New Avalere Health Analysis: New Medicare, Medicaid Cuts from Congressional Super Committee Could Push U.S. Nursing Facility Sector into Dangerous Negative Margin Status

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Alliance for Quality Nursing Home Care

Aug 23, 2011, 09:59 ET

Analysis Underscores Stark Threat to Stability of America's 2nd Largest Health Facility Employer as Washington Policymakers Seek Job Creation Strategies

WASHINGTON, Aug. 23, 2011 /PRNewswire-USNewswire/ -- As Washington policymakers search urgently for ways to help boost a sagging economy and create local jobs, a new analysis from Avalere Health finds that further cuts to Medicare and Medicaid – on top of the 11.1 percent to 14.6 percent Medicare funding reduction resulting from a new Centers for Medicare and Medicaid Services' (CMS) regulation – could push America's second largest health facility employer into negative operating margin status, thus further destabilizing a reliable local employer in the midst of the current recession. Nursing facilities generate $201 billion in economic activity annually, help create 2.52 million jobs nationally, and directly employ 1.69 million Americans.

The summary of findings from the Avalere Health analysis, conducted for the Alliance for Quality Nursing Home Care, and released today, are as follows:

Avalere estimates that the payment reduction and group therapy changes in the FY 2012 skilled nursing facility (SNF) final rule will reduce the nursing facility industry-wide overall (all-payer) margin from 3.8 percent to zero in FY 2012, and from 4.4 percent to 0.4 percent in FY 2014.
A 2 percent payment rate cut in FY 2013 pursuant to the sequestration in the Budget Control Act of 2011, in addition to the impact of the FY 2012 final rule, would further reduce the industry-wide margin to -0.1 percent in FY 2014.
An overall freeze in Medicaid payments to nursing facilities beginning in FY 2013, combined with the impacts of the FY 2012 final rule and sequestration, would reduce the FY 2014 industry-wide margin to -1.4 percent. A 1 percent annual reduction in Medicaid payments to nursing facilities beginning in FY 2013 would further reduce the overall sector margin to -2.2 percent in FY 2014.

"All healthcare institutions, whether non-profit or for-profit, need some profit margin to survive," said Dan Mendelson CEO of Avalere. "Our analysis shows that further payment reductions in skilled nursing would likely push margins – already the lowest of any type of healthcare provider – into negative territory."

The New York Times reported on 8/17 ("Cuts in Health Care May Undermine Role in Labor Market") that turmoil in the markets and government funding cuts, "has led many in the health industry to caution that it cannot be relied upon to keep hiring workers." Said the President of the Healthcare Association of New York, according to the Times reporting: "It's not realistic to believe that we're going to continue to generate job growth when you're speaking about Medicare and Medicaid reductions in the hundreds of billions of dollars over the next five years."

Alan G. Rosenbloom, President of the Alliance for Quality Nursing Home Care, noted that a separate Avalere Health analysis released last week finds the new CMS regulation will reduce Medicare payment to the U.S. nursing facility sector by $79 billion over 10 years, reduce national economic activity by $6.75 billion in FY 2012, and have a significantly negative economic impact on many of the nation's most populous states. "As America's second largest health facility employer, our sector cannot be expected on the one hand to continue being the reliable jobs partner we have proven to be even in this devastating downturn, while, on the other, absorbing one deep funding reduction after another."

Rosenbloom also said the recent Standard & Poor warning about increased volatility in the nation's nursing home sector is a direct result of government payment decisions, and said: "The ominous prospect of yet more funding cuts from Congress on top of the Medicare and Medicaid cutbacks imposed over the past several years places seniors' care, local jobs and sector stability in deep jeopardy." S&P, according to news reports, characterized the nearly $4 billion cut from CMS as "larger than expected" and "ignited worries that reimbursement reductions will impair cash flow prospects."

Concluded the Alliance leader, "The cascade of Medicare and Medicaid reductions, capped by the S&P warning, and the continuing and uncertain threats swirling about our sector will have a negative impact on small and large operators – and on non-profit and proprietary organizations - alike. Banks who lend to regional and other local providers and non-profit capital sources monitor and respond to actions by S&P. This will increase their reluctance to lend to the sector, as well as increase costs for borrowers – and is yet one more unambiguous signal to the Administration and Congress that disregarding sector stability is bad for jobs and damaging to the nation's economy."

www.aqnhc.org

SOURCE Alliance for Quality Nursing Home Care