Medicare rate change worries nursing homes

By Barbara Pash

A new rule cutting Medicare reimbursements for skilled nursing facilities may cost the state’s nursing homes $89 million this fiscal year.

“It’s devastating,” said Isabella Firth, president of LifeSpan Network, the Columbia-based provider association with 300 member senior care facilities in the Mid-Atlantic.

The Centers for Medicare & Medicaid Services, which is the branch of the U.S. Department of Health and Human Services that administers Medicare and monitors Medicaid in each state, announced the new rule, which reduces reimbursements by more than 11%, on July 29. It will go into effect Oct. 1.

The Centers for Medicare & Medicaid Services, commonly abbreviated as CMS, annually issues new rules regarding payment. Greg Crist, vice president of public affairs for the Washington, D.C.-based American Health Care Association, said there is usually an adjustment of one to two percent. The huge increase was because the federal government believes it “overpaid by $4 billion nationally [for rehabilitation services] and they are taking it back.”

Joseph DeMattos, Jr., president of nonprofit nursing home organization Health Facilities Association of Maryland, said the CMS rate cut is intended to achieve “budget neutrality” for care received in skilled nursing and rehab centers and hospitals. But, he said, the effect in Maryland is an estimated $89 million less in Medicare payments.

Put another way, the average rate cut would amount to $61 less per patient, per day, according to DeMattos. Health Facilities Association members are looking at ways to compensate for the lost revenue.

Impact on nursing homes

Firth called the rate cut “unprecedented — they’ve never done anything like this,” meaning a double-digit reduction. In her opinion, the  move reflects CMS’s belief “that companies were taking advantage of the rehabilitation rules. The companies were not violating the law but government officials felt they were getting more reimbursement than they should.”

But, she added, “They are penalizing the whole industry.”

The rate change affects all nursing homes and hospital-based senior care facilities that receive Medicare payments. Firth said the Medicare cut “comes on top of years of reductions on the Medicaid side that amount to millions of dollars.”

“The implications are serious for seniors, who deserve good care and deserve options,” Firth said, although seniors are not the only demographic affected by the rate change.

The new federal rule has a number of components, although the biggest and most far-reaching change to which people are paying attention is on rehabilitation and therapy
services, according to Crist.

“Folks go to hospitals for whatever reasons and then need rehabilitation, which is paid
through Medicare,” Firth said. “Nursing homes will often admit those types of patients.”

Firth said LifeSpan Network is in the process of calculating the lost revenue for its members and looking at how they will compensate: Can they provide the same level of services and if not, what services can they afford to offer?

“They may reduce the post-acute rehabilitation services they offer” because of the Medicare cut, Firth said. “If they can’t afford to do it, they won’t do it.”

DeMattos said that those cuts could be tricky. About 70 cents of every dollar is spent on skilled nursing salaries and benefits, he said. Cuts in middle management, facilities’ operating costs and non-care related human resources may be necessary, he said.

Impact on hospitals

Hospitals are not as concerned about the rate cut as nursing homes.

Jim Reiter, senior vice president of communications for the Maryland Hospital Association, said there are several hospital-run nursing homes and long-term care facilities to which the new rule applies. They have not yet run the numbers to figure out impact to members.

The Health Services Cost Review Commission oversees Maryland hospital rates. Acting Executive Director Stephen Ports said, “We regulate acute care services at hospitals, not nursing home beds. We don’t foresee an impact on acute care services at hospitals.”

The University of Maryland Medical System also does not expect to see much impact from the change. Media relations manager Karen Warmkessel said in an email that UMMS has a single, small nursing home on the Eastern Shore and, for the most part, does not expect to be affected.

The new normal?

The Medicare reimbursement rate is adjusted every year for all kinds of payments. However, the nursing home industry is concerned that this cut is more permanent.

Crist said, “You could argue that this is compensation for overpayment and that things will return to normal. But it could be the new base rate.”

Said Firth, “There is no doubt that nursing homes and senior care providers over the last few years have experienced significant reduction in Medicaid and Medicare, but not double digits at one time.

“This could be the front-end of even more reductions in Medicare and Medicaid,” she said.

About The Author

Len Lazarick

Len Lazarick was the founding editor and publisher of and is currently the president of its nonprofit corporation and chairman of its board He was formerly the State House bureau chief of the daily Baltimore Examiner from its start in April 2006 to its demise in February 2009. He was a copy editor on the national desk of the Washington Post for eight years before that, and has spent decades covering Maryland politics and government.

1 Comment

  1. Richard Baldwin Cook

    The article states that the cuts in rehab reimbursement will effect “all” nursing homes. How will it effect those that do not offer rehab services? Not at all?

    The article states that the objective of the cuts is to achieve “budget neutrality.” What is “budget neutrality?”

    The article quotes comments from persons effected (or maybe not effected) by the cuts. But there is no comment from the Centers for Medicare & Medicaid Services or anyone else from the US Department of Health and Human Services, who might provide a rationale for the cuts. Isn’t this one-sided?


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