Avalere Analysis of Skilled Nursing Facilities and Medicare Days
Contact: Erica Garland, 202-745-5119,
Washington, D.C. – As MedPAC prepares to make its latest round of payment recommendations later this week, new data from Avalere shed light on an important element of Medicare fiscal policy - the imperative to consider total profit margins as opposed to just Medicare margins for skilled nursing facilities. The Avalere findings - that Medicare typically composes less than 30 percent of patient days, and that very few facilities have a Medicare mix greater than 50 percent - suggest that total margins should be considered when thinking about the health of facilities caring for Medicare patients.
MedPAC recommendations for Medicare skilled nursing facility (SNF) payment policy have historically been driven largely by the SNF industry-wide Medicare margin - the difference between SNF Medicare revenues and their costs for providing services to Medicare patients. MedPAC estimates that the 2011 SNF industry Medicare margin was 24.2 percent. Medicare margins will almost certainly form the basis of MedPAC's next round of payment recommendations this week.
However, there has been a long-running policy debate on whether it is appropriate to focus exclusively on Medicare margins when making payment system recommendations. MedPAC reported that the 2009 Medicare margin, for example, was 18.1 percent, whereas the overall margin was just 3.5 percent. The difference between Medicare and overall margins is largely due to Medicaid payment rates that, in virtually every state, are below the cost of services for Medicaid-funded residents1. Evidence suggests that facilities use Medicare payments to cross-subsidize the cost of care for Medicaid-funded long-stay residents (who are frequently dual eligibles - i.e., eligible for both the Medicare and Medicaid programs).
MedPAC counters that Medicare cross-subsidization of Medicaid payments is "not advisable for several reasons," one of which is that “facilities with high shares of Medicare payments - presumably the facilities that need revenues the least - would receive the most in subsidies from the higher Medicare payment…"2
However, Avalere's analysis found that no more than 5 percent of facilities have Medicare shares of 50 percent or higher. For the vast majority of facilities (90 percent), Medicare represents less than 30 percent of total patient days. These findings are equally true for non-profit and for-profit facilities. For three-quarters of facilities with Medicare shares below 30 percent, Medicaid accounts for the majority of patient days.
The Avalere analysis, combined with research (cited above) on the inadequacy of state Medicaid payment rates, suggests that the vast majority of facilities receiving Medicare payments use those payments, to some extent, to cross-subsidize the cost of care for Medicaid-funded long-stay residents (many of whom are also Medicare beneficiaries). The overall fiscal health of facilities caring for Medicare patients is an important consideration for policy makers considering payment system changes.
1Eljay, LLC. A Report on Shortfalls in Medicaid Funding for Nursing Home Care. American Health Care Association. 2011
2MedPAC. Report to the Congress: Medicare Payment Policy. March 2011
Avalere Health is an advisory services company whose core purpose is to create innovative solutions to complex healthcare problems. Based in Washington DC, the firm delivers research, analysis, insight, and strategy for leaders in healthcare business and policy. Avalere's experts span 170 staff drawn from the federal government (e.g., CMS, OMB, CBO, and the Congress), Fortune 500 healthcare companies, top consultancies, and nonprofits. The firm offers deep substance in areas ranging from healthcare coverage and financing to the changing role of evidence in healthcare decision-making. Its focus on strategy is supported by a rigorous, in-house analytic research group that uses public and private data to generate quantitative insight. Through events, publications, and interactive programs, Avalere also translates real-time healthcare developments into actionable information.
Learn more at www.avalerehealth.net.
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