A gloved nurse counts money in her hands
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Providers are struggling with the federal government’s “heartless” decision to decrease pay for skilled nursing facilities by $320 million in fiscal 2023. 

Officials said Monday’s announced nursing home pay rule is an attempt to compensate for overpayments that started with the introduction of the Patient Driven Payment Model in late 2019 and lingered throughout the pandemic. 

The proposed net payment reduction has industry stakeholders worried how SNFs would be able to provide adequate care if nothing is changed after what is expected to be a very active comment period. 

“Many nursing homes already face imminent closure, and this Medicare cut could force more seniors across the country to relocate and find alternative care farther away from family and loved ones,” Mark Parkinson, president and CEO of the American Health Care Association, said in a statement to McKnight’s Long-Term Care News on Monday. 

“It is critical that Medicare remain a reliable funding source and reflect the increasing costs providers are facing,” he added.  

Stakeholders have 60 days to submit comments to the Centers for Medicare & Medicaid Services about its 2023 Skilled Nursing Facilities Prospective Payment System proposed rule. 

Providers ‘caught a break’

CMS on Monday announced plans to lower nursing home PDPM rates by 4.6% to account for unintentional overpayments. 

That $1.7 billion decrease will result in a net $320 million annual decrease after accounting for a market basket increase and other factors, officials explained.

The rule also calls for a 3.9%, or $1.4 billion, payment boost for the sector. That includes a 2.8% market basket update and a 1.5 percentage point forecast error adjustment, as well as a 0.4% lower productivity adjustment. The 3.9% Part A adjustment is significantly more than CMS has proposed in recent years.

It seems the industry “definitely caught a break because of the forecast error adjustment of [plus] 1.5%,” said Sherill Mason, principal of Connecticut-based firm Mason Advisors, in an email comment to McKnight’s Long-Term Care News on Monday.

She explained that CMS is under a statutory mandate to keep market baskets accurate and do an adjustment if a previous update was more than 0.5% off the mark “so it is not discretionary.” 

“It does seem that they really worked to ensure the accuracy of the parity adjustment by revising their calculation methodology,” Mason added. “It came very close to the original estimate.” 

Deepening the crisis

Not everyone was so appreciative of the proposal to cut reimbursements by $320 million.

“To do this during a pandemic is actually heartless. We were comfortable with them spreading it out and thought that would be the case,” Rick Matros, president and CEO of Sabra Health Care REIT, told McKnight’s on Monday.

“Providers have been a punching bag, but now the administration is just beating them up while they are down,” added the Pennsylvania Health Care Association via Twitter on Monday. “States with older populations like PA can’t afford more LTC closures.” 

LeadingAge said the reduction to SNF pay was among the organization’s initial concerns following the proposed rule’s release. 

“At a time when no aging services provider can afford it, the government is cutting. We’re working with the administration to improve our nation’s nursing home system, but lowering reimbursement rates is not the right starting point,” said Janine Finck-Boyle, vice president of health policy at LeadingAge.

Parkinson also argued that “any reduction in government resources could deepen the economic crisis currently within the long-term and post-acute care sector.”

While it is not terribly surprising that CMS proposed a significant cut to Medicare SNF payment rates for coding changes under PDPM, it’s unwelcome at this critical juncture, agreed Brian Ellsworth, vice president for public policy and payment transformation for Health Dimensions Group. 

“Many nursing homes face an existential crisis with respect to workforce and occupancy challenges. While there is going to be much attention, and rightly so, on the 4.6% cut due to the proposed ‘recalibration of the parity adjustment,’ we note that last year’s market basket update forecast was off by over 50% (3.7% actual vs. 2.2% proposed),” Ellsworth told McKnight’s on Monday. 

“The accelerating cost of labor, combined with a spike in energy and food costs, raise the likelihood that this year’s market basket update forecast will also be significantly undercounted,” he added. 

Like Matros, he noted that CMS chose not to propose phasing-in the parity adjustment, despite significant feedback last year urging it to do so. But that’s not all that’s bad, he added.

“In addition, absent Congressional action, the full 2% sequestration adjustment will return in July 2022,” Ellsworth noted. “All of this makes for a perfect storm, especially for those providers who are dependent on Medicare to help offset Medicaid shortfalls. CMS needs to take account of these realities as it considers comments on this proposal.” 

Providers lucky? 

Last April, CMS originally announced that it intended to recalibrate PDPM’s parity adjustment. PDPM reimbursements are supposed to be system neutral, but instead, CMS found that aggregate spending under the new model unintentionally increased by 5.3%, or $1.7 billion, when compared to what it would have paid SNFs under the old Resource Utilization Groups model.

But in late July 2021, CMS held off on adjusting PDPM payment rates for fiscal 2022, saying it needed to get a better picture of COVID-19’s full impact on SNFs.

This cheered some industry stakeholders, who had questioned whether CMS had fully accounted for the pandemic’s impact and its added costs in its calculations. Some observers suggested at the time that providers may have dodged a bullet since the agency went with the lesser parity adjustment. 

“Patients and providers are hurting as they work to deal with labor shortages and increased costs, so any cut will hurt patient care and hamper our ability to pull out of the impact of COVID,” Cynthia Morton, executive vice president of the National Association for the Support of Long Term Care, told McKnight’s on Monday. 

She added that a “less than 5% parity adjustment is positive.” 

“Bottom line is that providers need to have the necessary resources to provide quality care,” she said. “We look forward to further digging into the rule to understand its full impact.” 

The proposed rule used the same recalibration methodology proposed last year, with minor refinements in SNFs’ favor, according to Marc Zimmet of president and CEO of Zimmet Healthcare Services Group. “But, our analysis shows COVID distortion was still not fully neutralized,” Zimmet told McKnight’s. “Other issues include their handling of depression, CMMI which shortened stays and increased the average PDPM rate, ignored the shifting of funds from freestanding to hospital based units, not to mention the savings to Medicaid and Medicare Part B and D from the waiver.”