"Win a Wegmans Gift Card" Blog Contest & Tutorial

My wife Jennifer is teaching an on-line law course for RIT students this Fall. Both my son and daughter-in-law received their Master's degree from an on-line graduate program at Marist College. What a great concept! On-line, on-demand, when you can.

I worked part-time tending bar while attending college and can still remember how difficult it was to work until 2 a.m. and then drag myself out of bed for my Friday morning economics class. Where was this on-line course study back then?

Anyway, I was recently asked to present a short tutorial on nursing home reimbursement for a group of community leaders serving on a commission to help formulate a vision for how the greater Rochester area should provide healthcare for seniors in the future. So I dusted off an old summary, honed and updated it and voila! Then I thought, "why not share it with my blog readers as an informative on-line tutotorial."

Now you won't earn any college credits for taking the time to read this, so instead I have decided to offer all who take the time to read it a chance to win a $25 Wegmans gift card. If interested, read the tutorial to follow and then follow the simple instructions and contest rules to enter your name for a chance to win.

Nursing Home Reimbursement 101

Although the reimbursement methodology for nursing homes is riddled with complexities, nuances, adjustments, ceiling caps and other various amenities, in its simplest form can be summarized as follows:

Medicaid (on average represents 65-70% of patient day utilization, 50% of service revenue)

Medicaid Assistance helps pay for the cost of nursing home care for those who meet specific resource and income limitations and are qualified by the Department of Human Services. Medicaid pays the NH a facility-specific per-diem less any portion of that per-diem which is determined to be the responsibility of the resident based on their net available monthly income (NAMI).

The facility-specific Medicaid per-diem rate is determined by compiling the facility’s base-year (1983) costs into 4 distinct categories:

1) Direct Costs (i.e. nursing, therapies, pharmacy, social work)
2) Indirect Costs (i.e. administration, maintenance, laundry, housekeeping, dietary)
3) Non-Comparable (i.e. physicians, dental, speech & hearing, utilities)
4) Property Costs (i.e. depreciation/principal, interest, insurance, rent, RE taxes)

The facility base-year direct costs are then adjusted by a facility-specific case-mix factor and a regional price index factor and divided by the facility’s total patient days to arrive at an adjusted cost-per-day. A clinical assessment tool (MDS), designed to measure resident acuity and resource utilization, determines the case-mix factor. This rate is then compared to a similar state-wide average cost-per-day and if your cost falls within a corridor established at a 95% floor and 105% ceiling, you receive your actual case-mix adjusted cost-per-day. If you fall below the floor, you receive a case-mix adjusted floor and if you fall above the ceiling, you are held to the case-mix adjusted ceiling.

The same process and formula is applied to your facility-specific indirect costs, except there is no case-mix factor applied since resident acuity is not a significant cost driver of indirect costs.

The facility-specific non-comparable costs are divided by total patient days to arrive at an actual cost-per-day and are reimbursed at cost.

Property costs are not reimbursed on base year costs, but instead are reimbursed at actual cost on a two-year lag based on reported costs. Major capital additions are subject to prior approval via the Certificate of Need (CON) approval process and all reported property costs are subject to subsequent audit & review by the Department of Health.

The sum of the calculated per-diem for direct, indirect and non-comparables is then trended forward from the base-year to the current rate year using an aggregate inflation factor established by the Department of Health. The facility-specific property cost per-diem is added to this sum along with other minor per-diem adjustments to establish your facility-specific Medicaid rate.

Medicaid Reimbursement Issues

* 1983 base-year costs are no longer very representative of the cost structure of the current nursing home operation.

* The annual trend factors designed to adjust the base-year costs to current costs have not kept pace with actual cost movement.

* On average the Medicaid rate computes to 75-80% of actual cost-per-day.

* Medicaid eligibility process can result in lengthy cash flow delays (> 6 mos.) or subsequent denial of coverage that often results in sizable bad debts.

* Medicaid case-mix adjustment methodology has recently been changed to only utilize Medicaid residents in the calculation, thus further reducing the reimbursement due to higher acuity Medicare skilled residents not being factored into the case-mix adjustment.

* Effective 4/1/2010, the methodology will be changed dramatically when Medicaid intends to move from facility-specific costs for direct, indirect and non-comparable to a regional average price for all within that region. This is expected to dramatically re-allocate Medicaid per-diems creating both “winners and losers”, while driving future costs towards decreasing averages.

* Medicaid loopholes and sheltering of assets has significantly added to the growing number of Medicaid recipients as the private pay sector diminishes and the public sector grows, further straining the State Medicaid budget.

* Medicaid reimbursement shortfalls result in nursing homes having to limit the number of Medicaid admissions they can take, which subsequently leaves many Medicaid residents without access to the proper level of care or backed up in hospitals.

