The likely costs of complying with a federal staffing mandate will affect nursing home margins so “massively” that a Congressional advisory board should offer alternative payment guidance for the sector, one member argued Thursday.
The Medicare Payment Advisory Commission was meeting this week to approve inclusion of its annual payment adequacy reports in a March report to Congress. Votes are usually de facto, and members had heard a full report in December, when they ultimately backed a 3% cut for skilled nursing facilities in fiscal 2025.
But Brian Miller, MD, Thursday questioned the validity of a formal 3% recommendation, which did not take into account possible costs associated with the mandate proposed in September.
“It would totally change their operations. Should we have two estimated recommendations: one based upon the current statutes and regulatory framework and another based upon if this rule were implemented next year?” asked Miller, an assistant professor of medicine at Johns Hopkins University and American Enterprise Institute fellow whose research focuses in part on competition in healthcare markets.
“This rule would massively change the industry,” he added. “I am generally supportive of the current recommendation, but again, I wonder if we lack the specificity, given that we expect this enormous change in how SNFs do business.”
Multiple estimates have been the sector’s cost of implementation at roughly $7 billion annually.
Miller abstained from the vote, which was otherwise unanimous in favor of recommending the 3% cut to Congress. That vote came even as several MedPAC members last fall ripped the rule’s “brute force” approach and lack of funding.
MedPAC Chairman Michael Chernew, PhD, explained that the commission has made it standard practice to approve recommendations based only on current law. Principal Policy Analyst Kathryn Linehan noted that the rule and its hiring implications were mentioned in a chapter on skilled nursing, but not in payment adequacy projections.
Moments before, Linehan had explained that the 2025 advice was given partly in response to “a decades-long trend” of high average Medicare margins. In 2022, that was 18.4%, but MedPAC staff expects it to fall to 16% for 2024.
A 3% cut to SNF base rates in 2025 would decrease spending by between $2 billion and $5 billion in one year “relative to current law,” Linehan said.
“We make our recommendations under current law because there are too many potential things that various people are proposing,” explained Chernew, a Harvard healthcare policy expert. “There’s been uneasiness in trying to forecast the likelihood of whether things would be implemented. … It’s really just very hard to do our work when there are shifting sands.”
He said the commission, if faced with rule adoption and implementation, would discuss that new development in future interactions with Congress.
“I completely agree that this is, obviously, a really important proposed rule and that’s why we’re monitoring it and will continue to do so,” said MedPAC Executive Director Paul Masi.
But even if finalized in 2024, the rule wouldn’t go fully into effect in 2025, he and Linehan added. CMS has said it could take through September 2026 to finalize it, and some stipulations wouldn’t go into effect for five years for certain providers.
Still, Miller pushed back, saying most nursing homes would begin to prepare and take on added costs before any regulatory deadline.
“I have no expectation that we respond to every single market condition that changes … [but] this rule is so significant, I feel like we’d be a better advisor to the Hill and Congress if we had some sort of estimate of what the impact would be on SNF margins,” he said. “Us having more information about the rule — it’s life-changing for the industry and the beneficiaries — would be very helpful.”
