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Potential Nursing Home Reimbursement Change

May 23, 2013

George Thomas

We recently became aware of a potentially major item impacting the application of rate reductions to skilled nursing homes.

The governor’s budget outlined cuts of approximately 1.2% to skilled nursing homes.  Since these cuts were based on a reduction of the additional provider tax funds that were received in the prior year, it was anticipated the cuts would be done flat across the board to all skilled nursing facilities.

However, we have recently learned that the administration’s intent is to rebase nursing home rates from the current 2007 base year. If this rebasing occurs, similar to what happened last year for residential care homes, there would be increases in rates for some facilities (winners) and decreases in rates for other facilities (losers), and these could be significant. Additionally, the 1.2% reduction to the rates would be applied after rebasing.

It is unknown what year the rebasing would use but either the 2011 or 2012 cost report year is the most likely option. Following are some items to review to determine how you might be impacted by rebasing:

  1. Take a look at your most recent rate computation report received from the Department of Social Services (DSS). This report would be from 2007. If your Medicaid rate, as currently being paid, is higher than the calculated rate based on the DSS rate system (on page New 1 of the rate computation report) you are likely to receive a lower rate under rebasing.
  2. If your calculated rate is above the paid rate based on the 2007 costs per patient day, but you have significantly reduced operating costs since 2007, you would also be at risk to receive a reduction in your rate due to rebasing.
  3. Another area to review on your rate computation report is page 18, which includes the fair rental calculation for your facility. Two areas of possible reduction are possible here. One occurs when the depreciable life of assets has been completed prior to the rebase year. The other occurs when the rate of return is reduced. Depending on the year that the assets were placed in service, you might be receiving a rate of return in excess of 6%. This could be reduced to less than 3% under rebasing to reflect the decreases in interest rates since 2007.
  4. A final area if concern is is if a non-profit facility has refinanced prior to September 31, 2012 that lower interest cost could have an impact on the calculation of the lower of fair rental and actual interest and deprecation, this reduction could lower your calculated rate below the paid rate and cause a rate decrease.

Everyone should analyze their current situation and determine what impact these recent proposals might have on them. Contact your industry association for updates and monitoring of the status of these proposals. We at BlumShapiro would be happy to discuss the mechanics of the proposals with you. Please contact George Thomas at gthomas@blumshapiro.comor 860-561-6853.


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