Medicare (On average represents 7-10% of patient day utilization, 10-15% of service revenue)

Medicare Part A covers skilled nursing inpatient care for those over 65 year of age (or disabled) for a period up to 100 days in any one spell-of-illness. Skilled nursing care is a Medicare defined term that requires the patient to be receiving and needing certain high-level skilled services related to an acute care episode and minimum 3-day hospitalization. A new spell-of-illness is defined when a patient has an onset of a new acute care episode after a minimum of 30 days has passed from the last episode. Medicare beneficiaries can choose a Health Maintenance Organization (HMO) plan in lieu of traditional Medicare benefits. HMO plans generally follow traditional Medicare benefits, but can offer some enhanced variations. Medicare Part B covers physician services and certain skilled therapy services when provided outside of a Medicare Part A covered stay.

Medicare does not pay a facility-specific rate, but instead pays an established price for an array of over 50 Diagnostic Related Groups (DRGs). A patient is classified into the proper DRG based on the completion of a clinical assessment tool (MDS). A series of MDS are completed throughout a patient’s Medicare Part A stay, resulting in the potential for different DRG Medicare per-diem rates paid within a stay. Medicare DRG rates vary significantly and are driven by the assumed DRG medical acuity and resource utilization need. On average, Medicare rates fall between $300-400/day. The average Medicare Part A covered stay falls between 20-30 days and is generally a function of the duration of the need for skilled care, the potential for documented progress and the approval of the HMO case managers. Medicare Part B pays an established fee for billed physician visits and therapy treatments provided to Medicare beneficiaries in a nursing facility during a non Medicare Part A stay.

Medicare Reimbursement Issues

* Although the rates are significantly higher than Medicaid, the cost to care for these clinically complex patients is also significantly higher.

* Medicare has been continually decreasing the DRG price structure to address Medicare budget restraints.

* While on a Medicare Part A stay in a nursing home, the nursing home assumes payment responsibility for most all medical needs regardless of who or where these needs are met (excludes hospitalization, radiation treatments, prosthesis).

* Maximization of DRG payment requires significant documentation and process to ensure you capture all clinical interventions and thus receive the most favorable rate.

* Most Medicare Part A stays are short-term rehabilitation patients cared for in distinct rehab or transitional care units of nursing homes and are highly sought after by nursing homes.

* Federal government is actively pursuing a new Medicare payment methodology where Medicare payments for all providers of service (hospital, nursing home rehab, physician, home-care) to a covered beneficiary during any one spell-of-illness will be paid to a single “controlling entity” at an all-inclusive established capped price for that DRG. The “controlling entity” will be responsible for providing, contracting out and allocating the Medicare DRG payment among the various providers of service. Medicare’s payment is capped, while the “controlling entity” and its care partners own risk management and cost control.

Private Pay (on average represents 20% of patient day utilization, 25% of service revenue)

Private pay residents are those who do not qualify clinically for a Medicare Part A stay (although they may have Medicare coverage), and they do not qualify financially for Medicaid. Assuming they do not have other means of insurance (and most do not), they are responsible for paying the facility-specific private pay rate as agreed to in the admission agreement. The average private pay rate in this region is approximately $330-350/day for long-term care and $400 or more for short-term rehab.

Private Pay Issues

* Medicaid reimbursement shortfalls force providers to subsidize losses through higher private-pay rates thus shifting the Medicaid cost burden onto the private sector.

* More individuals are sheltering assets to qualify early for Medicaid Assistance, thus reducing the private pay sector.

* The Medicaid Assistance application process for private pay residents transitioning to Medicaid Assistance can be so demanding and difficult that many fail to follow-thru or qualify leaving the nursing home with extensive bad debts.

* The State currently assesses nursing homes a 6% cash receipt “tax”, which is generally passed on to private pay residents as a 6% (approximately $20/day) add-on to the private pay rate, further shifting public costs to the private sector.

Summary

A typical simplified 120-bed nursing home operating structure (based on industry averages) might look as follows:

Medicaid Revenue 29127 days (70%) X $185/day = $5,388,500
Medicare Revenue 4161 days (10%) X $400/day = $1,664,000
Private Pay Revenue 8322 days (20%) X $330/day = $2,746,000

Total Service Revenue 41610 days (95% occupancy) $9,798,500

Total Operating Expense $235/day = $9,778,350

Operating Margin .2% $ 20,150

Congratulations, you have successfully completed the Nursing Home 101 tutorial. To enter for your chance to win a $25 Wegmans gift card, simply click on the comment button and leave your full name (and a brief comment if you desire). You can use the URL option and just type in your name or use the anonymous option and just type in your name in your comment box. Only one entry per person and all my blog readers are eligible (staff, board members, volunteers, family and friends). One gift card per every 20 entries (up to 5 winners in total) will be randomly chosen from the list of names on Saturday, September 12th.

Good luck and thanks for reading and learning from my blog!