While negotiating with Republicans, President Obama has made it clear that he is not willing to cut services to Medicare patients. But he will consider trimming payments to nursing homes.
Wait a minute—doesn’t that mean fewer services for nursing home patients? Not necessarily.
Fat Profit Margins
Over the past ten years, investment groups have been gobbling up nursing homes. By 2008, over 67 percent were operating “for profit.” And insofar as that is their mission, they have succeeded, handily. The Medicare Payment Advisory Commission’s (MedPAC’s), March 2011 report to Congress notes that “In 2009, the average Medicare [profit] margin for freestanding Skilled Nursing Facilities (SNFs) was 18.1 percent. . . We examined relatively efficient SNFs,” the report adds, “and found that it is possible to have costs well below average, above-average quality, and more than adequate Medicare margins.”
In other words, there is money to be saved within the nursing home sector without undermining patient care.
But perhaps 2009 was just an unusually good year for the industry? Not according to the Center for Medicare Advocacy. Nearly two years ago the Center pointed out that: “Year after year multiple reports by the Government Accountability Office and the MedPAC have shown that the Medicare program overpays skilled nursing facilities by billions of dollars. For seven years in a row, MedPAC reported that aggregate profit margins for freestanding nursing facilities exceeded 10%. In 2007, the profit margin was 14.5%."
Meanwhile, “The nursing home industry is scaring residents, telling them that health care reform will lead to poorer quality of care and the loss of the staff who provide them with essential care each day. ‘This outrageous misinformation campaign must stop,’” added Center for Medicare Advocacy Senior Policy Attorney Toby S. Edelman.
“Worse yet, despite enormous overpayments, the Centers for Medicare & Medicaid Services documents that nursing facilities have not increased their staffing. Where do these billions of dollars go? ‘The overpayments go to profits to corporate nursing homes and to excessive executive compensation, not to the care and services needed by residents,’” said Ms. Edelman.
Linking Payments to Quality of Care
One way President Obama might cut Medicare payments to Skilled Nursing Facilities without hurting patients would be to restructure the payment system so that Medicare is reimbursing, not for the number of therapy services that a patient receives, but for better outcomes: lower infection rates, fewer preventable re-hospitalizations, better performance during health inspections and higher nurse to patient ratios.
In its March 2011 report, MedPAC recommended doing just that by “establishing a quality incentive payment policy for SNFs.”
At present, too many patients are receiving subpar care in understaffed facilities. In 2011 U.S. New & World Report surveyed the more than 15,500 nursing homes in the U.S and spotlighted those that received “four straight quarters of perfect five -star rating from the federal Centers for Medicare and Medicaid Services in health inspections, nurse staffing, and quality of care, the three areas in which CMS evaluates these facilities.” Just 18—out of 15,500—made the “Honor Roll.” Only one of the 18 was a for-profit.
Padding Medicare Bills
While many nursing home bills are paid by Medicaid, Medicare covers as much as 100 days of nursing-home services for beneficiaries who require skilled care or rehabilitation following a hospitalization of at least three consecutive days. In fiscal year 2010, Medicare spent $26.4 billion on SNF care.
Unfortunately, some of that $26 billion went to pay bills that had been “padded.”
In January Bloomberg reported that “for-profit nursing home companies led by Kindred Healthcare Inc. and Sun Healthcare Group Inc. are likelier than non-profit counterparts to overbill Medicare for the costliest services.” According to a study released by the inspector general “Medicare should investigate instances in which companies keep patients longer, charge more for care and classify clients for more extensive and costly services than needed. The findings, based on audits of nursing-home billings from 2006 to 2008, ‘raise concerns about the potentially inappropriate use of higher-paying’ billing codes, said the report by the Health and Human Services Department’s Office of Inspector General. It recommends that Medicare, the U.S. health insurance program for the elderly and disabled, consider changing its payment method for nursing home services.”
The report revealed that Medicare plans to target an undisclosed list of nursing homes with “questionable” billing practices. The program specifically is examining “special-nursing facilities” for patients recovering from an injury or who are disabled.
Granted, under the Patient Protection and Affordable Care Act (PPACA) Medicare already will be shaving future increases in reimbursements to skilled nursing facilities by 1 percent a year, gradually, over a period of 10 years. If, in a given year, nursing homes normally would receive an adjustment from CMS that lifted payments by 2 percent, under the PPACA their reimbursements would rise by just 1 percent.
But given the level of profits that the average nursing home enjoys, and the number of preventable errors and infections that inspectors have found in these facilities, a combination of trimming annual hikes in payments while moving to a system that pays for quality, not quantity, would reward the best homes, while penalizing those that have been “upcoding” their bills.