A Congressional advisory group appears ready to recommend a 3% Medicare pay cut for nursing homes in 2025.
In what has become an annual tradition, members of the Medicare Payment Advisory Commission voiced ongoing concerns Friday about the use of Medicare Fee for Service reimbursement to effectively subsidize Medicaid rates and Medicare Advantage payments.
With official data indicating that patients still have plenty of access to care, panel staff recommended MedPAC tell Congress that it should pursue a cut to skilled nursing payments with the publication of the 2025 Medicare SNF Prospective Payment Schedule.
Skilled nursing operators reported an 18.4% profit margin on the traditional Medicare side in 2022, with a projected drop to 16% by 2024. Principal Policy Analyst Kathryn Linehan reported during a meeting in Washington, DC.
Chair Michael Chernew, PhD, a healthcare policy professor at Harvard, said the 3% cut could be steeper given the reported margins. But the commission — tasked only with considering Medicare policy — remains cognizant of the pressures faced by providers accepting Medicaid and being increasingly low balled by managed care plans.
“People may ask, well how come the margins are so consistently large and our recommended cut is particularly modest?” Chernew said, echoing previous MedPAC concerns about the inability to craft policy not influenced by Medicaid shortfalls that brought all-payer margins to -1.4% in 2022.
Medicaid offsets profits
Much of that is due to state Medicaid reimbursements, according to crossover data supplied by the Medicaid and CHIP Payment and Access Commission showing that 4 out of every 5 nursing homes is underfunded by the states when it comes to nursing home care.
“There’s no mathematical certainty about how to go,” Chernew said. “But that was in our thinking when we came up with the magnitude.”
The commission gauges payment adequacy each year and consulted four core metrics: beneficiaries’ access to care, quality of care, providers’ access to capital and Medicare payments and costs.
Linehan, who cited data that ran through fall 2023 in some categories, said that high margins in Medicare continued to make the federal system a preferred payer, while SNFs also still had plenty of access to capital to support their businesses.
While noting that HUD had decreased the number of loans it made to the sector in 2023 and that there were fewer transactions involving nursing homes, Linehan said the sector “remains attractive to investors.”
Medicare payments helped boost that desirability.
“SNFs with available capacity have an incentive to serve Medicare Fee for Service beneficiaries,” she said.
Is capacity real?
Linehan noted that the number of SNFs had fallen about 1% over the last year, but that the share of certified beds taken offline was less than 1%.
But several commission members said anecdotal evidence contradicted those statistics, with open beds potentially not available because nursing homes can’t hire enough staff.
“This is to me a particular concern in the SNF sector,” said Tamara Konetzka, PhD, professor at the University of Chicago. “Anybody who is aware of the challenges of discharges from hospitals and finding a SNF bed, that isn’t really consistent with the sort of fairly good access we see in our more blunt measures about the supply of SNFs.
“There’s competition for certain kinds of SNF beds,” she added. “They’re not equal in quality or what they specialize in. So if you really need a stroke SNF bed or a joint replacement SNF bed, there may be only one place you can go to in your market.”
Konetzka also said staffing shortages continue to limit capacity in a way not reflected in hard numbers, keeping post-acute patients in the hospital longer than need be. She said that studying extended hospital stays might lead to more insight on true access to SNF beds and how Medicare rates might influence availability.
Commissioner Jonathan Jaffery, MD, chief healthcare officer of the Association of American Medical Colleges, also questioned the idea that relatively high Medicare payments were enough to ensure placements for all beneficiaries. Hospital systems, more than wanting to expand their own facilities, are demanding better SNF access, he said.
He questioned whether higher pay was enough of an incentive for the increasingly complex patents nursing homes are being asked to admit.
“While that’s true based on your data, it’s not necessarily true for all patients,” Jaffrey said. “That becomes a big issue too as the patients get more complex. The PDPM is a great step toward [addressing] that increased complexity, but … you try to get a patient that’s extremely complex, try to get a patient that has significant behavioral health concerns, try to get a patient with morbid obesity or if you’ve got somebody who’s got significant nutritional needs and needs TPN or something like that, there’s no way they’re going to go to a nursing home. They’re just not going to accept them.”
While MedPAC advises Congress, its recommendations are not binding. No vote was taken Friday on this year’s draft SNF payment adequacy report.
