MedPAC serves in an advisory function to Congress and the U.S. Health and Human Services (HHS) Secretary regarding the administration of the Medicare program. Last week’s recommendation does not mean that a reduction in rates will occur. Rate reductions would require either Congressional or CMS action.

MedPAC assesses SNF Medicare payment adequacy using the following framework: Beneficiaries’ access to care, quality of care, access to capital, and Medicare payments to costs.

MedPAC staff presented a situation report using the framework. Overall, the number of SNFs remained steady at roughly 15,000 and most still provide long-term care in addition to Medicare post-acute care services. From an access perspective, 88% of beneficiaries live in a county with 3 or more SNFs and 1.2 million beneficiaries were served by SNFs. Medicare represents about 10% of facility days and 17% of a SNF’s revenue. Operationally, the report indicated that SNF Admissions declined 7.9% between 2019 and 2020 and length of stay increased 6.9% resulting in a 1.5% reduction in the number of days. In addition, SNF occupancy rates declined from 85% in 2019 to 74% in 2020. Financially, SNFs, on average, saw their costs increase 2.1% per day in 2020, while experiencing staffing reductions of 9.6% between February and December 2020.

Total margins, which include all payers, improved according to the MedPAC report from 0.6% on average to 3% but this was because of the availability of Provider Relief Funds (PRF) and other state rate increases in response to the pandemic. Aggregate 2020 Medicare margins were 16.5% when PRF was removed and 19.2% when included. Nonetheless, there is considerable variation in these margins among SNFs with nonprofits averaging 0.6% vs. for profits seeing 20% margin. It was noted that nonprofits tended to be smaller and have higher daily costs. It was also acknowledged that changes in policies during the pandemic (e.g. 3-day waiver) may have impacted these numbers. 

In looking at the data, MedPAC staff identified 9% of SNFs as “relatively efficient.” These relatively efficient SNFs had significantly better performance on quality measures –15% higher rates of discharge to the community and 21% lower hospitalization rates; along with per diem costs that were 7 % less and payments that were 4% higher. Their Medicare margin was 22.8%.

The report also observed that average Medicare Advantage payments were 27% less than Medicare FFS even though there is no demonstrable difference between the patients served; and publicly traded companies with SNF holdings “seek managed care business.” From this, the MedPAC staff concluded that this means “lower MA payments are attractive.” No commissioner questioned this statement though this is not the experience of LeadingAge members.

Commissioners expressed considerable appreciation for the plight of nursing homes and their overall margins with several commissioners noting they particularly lose sleep over the viability of quality nursing homes. Nonetheless, they noted that the scope of their job was to determine adequacy of Medicare rates and ensure access to quality services for Medicare beneficiaries. One commissioner suggested MedPAC reach out to MACPAC (who is responsible for advising Congress, HHS and the states on Medicaid & CHIP policy) and see if they could look at the full picture together to resolve the issue that SNF rates are broken as Medicare subsidizes inadequate Medicaid rates. It should be noted that other commissioners suggested that the recommendation should be amended to include an additional 5% reduction to account for the fact that the transition to the Patient Driven Payment Model (PDPM) was not budget neutral. This was not adopted but CMS will address this issue in the FY2023 SNF PPS rule.