For Immediate Release                                             Contact: Toby S. Edelman

August 26, 2008                                                                        Senior Policy Attorney

                                                                                                  (202) 293-5760

Yielding to intense lobbying by the nursing home industry, the Centers for Medicare & Medicaid Services (CMS) is giving skilled nursing facilities (SNFs), nursing homes that provide nursing and rehabilitative services to Medicare beneficiaries recovering from a hospital stay, a two-part rate increase worth more than $1.5 billion next year. 

"The windfall to skilled nursing facilities comes with no strings attached; there is no reason to believe this windfall will help improve the quality of care or quality of life for nursing home residents," said Toby S. Edelman, Senior Policy Attorney with the Center for Medicare Advocacy.

"The Center for Medicare Advocacy calls on CMS to recalibrate skilled nursing facilities rates, as it proposed in May, and to take steps to ensure that skilled nursing facilities use their Medicare dollars as Congress and CMS intended – for the care of skilled nursing facilities residents," said Ms. Edelman.  "CMS bases skilled nursing facilities rates, in part, on costs for nurse staffing.  The highest daily rate for an urban skilled nursing facility, $622.93, includes $288.31 for nursing.  CMS must ensure that skilled nursing facilities actually spend their staffing dollars on staff."

The first component of the windfall to the nursing home industry is an inaccurate calibration of the Medicare rates used to pay skilled nursing facilities.  "CMS admits it has over-paid skilled nursing facilities since January 2006 and that the overpayment for FY2009 will be $780 million, but it has backed down on its proposal, made just last May, to recalibrate Medicare rates prospectively," said Ms. Edelman. 

The second part of the windfall is the "market basket" increase, which is an annual adjustment based on changes in the cost of living and inflation.  The Medicare Payment Advisory Commission (MedPAC), an independent agency established by federal law to advise Congress on Medicare policy, reviewed the profit margins and operations of skilled nursing facilities and recommended to Congress in March 2008 that skilled nursing facilities receive no update at all for FY2009.  Yet, in May, CMS proposed a market basket increase of 3.1%, increasing skilled nursing facility rates by an estimated $710 million.

In the final rules published in August, CMS gave skilled nursing facilities both the $780 million windfall, by backing down on its decision to recalibrate the rates, and an even larger market basket increase.  The total overpayment to the nursing home industry is $1.559 billion.

Toby Edelman is available to comment (tedelman @ medciareadvocacy.org, remove spaces)

Background

Effective January 1, 2006, CMS expanded the classification system used by Medicare for reimbursing SNFs from 44 categories to 53 in order to reflect residents needing both heavy care and therapy.  Using FY 2001 claims data and estimating how many residents would be placed in the 53 categories, CMS estimated that total Medicare payments would be lower under the 53 categories than under the 44 categories.  In order to maintain budget neutrality, it adjusted the new Medicare rates upwards.  CMS made a second upward adjustment to reflect variability in the use of non-therapy ancillary services.  The two adjustments resulted in a 17.9% increase in the rates, effective January 1, 2006. 

CMS has now determined, using actual FY 2006 data, that it has overpaid SNFs since January 2006.  Skilled nursing facilities placed more residents than CMS anticipated in the highest-paying reimbursement categories.  CMS’s recalculations with actual data indicate that the adjustment necessary to maintain budget neutrality should have been 9.68%, not the 17.9% that CMS used.

In May 2008, CMS proposed to recalibrate the rates prospectively, with an impact in FY2009 of a negative $770 million.  73 Federal Register (F.R.) 25917, at 25923 (May 7, 2008).  At the same time, it proposed a 3.1% increase in the market basket, which would increase SNF rates by $710 million, largely offsetting the reduction due to the proposed recalibration of rates. 

In final rules published in August, however, the agency did an about-face and decided not to recalibrate the rates.  CMS now reports that continuing its miscalculation will result in an overpayment of $780 million to SNFs in FY 2009, $10 million more than it predicted in May.  73 F.R. 46416, at 46422 (Aug. 8, 2008).  CMS admits the reason for its about-face:

In view of the widespread industry concern that a recalibration could potentially have adverse effects on beneficiaries and SNF clinical staff, and could negatively affect the quality of SNF care, we believe that the most prudent course is to continue to evaluate these issues carefully before proceeding.

73 F.R. 46424.  CMS also reported in August that it would increase the market basket by 3.4%, not 3.1%, resulting in a second increase in SNF reimbursement rates of $779 million.