On October 1, the SNF industry received a 1.1% reduction in Medicare payments. On October 13th, the Senate Finance Committee passed its version of Healthcare Reform, commonly known as the Baucus Bill. While the Baucus Bill is the least penalizing to the industry, of the major health reform bills waiting in Congress, it is destined for the Senate shredder as I write – to be carved into a million pieces for a cut and paste job by Harry Reid with the Dodd plan. In other words, anything good for SNFs that exists within the Baucus Bill has only a fifty-fifty chance of remaining in the final Senate legislation brought forth for a vote.
Turning to the other side of the Hill, the House has yet to officially wade through the reams of proposed policy put forth by various committees on the same subject – healthcare reform. The most complete package is HR 3200 and its provisions are far from favorable for SNFs. The House version(s) in their present form, call for elimination of the market basket almost immediately – the same market basket that reduced the SNF cut to only 1.1% at the start of October.
So what do we know or what can we discern at this point? The answer: The prospects for the SNF industry appear rather gloomy. Taking into account that which we know and that which we can reasonably predict, the following is a practical analysis of where the industry stands today and where its fortunes appear headed.
- The October 1 Medicare cuts will reduce revenues for the industry at a time when Medicaid continues to run deficits, programs include rate cuts or rate freezes, and the private pay census continues to suffer the effects of the economic downturn. Most facilities will continue to see migration from private pay to Medicaid at rates far faster than periods prior to the economy’s collapse.
- Medicaid is a significant problem for nearly all state’s budgets and were it not for the Federal Stimulus program adding additional federal matching funds, many state Medicaid programs would have to cut rates to providers. The Stimulus funding is set to end in 2011. Medicaid is already a poor payer, significantly under-reimbursing costs to providers. Without significant efforts to reform Medicaid and to achieve additional massive amounts of funding over the next decade, the program will assuredly face continued financial pressure to reduce reimbursement levels to providers.
- Regulatory activity is on the up-swing and providers have just begun to see the effects of the introduction of CMS Five Star Quality Rating System. While the industry continues to generally improve its quality of care, the rating system is far from accurate and far from informative with respect to actual facility performance. In many regards, provider data is not updated frequently enough, survey information is poorly explained, and results that have been overturned or changed due to appeals and IDR, slow to get updated.
- Regardless of the status in either the Senate or the House of healthcare reform legislation, all of the bills tend to follow the same course when it comes to issues that are potentially detrimental to the SNF industry. It is illogical to presume that any final bill or bills will not include significant Medicare spending reductions. Frankly, all versions of reform legislation require massive spending reductions in current programs just to get within the radar screen of “budget neutrality”. Medicare spending reductions means reimbursement cuts above and beyond the October 1 level. The most logical target is the elimination of the market basket, replaced by a contrived productivity adjustment formula that actually penalizes the industry for becoming more efficient. Complicating matters further, the healthcare reform bills all foretell expansion of the Medicaid program but without additional funding. To be certain, Medicaid in its present form will fall victim to healthcare reform in some fashion but it is impossible to tell quite how. What this ultimately means is that healthcare reform includes Medicaid spending reductions and without additional stimulus funding, the financial prospects for Medicaid in the next two years are dire at best. Even with the rosiest of economic assumptions for recovery, states will not see tax revenue increases climb fast enough to radically alter the fiscal health of their Medicaid programs. Finally, there is nothing in the cards in any of the healthcare reform proposals that reduces the operating cost platform of the industry, either via tort reform or regulatory relief. The various bills foretell just the opposite – an increase in auditing activity, oversight, regulations, etc. To be succinct, the industry will shovel more paper, complete more assessments, undergo more regulatory changes, and remain the target of the plaintiff’s bar all in exchange for lower levels of reimbursement.
What is disconcerting to me, someone who has been around and in the industry for nearly a quarter of a century, is the level of disconnect that has occurred between policy makers and industry reality. Demographic trends tell us that the population will continue to age, live longer and do so with increasing levels of disability. Meeting the needs of this aging demographic is set to become nigh-onto impossible given the path that Washington is plowing for Medicare and Medicaid. It is incredulous for anyone to believe that decreasing reimbursement and increasing compliance (unfunded as it is) will lead to better overall health for the industry. The reality is that bad health for the industry means assuredly, bad outcomes over time for seniors – this end result is simply unavoidable.