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Medicare funding cuts a game-changer

September 1, 2009
by Bob Gatty
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Organizations representing skilled nursing facilities (SNFs) are warning that the potential impact of proposed Medicare reductions in healthcare reform legislation combined with cuts just ordered by the Centers for Medicare & Medicaid Services (CMS) would be devastating to seniors and the nursing home community.

It wasn't bad enough that pleas by the Alliance for Quality Nursing Home Care (Alliance), the American Health Care Association (AHCA), and the American Association of Homes and Services for the Aging (AAHSA)-as well as a dozen senators and 122 congressmen-were ignored by CMS, which announced July 31 that it would impose a $1.05 billion, or 3.3% cut.

On top of that, healthcare reform legislation approved by three committees in the House of Representatives would slash an additional $33 billion to $44 billion in Medicare payments to nursing homes over the next 10 years, according to Alan G. Rosenbloom, president of the Alliance. And many states, pressed by the economy, are also reducing Medicaid payments to nursing homes, making matters even worse.

“The sheer size of these cuts would be devastating to seniors in a growing number of states across the nation,” Rosenbloom said, noting that more than half of the states have enacted Medicaid payment cuts or freezes due to state budget difficulties caused by the recession.

Rebalancing act

The CMS-ordered reductions result from an effort to rebalance an earlier adjustment to the case-mix indexes (CMIs) “and better align Medicare payments with costs,” explained Acting CMS Administrator Charlene Frizzera. “CMS is committed to providing high-quality care to those in skilled nursing facilities and to paying those facilities properly for that care,” she said. “The adjustments to the payment rates for next year reflect that policy.”

CMS pointed out that the reduction resulting from the recalibration would be largely offset by a 2.2% or $690 million Medicare annual update payment increase for 2010 for SNFs. The net result, CMS said, would be a 1.1% reduction overall, or $360 million.

CMS explained that it is recalibrating the case-mix weights in order to restore overall payments to their intended levels, resulting in payments to providers that more accurately reflect service needs of Medicare beneficiaries. The refinement relies on updated claims data from 2006.

Rosenbloom said the reductions would amount to at least $12 billion, and perhaps as much as $16 billion, over the next 10 years, and said the action threatens nursing home jobs-perhaps as many as 30,000 over the next year-“and could severely undermine the quality of care seniors receive in nursing homes.”

Larry Minnix, CEO of AAHSA, estimated the impact could be as much as $18 billion over 10 years, making it “more difficult for nursing homes to provide excellent quality, especially in these difficult economic times.”

Minnix pointed out that several Medicare Payment Advisory Commission (MedPAC) studies “reflect not-for-profit homes often care for more complex residents, for which many are already under reimbursed. In most nursing homes, if there are margins in Medicare services, they are used to help offset negative margins for Medicaid services. These numbers just don't work for financial viability and sustainability.”

“This regulation also casts a new light on how we are looking at the additional nursing home cuts that Congress is proposing to help pay for healthcare reform,” said Bruce Yarwood, president and CEO of AHCA. “We are alarmed by the magnitude of these cumulative cuts.” He pointed out that Congress earlier this year passed a stimulus bill to encourage job growth, “and in one fell swoop, a federal agency with a stroke of the pen cuts jobs. It doesn't make any sense.”

Yarwood said that “the failure to consider these reimbursement policy changes in combination has ultimately made passing a fair, equitable, and effective health reform bill into law even more difficult. These are serious decisions which should be made by Congress. A federal agency like CMS should not be permitted to cut care for seniors.”

Rosenbloom said the nursing home community fears that the CMS-ordered cuts “are just the tip of the iceberg,” adding that “as Congress continues to debate healthcare reform and searches for ways to fund it, many expect and assume that nursing home care will be targeted again for much deeper cuts.” He said that although nursing home providers have from the beginning of the process expressed strong support for health reform “and their willingness to endure cuts to help support it, the just-announced rule makes it far more difficult to responsibly and equitably use nursing home funds to finance reform without placing nursing homes, their employees, and their patients at great risk.”

This fall, differing versions of healthcare reform legislation will be considered by the House and Senate, and if both chambers approve a bill, a House-Senate conference committee will work to develop a compromise between the two. That measure will then face votes in both chambers before being sent to President Obama.

Recalculate assumptions

Thus, the organizations representing America's long-term care facilities will be aggressively working to convince lawmakers not to impose further Medicare reductions as part of healthcare reform. The long-term care community, Yarwood said, intends to explain “in a tangible, informative manner why it is essential for Congress, upon its return in September, to recalculate it budgetary assumptions and options commensurate with the steep Medicare funding cut that has now just gone into effect.”

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