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Insights in Seniors Housing & Care

By: Liz Liberman  |  September 28, 2016

Cutting Skilled Nursing Medicare Reimbursement by 8%?

Economic Trends  |  Regulatory Environment  |  Skilled Nursing

hospital-waiting-area.jpgIn July 2015, Rep. Kevin Brady (R-TX), the House Committee on Ways and Means Chairman, introduced a measure called the Medicare Post-Acute Care Value-Based Purchasing Act of 2015. Since that time, the bill has been under committee consideration, but just over a year later, the buzz around Washington indicates that the bill may come out of committee for a vote. The current text of the bill is relatively brief and introduces three policies to govern post-acute care providers that treat Medicare patients, including home health agencies, skilled nursing facilities, inpatient rehabilitation facilities, long-term care hospitals, and hospice agencies.

Two of the three measures contained within the bill are housekeeping measures. The first repeals the market basket cut for post-acute care providers mandated by the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), which was designed to offset the cost of other provisions of the act. The Medicare Post-Acute Care Value-Based Purchasing Act of 2015 would eliminate that reduction to pave the way for a value-based purchasing program that imposes its own reduction in Medicare reimbursement. The other housekeeping measure would institute a "sunset date" for the Skilled Nursing Facility Value-Based Purchasing Program in 2026. The program begins in 2019 and pays skilled nursing providers based on their performance on key measures, such as rehospitalizations. The main event of Brady's bill—and the focus of this blog post—is a new value-based purchasing mechanism to be implemented starting October 1, 2019. The bill directs the Secretary of Health and Human Services (HHS) to establish a different benchmark for each of the aforementioned post-acute care provider types with respect to the Medicare Spending per Beneficiary (MSPB) metric.

Examining the Measure

Hospitals are already using the MSPB for the Hospital Value-Based Purchasing program. The metric measures how efficiently a provider treats different episodes of care with respect to other providers; the metric aims to identify which providers are able to treat the same conditions at lower costs to Medicare. Under the measure proposed by Rep. Brady, post-acute providers also would be held to a standard defined by the MSPB. Providers would earn points for their performance (HHS will come up with the methodology in the regulatory process) through demonstration of either improvement or achievement, and be ranked based on their scores.

One interesting component of the proposed policy is that each provider's score will be a composite of their own performance and the overall performance of the aggregate of all provider types within the Hospital Service Area in which the provider is located. In other words, providers will want to perform well on the MSPB metric (by providing low-cost care) while simultaneously encouraging all other providers operating close by to do well on the same metric. The scores for all providers then will be tallied, and the providers ranked. The top-ranked providers would earn bonus payments.

The Controversy 

The central question is how bonus payments would be funded. Starting in 2019, Medicare would reduce payments to post-acute providers by 3% to create a pool of funds from which to draw the bonus once earners are identified. The payment reduction increases annually until it reaches 8% in 2025. Half of the pool would be used for bonuses while the other half would be retained by HHS for savings. In short, in 2025 providers would get back only 92% of what they billed Medicare. Of course, some providers would receive back part of the reduction in the form of bonuses, but presumably some would not. HHS retains the authority to determine how the bonuses are distributed within the above parameters.

Skilled nursing providers and other post-acute care providers are sensitive to these types of policy changes because Medicare reimbursement makes up a sizable portion of their overall revenues. According to the most recent NIC Skilled Nursing Report, Medicare days made up 13.5% of all patient days in June 2016. The average daily rate nursing homes receive from Medicare was $499 in same time period, which is more than twice what Medicaid paid ($198). Even though the vast majority of skilled nursing patient days are reimbursed through Medicaid, the difference in rates paid by these two sources means that Medicare reimbursements make up a large share of skilled nursing total revenues. A reduction of 8%, therefore, would have a significant impact on operators' budgets.

Furthermore, such a reimbursement scheme also makes the process of budgeting difficult for operators; they would lose the 8% upfront and receive the bonus payment later. Sophisticated operators may have tools to estimate the bonus amount, but many would be left to wonder how much of the 8% cut they will get back—if they get anything at all. Skilled nursing operators often work with narrow margins, so the upfront cost of the reduction could prove burdensome.

Another controversy in the proposed bill is the use of the MSPB. Opponents argue this metric encourages providers to provide low-cost care at the expense of quality. The metric measures resource utilization: how many dollars Provider A billed for compared to how many dollars Provider B billed for. On the one hand, such an incentive could drive down resource utilization, which is a goal for many health policy leaders. On the other hand, as some have voiced, if that downward pressure does not also include incentives to produce quality outcomes, patients may become victims in a zero-sum game.

The bill's inclusion of Hospital Service Area scores in each provider’s score also has garnered negative attention. In a letter to Rep. Brady, the American Health Care Association (AHCA) and the National Center for Assisted Living (NCAL) stated that "geographic measures that compare [post-acute care] providers across all settings do not take into account the mix of the providers or population characteristics in any given setting." Depending on the methodology used to determine the geographic component of a provider's score, those areas with a higher concentration of high-cost post-acute care settings could receive low marks for the MSPB compared with geographic areas with fewer of these provider types. Conversely, the influence of the geographic score could encourage high-cost post-acute care providers to accept only high-need patients appropriate for that type of care and send low-need patients downstream to more suitable settings. The latter scenario would work best in an environment in which post-acute providers work together across silos to ensure patients end up in the right care setting, so that all providers score well on the Hospital Service Area MSPB metric. Whether or not post-acute care providers can effectively achieve such a vision is uncertain.

The Industry Reacts

Brady's bill garnered significant attention in September 2016, when the buzz indicated that the bill could move forward before Congress adjourns for the election season. In addition to the AHCA/NCAL letter, a large group of provider organizations expressed their concerns to Rep. Brady. The second letter echoed many of AHCA/NCAL's concerns (and in fact, AHCA/NCAL signed that letter, as well), and included representation from other post-acute care provider types, such as home health agencies.

Congress goes on break on Friday, September 30. The chances that the bill sees any immediate action are slim but not impossible. And that’s something that has these provider groups taking action by sending their letters. If the bill does not progress this week, the fate of his proposal is uncertain considering the November election and the impact it will have on the makeup of Congress. But if the bill does progress, it’s critical for everyone in seniors housing and care to understand how it will impact the skilled nursing sector. In this day of rapid change, that's just the kind of advantage operators and investors need to make real-time, educated decisions.

Insight into the Skilled Nursing Sector

The 2Q2016 Skilled Nursing Data Report is now available, providing timely data on key skilled nursing metrics. Download your complimentary report today:

About Liz Liberman

Healthcare Analyst Liz Liberman provides policy, regulatory, and healthcare perspective to the dynamic environment surrounding the seniors housing and care market. She comes to NIC from the Department of Defense, where she served as a contractor in Acquisition policy, implementing statutes, executive orders, and updates into the Federal Acquisition Regulation (FAR) and Defense Federal Acquisition Regulation Supplement (DFARS). She also served as a health policy analyst for Bulletin Intelligence, where she crafted daily briefings for government agencies and trade associations in the healthcare field. Liz earned degrees from The George Washington University (B.S.) and George Mason University (M.S.), and is a member of the Junior League of Washington.

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