New Avalere Analysis: New CMS Regulation Reduces SNF Medicare Payments by $79 Billion Over Ten Years, Will Reduce National Economic Activity by $6.75 Billion in FY 2012

Despite BiPartisan Congressional Support Urging More Cautious Approach to Inadvertent Provider Overpayment, CMS "Regulatory Over Reach" Squeezes Seniors' Care, Hinders U.S. Economic Recovery

WASHINGTON, Aug. 15, 2011 /PRNewswire-USNewswire/ -- A new analysis by Avalere Health finds that a regulation recently issued by the Centers for Medicare and Medicaid Services (CMS) will reduce Medicare payment to the U.S. Skilled Nursing Facility (SNF) 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 lawmakers seek ways to boost a worrisomely weak economy.

This new and latest reduction in payments to the U.S. SNF sector -- America's second largest health facility employer -- cumulates on $29.4 billion in payment cuts enacted to fund healthcare reform and a $16.8 billion Medicare payment reduction in 2010 regulation. Avalere CEO Dan Mendelson said Medicaid is also imposing significant strain on the sector, with additional payment reductions of roughly six to seven percent having been enacted in Florida and Ohio, and cuts of significant magnitude in many states across the country. "Nursing homes are operating in an extremely difficult environment," said Mendelson. "In the long term, there is concurrence among policymakers that SNFs hold the key to better patient management and cost reduction, but in the short term, these pressures on Medicare and Medicaid rates will be exceedingly difficult to manage."

In attempting to correct what all parties agree was an inadvertent overpayment to providers, Alan G. Rosenbloom, President of the Alliance for Quality Nursing Home Care, which financed the Avalere Health study, said CMS went well beyond the cautious correction urged by a bipartisan group of House and Senate members. "By adding substantial changes in payment methodology for therapy services, CMS also crossed the line from over-correction into real Medicare cuts," Rosenbloom said.

"These new Medicare cuts -- above and beyond a payment correction we ourselves concurred was necessary -- will contribute to destabilizing America's second largest health facility employer and the substantial economic activity facilities generate nationally and at the state level," he warned.

Continued Rosenbloom: "The prospect of yet even more Medicare cuts stemming from Congressional Super Committee activity this fall would be devastating to nursing home patients, disastrous to local economies and caregiver jobs, and a historic setback to the health provider sector that offers high quality care and rehabilitation in a low cost setting. Any additional cuts will not only threaten economic growth and needed healthcare jobs, but also hurt our ability to admit, treat and return to home a rapidly increasing number of patients requiring intensive post-acute rehabilitation, and care for multiple chronic illnesses."

The new analysis projects that the following 10 states will experience the greatest reduction in economic activity followed by the projected loss in Medicare revenue statewide in 2012:

Overview of Recent SNF Payment Cuts and Ongoing Threats

FY 2010 Rule. Estimated decrease of $16.8 billion over ten years (FY 2012‐2021) from the 3. 3 percent forecast error (i.e., case mix) adjustment in FY 2010.

Health Reform. Estimated decrease of $29.4 billion over 10 years from productivity adjustments/reductions in the market basket (inflation) update starting in FY 2012. The productivity adjustment is assumed to be one percent each year.

2010 Regulation: Estimated decrease of $2.6 billion over 10 years from the 0.6 percent forecast error cut in the market basket update for 2011.

FY 2012 Rule. Estimated decrease of approximately $60 billion over 10 years from the 12.6 percent RUG recalibration/parity adjustment and an estimated decrease of $19 billion over 10 years from the group therapy and reporting changes in the rule.

Medicaid Cuts. Florida and Ohio have cut Medicaid payments to nursing facilities by six to seven percent already this year. In addition, the Joint Select Committee on Deficit Reduction may recommend additional cuts in Medicare or Medicaid payments to nursing facilities. Medicaid is the biggest payer for nursing facility care, so any broad‐based Medicaid reductions recommended by the Joint Committee would have a disproportionate impact on nursing facilities.

Potential Sequestration. SNF Medicare payments could be cut by two percent, or approximately $10 billion over 10 years, if the automatic sequestration in the Budget Control Act takes effect.

SOURCE Alliance for Quality Nursing Home Care