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MedPAC says it will recommend 3% skilled nursing cut to Congress

Written on Jan 18, 2023

A Congressional advisory commission has recommended a 3% cut to Medicare base payments for skilled nursing facilities in 2024. 

As expected, the Medicare Payment Advisory Commission voted unanimously to send the guidance to Congress, calling for a $2 billion annual reduction in Medicare spending. Members voted in an expedited fashion, skipping a normal question-and-answer period based on what Chair Michael Chernow, Ph.D., called a consensus formed in past meetings. 

In December, members showed support for the payment proposal but also pushed back on the sense that nursing homes are generally well paid, citing continued low Medicaid funding in many states. 

On Jan. 12, MedPAC Principal Policy Analyst Kathryn Linehan reminded members that Medicare covered about 10% of the nursing home sector’s total resident days in 2021, accounting for about 16% of the sector’s revenue. That same year, Medicare spent $28.5 billion on skilled nursing care.  

Nursing homes’ all-payer margin increased in 2020, Linehan said, but she did not share where that increase put providers compared to pre-pandemic 2019 margins. Linhean acknowledged that the pandemic and Public Health Emergency-related policies “complicate our interpretation of rates and trends.” 

Linehan pointed to Medicare margins of 17.2%, with “highly efficient” operators averaging 22%. She said such margins indicated providers had a strong incentive to treat Medicare beneficiaries. 

But those margins are falling fast when recent cost increases are incorporated into projections. 

MedPAC projected this year’s margin at 10%. Linehan acknowledged that was a 1% decrease from a similar report in December because staff took into account more recent market basket cost increases.  

Providers have asked regulators to acknowledge the crushing effect of inflation on their daily costs; most nursing home costs calculations are based on 1- to 2-year old cost reports. 

Still, Linehan told the commission that indicators for the sector remain “generally positive,” despite news of closures and limited admissions across the country. A survey issued this week by the American Health Care Association showed more than half of nursing homes are having to limit new admissions due to staffing shortages. 

“The supply of facilities declined less than 1%,” Linehan said, citing her 2021 numbers. “Declining volume reflects declining demand, due to a number of factors, and not the adequacy of Medicare payments.” 

“Given the high level of Medicare’s payments, we do not expect adverse impacts on beneficiaries,” she added. “Providers should continue to be willing and able to treat Medicare beneficiaries. 

Linehan also noted that providers have adequate access to capital, though frequent analysis of the sector, including a recent report by LevinPro, have found that borrowing became much more difficult after a series of interest rate increases last year.