Long Term Care:
Who's Going to Foot the Bill?

Edition: September 2002 - Vol 10 Number 09
Article#: 1301
Author: Laura Thill

Medicaid is coming up short in its funding of seniors’ nursing home care – by about $3.5 billion annually, according to a report by national accounting firm BDO Seidman. To make matters worse, Medicare is targeted to trim 10 percent in its funding for nursing home care on October 1, 2002.

The Medicare cut – also referred to as the Medicare Cliff – is expected to further jeopardize quality nursing home care nationwide. At press time, lawmakers were working to gain enough support to pass bill S.2490, the bipartisan Medicare Skilled Nursing Beneficiary Protection Act of 2002, which can prevent the Medicare Cliff from going into effect. “The President has already approved a piece of the Cliff,” says Brad Klitsch, director of Marketing for Direct Supply Healthcare Equipment (Milwaukee). “But, it ain’t a deal ‘till it’s a deal.”

A poor fiscal outlook, compounded by the Oct. 1 termination of various payment add-ons, is seriously endangering long term care, according to Joe Lubarsky, CPA and national director of BDO Seidman’s Long Term Care Services division, as cited by the American Health Care Association (AHCA).

“When you look at the Cliff, you’re looking at a loss of $57 per patient day,” says Klitsch. “Thirty dollars per patient day have been enacted, and we will not lose this. But, we’re still short by $27.” This shortage, along with the removal of various Medicare add-ons, could cause 51 percent of all nursing facilities to experience negative total margins, he says. Limited Medicaid funding can lead state lawmakers “to reduce nursing home expenditures, cut programs and services, or raise revenues through provider tax programs,” notes Lubarsky, referring to the May 2002 Fiscal Survey of States.

While fiscal pressures and underfunding are a threat for long term care facilities nationwide, facilities in some states feel the impact of underfunding more than those in other states.

Nursing home care facilities in some states may actually manage to avoid spending cuts, but this would be offset by the rate of inflation. The rising cost of long term care generally exceeds the rate of inflation, says Lubarsky.

“People must realize that you can’t expect nursing homes to operate for free, much less at a loss,” said Klitsch. “That’s the challenge.”

Medicaid Facts

• Medicaid pays for the care of approximately two out of three (67.7 percent) nursing home patients nationwide.

• Medicaid on average pays little more than $4 per hour for patient care.

• There are about 360 million total Medicaid patient days in nursing facilities annually.

• The total projected Medicaid payments for 2002 are $49 billion.

• There are 1,025,410 total Medicaid beds nationwide, with an additional 614,286 dual Medicaid/Medicare beds.

Source: American Health Care Association.

Medicare Facts

• Over six percent (6.24 percent) of all 16,505 U.S. nursing homes presently operate under Chapter 11 bankruptcy protection, due primarily to Medicaid underfunding.

• 2002 projected Medicare expenditure on skilled nursing care is expected to reach about $12.9 billion.

• Medicare represents 11 percent of national nursing home revenues.

• In 2001, over half (59 percent) of all hospital discharge planners surveyed cited inadequate Medicare reimbursement rates as the reason for problems encountered in transferring discharged hospital patients with complex medical conditions to nursing homes.

• Medicare and Medicaid together amount to only 60 percent of total skilled nursing facility revenues. This underfunding is largely due to the fact that Medicaid is responsible for 68 percent of nursing home patients, but accounts for only 47 percent of revenues.

• Thirty-one states face a budget shortfall totaling over $15 billion in 2002. Rather than raising taxes, many of those states are considering cutting Medicaid funding, including payments for nursing home care.

• Eliminating Medicare add-ons approved by Congress in 1999 and 2000 would result in a reduction of nearly $35 per patient day in Medicare revenue – a total cut of 10 percent in current average rates, or about $2 billion annually starting in FY 2003.

• The nursing facility sector, including for-profit and nonprofit, will generate a net income margin of two percent in 2002 if the two payment add-ons are terminated.

• The planned Medicare cuts would affect both nonprofit and for-profit skilled nursing facilities, according to a February 2002 market analysis prepared by the Centers for Medicare and Medicaid Services.

• Elimination of just one of the add-ons – the increases that pay for patients who require rehabilitation and complex care – would cut $5.6 billion in funding for Medicare beneficiaries needing skilled nursing care over the next five years.

Source: American Health Care Association.