SNFs Are Focused On Medicare, But Medicaid Issues Loom 
For much of 2011, the scuttlebutt on skilled nursing reimbursement focused first on the higher payments, and profits, from the new RUGs-IV reimbursement protocols, before switching to the concern over how much those increased payments would be reduced by.  The concern was well founded, but the industry did not take into account the political environment surrounding deficit reductions as much as, in hindsight, it should have.  That is why the Medicare cuts were greater than the assumed reduction of 8% spread out over three years. 
We all know that Medicare is where the money is made in skilled nursing, and we all know that the higher margin Medicare payments, even with the cuts, subsidize the meager Medicaid rates in most states.  But the fact is that two-thirds of the patients are funded by Medicaid, and while the percent of revenues from Medicaid is much lower than that, that is still a lot of patients to take care of with what are in many states below cost-of-care rates.  An 11% average Medicare rate cut on fewer than 20% of your patients may be equivalent to an 8% Medicaid cut on 65% or 70% of your patients, depending on the spread between your Medicare and Medicaid rates and, more importantly, the level of acuity and classification of your Medicare patients.  For some providers with a smallish Medicare census, and one that is at the lower RUGs levels, an 11% Medicare cut could be equivalent to a 3% Medicaid cut, but in reality, those lower acuity Medicare patients won’t really see a cut. For those providers, Medicaid cuts will be causing the most financial damage, and that seems to be where we are heading.  And cost mitigation to deal with potential Medicaid cuts?  There is just not enough meat on that bone.
In California, the Centers for Medicare & Medicaid Services (CMS) just approved a request by the state to “withhold” 10% of the Medi-Cal payments (California’s version of Medicaid) to providers, including skilled nursing facilities, but retroactive back to June.  That is certainly adding insult to injury.  Providers are supposed to receive these withheld funds by December 31, 2012, but what happens if the economy gets worse and the state’s deficit widens?  While California’s credit rating is above that of Greece, it still has many budgetary problems to be worked out, and like Greece, no one wants to lose their pension, health, vacation and other benefits, and they don’t want their school budgets cut anymore.  Unfortunately for skilled nursing facilities, those voices are much louder than our industry.
The U.S. Supreme Court already heard oral arguments in October to kick off the new judicial season relating to a state’s right (you guessed it, California) to change (meaning lower) Medicaid rates without the providers and the Medicaid beneficiaries having a course of action to stop or overturn it.  Some rates were cut in 2008 and 2009, and the cuts were challenged based on federal law that says providers need to be paid enough to sufficiently take care of their patients.  Sounds a bit like the old Boren Amendment of the 1990s, which was subsequently removed from the books.  Most states want to have the flexibility to balance their budgets, and over 30 states joined California in filing an amicus brief in support of the state.  A number of advocacy groups filed their own amicus brief in support of the Medicaid beneficiaries and providers. This does not bode well for skilled nursing facilities.

In New York, 22 skilled nursing facilities filed a lawsuit in the State Supreme Court in Manhattan against the Governor and the Commission on Health for reducing the rates they are reimbursed for Medicaid patients.  They say they have lost more than $22 million because of the cuts, and that the state is attempting to “recoup” reimbursed funds from the past two years which were claimed to be “provisional” and too high…Want to read more? Click here for a free trial to The SeniorCare Investor and download the current issue today