Like most nursing home executives, Steve Flatt had hoped for a gradual phasing in of any cuts to Medicare payments for short-term stays by patients that require therapy or care when they leave the hospital.
Instead, the skilled nursing sector was shocked late last month by an 11.1 percent average pay cut that goes into effect Oct. 1, along with other regulatory changes that the industry fears will raise costs and eat into profits.
“Going forward — with new projects — you have to just reassess the viability of each project based on the new rules and new rates,” said Flatt, president of Murfreesboro’s National HealthCare Corp.
Specific effects on Nashville-area nursing home operators vary depending on their patient mix. At National HealthCare, for instance, Medicare accounts for nearly 38 percent of the company’s skilled nursing revenues.
As a result of the changes, the company is reviewing plans for three nursing homes that it plans to build in Middle Tennessee starting next year to ensure that each fits within the new reality. Those three homes combined could create up to 500 jobs.
“We could be delayed, based on these changes, but eventually we still hope to be able to move forward with each of them,” Flatt said last week. The good news, he said, is that National HealthCare has “a solid financial position with virtually no debt — and while (this) presents a challenge, we will certainly overcome it.”
Overall, the rate reduction plus changes in group therapy and other areas should reduce payments to the skilled nursing sector by $79 billion over a decade and lead providers to cut spending by $6.75 billion in the year starting Oct. 1, estimates Avalere Health LLC, an advisory services firm whose clients include skilled nursing companies.
Rate cuts apply to short-term stays in nursing homes, which account for between 15 percent and 18 percent of residents at the facilities in Tennessee, according to the Tennessee Health Care Association, an industry trade group.
“It probably impacts capital more than anything, having money to do upgrades and those sorts of things,” said Jesse Samples, the group’s executive director.
More cuts on tap for TN facilities
In Tennessee, Medicaid covers 65 percent of nursing home residents. The most recent state budget includes a 4.25 percent rate cut for nursing facilities that could increase to an 8.5 percent reduction beginning in January if additional federal funding isn’t secured by then.
On the federal level, the 11.1 percent cut is intended to bring overall Medicare spending on skilled nursing care back in line with earlier anticipated costs.
Not long ago, federal officials had altered the way patients would be evaluated, creating more payment categories that included higher rates for higher-acuity patients, those who needed the most care. The changes were supposed to be revenue neutral to Medicare, but instead more patients than expected ended up in the higher-paying categories.
Now, Medicare is changing things again — reducing payment rates in targeted categories and tweaking other things (such as group therapy) to put more patients into the lower-paying categories and pair the level of care with costs more appropriately.
One spinoff effect might be to basically wipe out group therapy, since providers won’t get paid any more for additional people in a session as they had before, said Samples.
Companies might have to hire more therapists, which would raise costs, Flatt adds.
“They’re trying to go back to 2010 payment levels, but at the same time they’ve forced additional expenses,” he said.
More rate cuts possible in 2013
In addition to the pending rule changes, skilled nursing providers could face an additional 2 percent reduction in Medicare rates starting in 2013 if deficit-reduction talks in Congress implode and trigger failsafe spending cuts.
Other publicly traded Nashville-area providers affected in varying degrees by the latest reimbursement cuts include Advocat Inc. and Brookdale Senior Living.
Then, there are other private operators. At Tennessee Health Management Inc. of Parsons, Tenn., Medicare accounts for as much as half of the firm’s total revenues. It manages 30 nursing homes statewide.
“We’ll have to look at anything that we would consider nonessential costs and find a way to be more efficient,” said Mark Davis, chief operating officer of the employee-owned skilled nursing operator.
Tennessee Health will take a second look at nursing homes it had planned in Spring Hill and in Jackson, Tenn. “It will make it difficult on us to be able to continue that project,” Davis said.
Industry analysts expect deals
Despite the industry worries and a hit to revenues, National HealthCare should be able to weather the federal cuts, industry analysts say.
“The company has weathered other reimbursement cuts,” said analyst Rob Mains of Morgan Keegan & Co. “The overall strategy for nursing homes doesn’t really change that much. Even with those cuts, it’s still profitable to treat these patients.”
National Health Investors Inc., the Murfreesboro-based real estate investment trust, generates two-thirds of its revenues from skilled nursing facilities, with most of that coming from National HealthCare, its key tenant.
Justin Hutchens, NHI’s president and chief executive, expects National HealthCare’s earnings after the cuts to be enough to cover its lease payments to his company several times over. NHI, meanwhile, is in talks to buy two portfolios of buildings from a pair of not-for-profit clients that would be the most affected by the cuts.
Analyst Jerry Doctrow of Stifel Nicolaus expects the Medicare rate changes to increase opportunities for NHI to acquire additional skilled nursing facilities.
Article Source: http://www.tennessean.com/article/20110823/BUSINESS05/308230017/Nursing-homes-scramble-cope-Medicare-cuts
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