Maintaining Medicare funding ‘literal lifeline’

At a glance…

Analysis by Eljay, LLC, says the actual cost of providing nursing home care will be underfunded by Medicaid by nearly $4.7 billion for 2009. Maintaining adequate Medicare funding in the final healthcare reform bill is “a literal lifeline” for the elderly, according to Robert Van Dyk, American Health Care Association chair.

As Congress struggled to finalize national healthcare reform legislation that could affect the long-term care community, a new analysis by Eljay, LLC, says the actual cost of providing nursing home care will be underfunded by Medicaid by nearly $4.7 billion for 2009, a crisis that will only worsen in the foreseeable future.

Robert Van Dyk, American Health Care Association (AHCA) chair, said the study highlights the importance of maintaining robust federal Medicare funding for seniors and long-term care providers, adding that maintaining adequate Medicare funding in the final healthcare reform bill is “a literal lifeline” for the elderly.

“With so many of the nation’s governors forced to freeze or cut vulnerable seniors’ Medicaid benefits and services due to catastrophic budget shortfalls-projected to grow still worse-ensuring robust Medicare funding in a final health reform bill is increasingly critical,” Van Dyk said.

The differing House and Senate healthcare reform bills that were being negotiated by House-Senate conferees into January included substantial Medicare cuts as a means of financing the ultimate program, designed to increase coverage for Americans. Even so, Van Dyk said the Nursing Facility Supplemental Payment Program contained in the House-approved bill “represents a first step in acknowledging the nation’s chronic Medicaid underfunding crisis, which we now know shortchanges seniors’ nursing home care by nearly $4.7 billion annually.”

However, he expressed concern over the $23.9 billion in cuts over the next decade for Medicare-funded nursing home care contained in the House legislation, which would come on top of up to $16 billion in reductions that took effect last October 1.

Encouraging provision

An encouraging provision was included in the Senate bill, Van Dyk said. Advanced by Sen. Ron Wyden (D-Ore.), it would require the Medicare Payment Advisory Commission (MedPAC) to review and report on Medicaid funding when making recommendations about Medicare payments.

“Both the Wyden Amendment and the Nursing Facility Supplemental Payment Program in the House bill are solid, smart public policy initiatives that merit inclusion in a final health reform bill,” he said.

According to the Eljay study, the average shortfall in Medicaid nursing home reimbursement for 2009 was projected to be $14.17 per Medicaid patient, but the actual shortfall will likely be higher because of greater-than-projected inflationary pressure on nursing home costs.

The study said unreimbursed nursing home Medicaid allowable costs were estimated at more than $4.6 billion in 2009, a shortfall that Eljay said has increased by 56.5%, from $9.05 per patient day in 1999 to the projected $14.17 in 2009. Moreover, Eljay analysts said the shortfall would be significantly higher-nearly $18 per patient day-if all costs of operations, not just Medicaid allowable costs, were considered. In 2009, for every dollar of allowable cost incurred for a Medicaid patient, Medicaid reimbursed only an average of 92 cents.

Toxic combination

The study projected that the Medicaid reimbursement outlook for 2010 and 2011 “is bleak”-worse than any other year in the last seven due to unprecedented state budget deficits and expiration of federal stimulus funds at the end of 2010.

The study pointed out that many states rely heavily upon provider taxes on nursing home facilities to help fund reimbursement. However, it said, most states with such taxes chose not to increase nursing home reimbursement nor lower the provider tax rate as a result of increased funding under the American Recovery and Reinvestment Act (ARRA) of 2009. Instead, the savings appears to have been used to help reduce state budget deficits.

“Nursing home provider taxes cannot be counted on as a major catalyst for ensuring rate increases during this recession as they were in the last recession,” the study said.

The study pointed out that while state tax revenues and nursing home reimbursement rates have declined in recent years, largely as a result of the nation’s economic crisis, those same economic pressures and continued high unemployment are forcing millions more to seek refuge from Medicaid.

“This toxic combination of lower state tax revenues, increasing Medicaid enrollment and spending, and higher unemployment has resulted in huge state budget deficits (expected in both 2010 and 2011) and is now negatively impacting nursing home Medicaid reimbursement rate increases,” Eljay declared.

The report also pointed out that states are continuing to redirect more of their long-term care budgets to noninstitutional home- and community-based services (HCBS) and programs, competition for resources that has dampened 2010 Medicaid rate increases. According to the study, the percentage of Medicaid long-term care expenditures spent on nursing facility services declined from 57% to 43% over the last nine years, a reduction of 24.5%. Concurrently, the percentage spent on HCBS increased 67%.

“This negative trend will likely continue in 2011 as the economic outlook for states remains bleak and because of the expiration of the higher temporary ARRA federal match rates as of January 1, 2011,” Eljay said.

According to the Eljay report, Medicare cross-subsidization of Medicaid continues to play an important role in sustaining nursing home care. Even with positive Medicaid rate trends through fiscal year (FY) 2009, on average, the combined margin from the two-payer sources is still negative, and the situation will worsen due to Medicare payment reductions of about $16 per Medicare patient day in FY 2010 and a substantial decline in Medicaid rate increases.

No increases

Meanwhile, MedPAC has steadfastly refused to recommend increasing Medicare nursing home reimbursement levels because of the Medicaid shortfall. Eljay pointed out that according to MedPAC, the average margin on Medicare payments to nursing homes in 2007 was 14.5%, while Eljay’s analysis indicates a 9% shortfall on Medicaid payments for that year.

Eljay also said its analysis does not consider the October 1, 2009, reduction in Medicare Part A payments to skilled nursing facilities of approximately $1.05 billion annually to correct for unexpected overpayments as a result of changes in nursing weights that occurred as part of the FY 2006 payment refinement system. “The combination of declining Medicare margins and greater Medicaid shortfalls could have serious adverse financial and quality implications,” the report warned.

Nursing home executives can expect continuing and significant funding challenges as a result of all of these developments, according to Eljay.

“At a time where so much emphasis is placed on improving quality and performance, providers, especially those with higher Medicaid volume, will likely have to meet these expectations with lesser revenues and fewer resources over the next few years,” the report said. “The extent and magnitude of future rate reductions will be the determining factor as to whether that can be accomplished.”

Bob Gatty has covered governmental developments for the trade and business press for more than 30 years. He is founder and president of G-Net Strategic Communications, Sykesville, Maryland.

To send your comments to the editor, e-mail mhrehocik@iadvanceseniorcare.com.

Long-Term Living 2010 February;59(2):16-17

Robert Gatty

Robert Gatty has more than 40 years of experience in journalism, politics and business communications and is the founder and president of G-Net Strategic Communications based in Myrtle Beach, South Carolina. He can be reached at bob@gattyedits.com.