Medicare payments to nursing homes pared Administration rolls out new system that cuts subsidy 17 percent

Health care

May 06, 1998|By BLOOMBERG NEWS

WASHINGTON -- The Clinton administration, seeking to contain swelling health care costs, introduced a Medicare reimbursement system yesterday that will reduce average Medicare payments to nursing homes by 17 percent.

The new Medicare fixed-payment formula sets an average daily rate of $248 per patient in urban areas and $257 in rural districts.

Publicly traded nursing homes affected by the new payment system include Owings Mills-based Integrated Health Services Inc., Manor Care Inc. of Gaithersburg , and Genesis Health Ventures Inc., which has extensive operations in Maryland.

Those rates -- about in line with industry and analyst expectations -- will start July 1 and be phased in during the next four years. The system will save Medicare $4.3 billion over five years, according to administration estimates, less than half the $9 billion estimated earlier by the Congressional Budget Office.

Because Medicare accounts for only about 10 percent of the nursing home industry's revenues, the new payment formula will only reduce industry receipts by about 1.7 percent overall, according to the Clinton administration.

Since 1986, Medicare payments for skilled nursing care have increased an average of 35 percent annually to $11.7 billion in 1996, according to the Medicare Payment Advisory Commission, an advisory panel to Congress.

Under the new system, nursing homes "will now have incentives to provide the most cost-efficient care possible while still providing the level of care necessary for the patient," the Clinton administration said in the regulations explaining the payment system.

The new so-called prospective payment system will adjust rates higher for coverage of sicker patients. The highest national rate after adjusting for illness will be $408 in rural areas and $384 in urban areas.

"It's a start, but more work needs to be done" to reimburse nursing homes adequately for the sickest patients, said Bob Deane, chief economist at the American Health Care Association, a trade group for nursing homes.

The Clinton administration said the new system will reduce Medicare payments to nursing homes by 17 percent on average. The system will reduce Medicare payments to skilled nursing facilities run by hospitals by 19 percent on average, officials said.

"I'm sure the providers would have liked to have seen them [the rates] higher," said Sheryl Skolnick, industry analyst with BancAmerica Robertson Stephens. Still, she said, "they could have been a lot worse,"

The rates fall within the expectations of a number of companies, and they should be able to reduce their costs sufficiently so it won't affect their earnings, she said. "They're really not that awful," Skolnick said.

The national rate covers the cost of nursing care, rehabilitation therapy and other services. Of the $248 average rate for urban areas, $109 is for the nursing care and $83 is for rehabilitation therapy. For the sickest patients, the reimbursement rate of $384 to nursing homes in urban areas includes $142 for nursing care and $186 for rehabilitation care.

All national average rates will be adjusted locally to take into account differences in wages.

The payment system, enacted as part of last year's balanced- budget law, is designed to provide an incentive for nursing homes to be cost conscious.

While the payment system takes effect July 1, it won't begin for most publicly traded nursing homes until Jan. 1, because that's when many of them file their cost reports with Medicare, industry analysts said.

Pub Date: 5/06/98

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