Skilled Nursing Facilities Seen Dependent on Medicare to Offset Losses

A new analysis provides details on how skilled nursing facilities (SNFs) rely on Medicare reimbursements to offset losses in treating Medicaid patients (a process known as cross-subsidization). The findings have implications for the Medicare Payments Advisory Commission (MedPAC), which meets later this week to determine Medicare payment recommendations.

While SNF profit margins from Medicare are estimated to be 24.2% in 2011, the overall SNF margin is believed to be far lower. This is largely due to low Medicaid payment rates that, in virtually every state, are well below the actual cost of providing services, says Avalere Health, a Washington, DC-based consultancy offering research, analysis, insight, and strategy for the healthcare sector.

For Most Facilities, Medicaid Pays Most

Avalere's analysis shows that for a whopping 90% of SNFs, Medicare represents less than 30% of total patients days. For most, Medicaid -- the federally subsidized, state-administered health program for low-income individuals -- accounts for the majority of the remainder. No more than 5% of SNFs have Medicare days of 50% or higher.

"MedPAC recommendations for Medicare skilled nursing facility payment policy have historically been driven largely by the SNF industry-wide Medicare margin -- the difference between SNF Medicare revenues and their costs for providing services to Medicare patients," the analysis says. "MedPAC estimates that the 2011 SNF industry Medicare margin was 24.2%. Medicare margins will almost certainly form the basis of MedPAC's next round of payment recommendations this week."

A Long-Running Policy Debate

"However, there has been a long-running policy debate on whether it is appropriate to focus exclusively on Medicare margins when making payment system recommendations," the report continues. "MedPAC reported that the 2009 Medicare margin, for example, was 18.1 percent, whereas the overall margin was just 3.5 percent."

The difference between Medicare and overall margins is largely due to Medicaid payment rates that, in virtually every state, are below the cost of services for Medicaid-funded residents.

"Evidence suggests that facilities use Medicare payments to cross-subsidize the cost of care for Medicaid-funded long-stay residents (who are frequently dual eligibles -- i.e., eligible for both the Medicare and Medicaid programs)," says the Avalere report.  

"MedPAC counters that Medicare cross-subsidization of Medicaid payments is 'not advisable for several reasons," one of which is that "facilities with high shares of Medicare payments -- presumably the facilities that need revenues the least – would receive the most in subsidies from the higher Medicare payments...'"

Info: To access a graphic overview of the analysis' results, go to www.cdpublications.com/docs/7488

Contact: Avalere Health LLC, 1350 Connecticut Ave. NW, Suite 900, Washington, DC 20036; phone 202/207-1300; fax 202/467-4455; E-mail info@avalerehealth.net

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