasing Initiative. In addition, we recommend that you begin to gain an understanding of the proposed RCS I System in order to make wise clinical and financial decisions relating to therapy care and costs.

With facilities already operating on a razor thin profitability margin, the potential for multiple reimbursement reductions in the Medicare program could result in more facilities generating operating losses by fiscal year September 30, 2019 and putting a financially fragile nursing home system at even greater risk.

George Thomas, CPA, CHFP is a Principal in the Healthcare Services Group at BlumShapiro. He can be reached at gthomas@blumshapiro.com

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