Continuing their crusade to make the congressional super committee aware of the repercussions of how cuts to Medicare and Medicaid will impact the skilled nursing facility industry, SNF advocates have released an analysis by Avalere Health that finds if more cuts are made, the industry's operating margin will be zilch.
Avalere, a healthcare business strategy and public policy advisory company, did the analysis at the request of the Alliance for Quality Nursing Home Care (AQNHC), a long-term care member organization. Avalere's analysis offers different scenarios, all with negative consequences for the operating margins of SNFs:
• Cuts to Medicare and Medicaid on top of the payment reduction and other changes laid out in a final rule by the Centers for Medicare & Medicaid will result in a SNF industry-wide overall (all payers) reduction in operating margin from 3.8 percent to zero in FY 2012; from 4.4 percent to 0.4 percent in 2014.
• If Congress does not enact the $1.2 trillion in deficit reductions required in the Budget Control Act of 2011, the resulting 2 percent payment rate cut would, in addition to CMS' final rule cuts, reduce the industry-wide margin to -0.1 percent in 2014.
• If there were to be an overall freeze in Medicaid payments to nursing facilities in addition to the CMS final rule cuts and Budget Control Act cuts, in 2014, the margin would be reduced to -1.4 percent. The margin could drop to -2.2 percent if the annual 1 percent reduction in Medicaid payments is added in.
This is the second analysis of the impact of cuts on SNFs that Avalere has released this month. The first found that CMS' final rule cuts of 11.1 percent would mean payments to SNFs over the next 10 years would be reduced by $79 billion.
[See also: CMS regulation reduces payments to skilled nursing facilities by $79B over ten years, says industry group; CMS to cut Medicare payments to skilled nursing facilities.]
To gauge SNF operating margins for its latest analysis, Avalere used its own model with data sources, including revenue and costs from the Medicare 2009 SNF cost reports, state-by-state Medicaid spending data from the CMS-64 (Medicaid cost reports) and National Health Expenditure (NHE) Accounts estimates of growth in nursing facility private payer revenues.
It is not the super committee's responsibility to ensure that SNFs make a profit, but, SNF advocates say, the committee should take into account the repercussions of an industry not making profits.
"Without a profit for capital reinvestment in things like state-of-the-art rehab pools, the latest in rehab equipment, refurbishing old buildings, adding new wings, recreation rooms, upgrading dining halls, updating facilities with the newest technologies, better training for staff, the skilled nursing facilities of today would not exist," says Rebecca Reid, AQNHC spokesperson. "All those improvements lead to better quality of care, a healthier environment, etcetera."
A press release announcing the results of Avalere's analysis noted that the SNF industry is the country's second largest health facility employer, generating $201 billion in economic activity annually, creating 2.52 million jobs across the country and directly employing 1.69 million Americans.
"As America's second largest health facility employer, our sector cannot be expected on the one hand to continue being the reliable jobs partner we have proven to be even in this devastating downturn, while, on the other, absorbing one deep funding reduction after another," said Alan Rosenbloom, AQNCH president, in a statement.
"The cascade of Medicare and Medicaid reductions, capped by the S&P warning, and the continuing and uncertain threats swirling about our sector will have a negative impact on small and large operators – and on non-profit and proprietary organizations – alike," he continued. "Banks who lend to regional and other local providers and non-profit capital sources monitor and respond to actions by S&P. This will increase their reluctance to lend to the sector, as well as increase costs for borrowers – and is yet one more unambiguous signal to the Administration and Congress that disregarding sector stability is bad for jobs and damaging to the nation's economy."
Follow HFN associate editor Stephanie Bouchard on Twitter @SBouchardHFN.