Increasing Reimbursement to Improve Staffing Levels

Introduction

One approach to improving nurse staffing levels is increasing reimbursement to nursing facilities, on the assumption and expectation that nursing facilities will use some of the increased reimbursement to increase their staffing.  This approach – at the federal level with Medicare and at the state level with Medicaid, in both Florida and California – has not been successful.  Increased reimbursement led to little change in staffing.

Moreover, nationwide, between 1990 and 1998, although total Medicare and Medicaid reimbursement to nursing facilities more than doubled, increasing from $24.8 billion to $51.0 billion,[1] and resident acuity increased,[2] nurse staffing levels remained stagnant.[3]

Medicare

In 1997, Congress enacted a new prospective payment reimbursement system for Medicare.[4]  The system pays a daily rate to skilled nursing facilities (SNFs) that covers virtually all services needed by a resident.  The rate is based on three components: nursing (which also includes social services and non-therapy ancillary services), therapy (based originally on one of 44 (now 66) resident assessment categories, which are called Resource Utilization Groups), and routine costs (which include capital, maintenance, and food).   

Following two large corporate bankruptcies, which the nursing home industry blamed on the new reimbursement system, Congress increased Medicare rates by 16.6% in the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA).[5]  Congress specified that nursing facilities should use the increased funding for the nurse staffing component of the Medicare rate, but allowed SNFs to spend their Medicare reimbursement however they chose, once they received it.  As a result, as found by the Government Accountability Office (GAO), the 2000 rate increase for nurse staffing did not appreciably increase nurse staffing rates. 

BIPA directed the GAO to provide guidance to Congress to help determine whether the rate increase should be continued.  In a report entitled Skilled Nursing Facilities: Available Data Show Average Nursing Staff Time Changed Little after Medicare Payment Increase, the GAO found that although BIPA increased Medicare rates overall by 4-12% (on top of prior increases[6]) and Congress had specified that the increased reimbursement should be spent on nursing, nurse staffing levels remained virtually stagnant after the increase became effective on April 1, 2001.[7] 

The GAO found that skilled nursing facilities (SNFs) increased their nurse staffing by 1.9 minutes per day – “less than the estimated average increase, across all SNF patients, of about 10 minutes per patient day that could have resulted if SNFs had devoted the entire nursing component increase to more nursing time.”[8]  Moreover, the skill mix of the nurses changed.  Increases in nurse staffing reflected increases in licensed practical nurses (0.7 minutes per patient day) and certified nurse assistants (2.9 minutes per patient day) while registered nurse (RN) coverage actually declined (1.7 minutes per patient day).[9] 

The GAO found that staffing was unaffected by the proportion of residents in a facility who were covered by Medicare[10] or by a facility’s financial status.[11]  Although lower-staffed facilities increased their nurse staffing levels following the rate increase, the GAO reported that a similar increase had occurred in the years before the BIPA increase, “suggesting that the payment increase probably did not cause the change in the latter period.”[12]

The GAO also found that nurse staffing levels increased more significantly (15-27 minutes per resident day) in four states, three of which (Arkansas, North Dakota, and Oklahoma) “had made Medicaid payment or policy changes aimed at increasing or maintaining facilities’ nursing staff.”[13]

The GAO concluded that “increasing the Medicare payment rate was not effective in raising nurse staffing”[14] and so advised Congress.   

State Medicaid rate increases

States increasing Medicaid rates in the hope of increasing nurse staffing levels have had a similar lack of success.

            Florida

Florida made significant changes to its staffing requirements over a nine-year period, beginning in 1999.  “The first state effort . . . was an innovative financial incentive program allocating $40 million to fund the Direct Care Staffing Adjustment (DCSA).”[15]  Under this Medicaid program, facilities that hired additional CNAs or LPNs or “increased the wages or benefits of direct care staff,”[16] or both, received an add-on to the Medicaid rate in 2000 and 2001.  Specifically,

The final incentive rules allowed both a minimum add-on of 50 cents per Medicaid day for all Medicaid providers, at an annual cost of nearly $8 million (75% of the appropriation) and a distribution of the remaining $23.7 million in incentive funds (25% of the total) to providers with the lowest staffing.[17]

The result was an average additional Medicaid payment of $1.96 per day, reflecting an increase of 1.8% in the Medicaid reimbursement rate.[18]  More than 90% of Florida nursing facilities applied for the additional funding.  An evaluation by the state found that nursing facilities spent the money as required by the legislation, although not by increasing staffing levels.[19]

Additional state legislation enacted in 2001 mandated minimum nurse staffing ratios, to be implemented over a three-year period.  When implementation of the ratios was delayed, due to budgetary concerns, the Legislature directed the state not to enforce the higher staffing standards.[20]

In an analysis written for the state Agency for Health Care Administration, the University of South Florida reported:

