SNF Medicare margins: What MedPAC doesn't know
Betsy Rust, CPA
In its recently released annual report on Medicare payment policy, MedPAC, a congressional investigative agency, said reimbursements to skilled nursing facilities remain too high and incentivize therapy utilization at the expense of other care.
Such an assessment is a polite way of saying, perhaps, that SNFs are overpaid or driving care decisions based on reimbursement incentives. It's also predictable, as MedPAC pretty much arrives at the same conclusion each year.
But let's crunch numbers differently.
Plante Moran, using its proprietary Edge benchmarking tool and the database of over 14,000 filed Medicare cost reports, found that the average revenue per diem for SNF services was $470 as compared to $380 of allowable Medicare expense, reflecting a net margin on fee for service Medicare of $90 per diem or 19%margin.
While that figure may appear, at first glance, to represent a significant, or as MedPAC has deemed, perhaps inappropriate financial gain for these services, it's imperative to take into consideration mitigating factors:
Providers incur legitimate business expenses each year that are not allowable by Medicare and have been excluded from MedPAC's calculations, leading to an overstatement of margin. Some examples: bad debt expense, marketing and advertising, provider taxes and many expected patient amenities including cable television, wireless internet and telephone service.
Most facilities have all of their beds certified for Medicare. As such, the cost per diem is reflective of the average cost of all patients. In practice, however, Medicare patients are usually more costly on a per diem basis due to the staffing requirements associated with managing shorter episodes of higher acuity care. Thus, again, margin is likely overstated.
Most important, healthy margins are critical to the overall ability of the industry to provide quality care. They are essential to closing the gap created when state Medicaid programs, which vary, do not fund the full cost of providing long-term care.
Unfortunately, MedPAC appears to have ignored or minimized these factors. It also has, based on its analysis of the data, recommended a freeze on market basket updates, along with reform of the current prospective payment system (PPS), and two years of rebasing SNF rates.
The cost report data also reflects that approximately 53% of the total per diem cost relates to routine operations or building-related capital costs. Therapy costs are a whopping 33% of the total, with other ancillary services comprising the remaining expenses. Given this breakdown, it is not surprising that MedPAC and others will continue scrutiny of rehabilitation services with a focus on balancing cost and outcomes.
The articulation of data is vitally important, and MedPAC is not the only entity interpreting, or misinterpreting, cost report and claim data. Medicare Advantage insurers, also rely on this information to develop payment rates and need to be aware of all the inputs, too.
Mark Twain once noted that there are “lies, damn lies and statistics.” With a growing emphasis on data analytics, be prepared to defend your information!