Skilled Nursing Facility - GAO Reports That Medicare Payments To Nursing Facilities Substantially Exceed Facility Costs

GAO REPORTS THAT MEDICARE PAYMENTS TO MOST FREE-STANDING SKILLED NURSING FACILITIES SUBSTANTIALLY EXCEED FACILITIES’ COSTS

Medicare’s prospective payment system has been generous to freestanding skilled nursing facilities, particularly for-profit facilities and facilities operated by chains, with government payments substantially exceeding facilities’ costs. In contrast, most not-for-profit freestanding facilities, government-owned facilities, and especially hospital-based facilities lost money under PPS in 1999. These findings and analysis led the General Accounting Office to oppose "an across-the-board increase in Medicare payments," such as restoration of the temporary rate increases that expired in October 2002. GAO, Skilled Nursing Facilities: Medicare Payments Exceed Costs for Most but Not All Facilities, page 20, GAO-03-183 (Dec. 2002).

The GAO found that the median freestanding SNF Medicare margin was more than 8% in 1999 and rose to almost 19% in 2000. Id. 2-3. Nearly one quarter of SNFs in 2000 had Medicare margins exceeding 30%. Id. 3. Medicare margins were higher for freestanding facilities operated by large, for-profit chains or for free-standing facilities with high Medicare occupancy rates. Id. About 90% of hospital-based facilities reported negative Medicare margins, with the median Medicare margin -53% in 1999. Id.

In response to PPS, freestanding facilities reduced their costs by $49 per day while hospital-based facilities increased their costs by $29 per day. Hospital-based facilities provided more nursing care to their residents. Id. 17. Residents in hospital-based SNFs received an average of 1.81 hours of registered nurse care per day; residents in freestanding SNFs, 0.37 hours per day. Id. 19, Table 9.

The GAO identified factors in addition to ownership that contributed to freestanding facilities’ margins. High margins were related to high occupancy rates and location in a rural area. Low margins were related to a high concentration of SNFs in the geographic area and relatively high average wages for nursing staff. Id. 15.

Despite the expiration of the temporary rate increases enacted by Congress, the GAO reports MedPAC’s estimate that freestanding facilities would continue to experience a 9.4% margin in 2002. Id. 13.

The report is at http://www.gao.gov. For more information about skilled nursing facilities, contact Toby Edelman in the Center’s Washington, DC office.