In 2000, Florida allocated $40 million in financial incentives to improve quality in nursing homes with the direct care staffing adjustment.  These monies were spent on direct care as required by the law, but . . . , the total average hours per resident day did not increase until minimum staffing requirements were established. . . . [W]hen providers are allowed to spend reimbursement as they deem appropriate, direct care hours per resident day decrease. . . . [O]nly when minimum standards are established and enforced do hours of per resident care increase.[21]

Moreover, over the study period of 2002-2007, there was a “steady decline” in RNs.  Facilities provided 18 minutes per resident day of registered nurse coverage in 2002 and 16.8 minutes per resident day in 2007.[22]  In addition, as direct care staffing increased, housekeeping staff declined in 2002 and 2003 and activity and recreational staff declined between 1999 and 2004.[23]

California

In 2004, the California Legislature enacted “a facility-specific, cost-based Medi-Cal reimbursement system for [freestanding] nursing homes.”[24]  The new payments established by the legislation became effective in May 2006 and continued through Fiscal Year 2008-2009.[25]  The Legislature anticipated that the rate increases would encourage “increases in staffing levels, higher wages and benefits, and improved quality of care.”[26]  The reimbursement system established seven geographically-based groups and five cost centers: “(1) direct care labor costs, (2) indirect care labor and non-labor costs, (3) administrative, (4) capital, and (5) direct pass-through costs for liability insurance and other costs.”[27]  Facilities could not shift costs from one cost center to another.[28]

Evaluating data from 995 free-standing facilities for a six-year period, 2001-2006, including the period of the rate increases,[29] researchers found that “the average Medi-Cal revenues per day for nursing facility [sic] increased from about $124 per day in 2004 to $152 per day in 2006;” in subacute facilities, from $178 in 2004 to $222 in 2006; and in multilevel retirement communities, from $110 in 2004 to $148 in 2006.[30]  Total Medi-Cal payments increased by $590 million and funding from all sources increased by $1.1 billion.[31] 

Researchers found that between 2001 and 2006, in nursing facilities (the largest category of facilities studied), “total nurse staffing levels increased . . . from 3.17 hours per resident day (hprd) . . . to 3.4 hprd,” a 7% increase.[32]  However, nurse staffing levels increased by only 3% between 2004 and 2006.[33]

Although RN coverage in nursing facilities increased by 1.4% between 2004 and 2006, RN hours actually decreased 8% between 2001 and 2006.[34]  The largest nurse increase occurred for the category of licensed vocational nurses (LVNs), with a 20% increase between 2001 and 2006, including a 9% increase between 2004 and 2006.[35] 

Researchers described the staffing levels at nursing facilities as increasing by only “a small amount,” which was below the hours recommended by experts and, for 144 of 995 facilities studied (16%), even below the state-mandated staffing ratios enacted in 2000.[36]  They noted that an audit of a sample of nursing facilities, conducted by the California Licensing and Certification Program, found that only 24% of sampled facilities actually complied with the state-mandated staffing ratios in 2004-05, “suggesting that the cost reports may be overstating compliance.”[37]

Turnover at nursing facilities increased by 1.4% for all nursing categories between 2004 and 2006.[38]

Wages for nurse aides in nursing facilities increased 71 cents per hour (6.6%), from $10.61 per hour in 2004 to $11.32 per hour in 2006, but when these wages were adjusted for inflation, direct care workers’ wages actually decreased by 0.5% in the three-year period.[39]  In contrast, wages for administrators increased by 11.3% and wages for licensed nurses increased by 9% between 2004 and 2006.[40]  Benefits per hour for all employees declined between 2004 and 2006.[41]

Between 2004 and 2006, the “highest growth rate in expenditures” occurred in the category of administrative expenses (even after excluding the higher administrative expenses that resulted from the new payment methodology).[42]  Administrative expenses in nursing facilities increased from 19% of per day expenditures in 2004 to 22% of per day expenditures in 2006.[43]

While substantiated complaints for non-profit facilities declined by 30% between 2004 and 2006, substantiated complaints for for-profit facilities increased by 44% in the same period.[44]  Both deficiencies and citations increased by 6%.[45]

The researchers concluded:

At this point, there is no evidence that the new Medi-Cal reimbursement incentives are sufficient to encourage increases in nursing staffing and increased wages and benefits, which are necessary to improve the quality of nursing home care and reduce staff turnover rates.  Without attaching more specific minimum requirements for staffing levels and penalties for poor quality of care, the new payment system appears unlikely to achieve its goals.[46]

Conclusion

Evidence from federal and state efforts discussed here consistently demonstrates that increasing reimbursement to nursing facilities, without more, does not lead to improved staffing levels or improved wages and benefits for direct care workers.  The GAO and researchers who studied Florida and California all suggest that explicit staffing ratios are required to improve staffing levels.  Increasing reimbursement, by itself, is not an effective approach to improving nurse staffing in nursing facilities.

April 12, 2016 – T. Edelman