Bloomberg News

Nursing Homes’ Lost Fight With Medicare to Cost $3.87 Billion

July 30, 2011

July 30 (Bloomberg) -- U.S. nursing homes’ lost lobbying battle with Medicare will cost the industry $3.87 billion, as the health program tries to recover overpayments it says it made to companies such as Kindred Healthcare Inc. and Sun Healthcare Group Inc.

The 11.1 percent Medicare rate cut for next year is meant to stop overbilling by for-profit homes including Sun, Kindred, and Skilled Healthcare Group Inc. The change follows Medicare’s finding that, under a new payment system put in place this year, the companies drove up reimbursements for patients.

The new rates “correct for an unintended spike in payment levels and better align Medicare payments with costs,” according to a statement by Medicare, the U.S. health plan for the elderly and disabled. The American Health Care Association, the industry’s Washington lobby group, said Medicare is moving too fast, and that the sudden cuts won’t give nursing homes time to adjust.

The program “makes reductions beyond what is necessary,” Mark Parkinson, chief executive officer of the association, said in an e-mail. “This drastic reduction will be especially challenging for skilled nursing facilities to manage.”

To stop the cuts, or at least make them smaller, nursing homes lobbied Medicare regulators and Congress. Acknowledging the industry was overpaid, the American Health Care Association urged Medicare put off the cuts and wait to collect more data.

Lobbying Failure

News of the rate reductions sent shares of the companies plummeting in after-market trading yesterday after the 4:15 p.m. announcement.

Sun Healthcare, based in Irvine, California, dropped as much as 21 percent at 4:46 p.m. New York time in trading after the close of the Nasdaq Stock Market, Foothill Ranch, California-based Skilled Healthcare was down 16 percent. Kindred, of Louisville, Kentucky, fell 14 percent. That capped a steady decline in the shares ever since the cuts were proposed in an April 28 draft regulation.

Nursing homes say Medicare has gone too far. “We are appalled,” said Larry Minnix, chief executive officer of Leading Age, the Washington lobby group for not-for-profit homes. A cut “of this magnitude is unprecedented,” he said in a statement. The group had pushed Medicare to close what Minnix called billing loopholes instead of make a broad cut.

The Service Employees International Union wanted to limit cuts to for-profit nursing home companies that Medicare said were driving the billing. The across-the-board cuts will unfairly penalize not-for-profit homes, the group said in a statement. “Its rate reduction fails to solve the real problem and instead punishes all nursing homes for the bad actions of a few,” said President Mary Kay Henry.

Draft Rules

In draft rules released on April 28, Medicare proposed cutting payments to nursing homes by $3.94 billion. A billing provision in Medicare’s new payment system brought the companies $2.1 billion in overpayments, according to a July report by the U.S. Department of Health and Human Services inspector general.

In a June 24 letter to Donald Berwick, the head of the U.S. Centers for Medicare and Medicaid Services, 152 U.S. House representatives asked the agency to delay cuts and study the issue further.

Medicare wanted to clamp down on a practice allowing nursing homes to categorize patients as getting the most intense services that the program will pay for. This year’s new payment system left a billing code open that allowed nursing homes to bill for higher rates while providing the same amount of service. Companies used that process to avoid lower revenue, according to Medicare.

The regulation issued yesterday shuts down that billing method, according to Medicare. It will also require nursing homes to report in more detail the therapies Medicare pays them to provide.

--Editors: Adriel Bettelheim, Reg Gale

To contact the reporter on this story: Drew Armstrong in Washington at darmstrong17@bloomberg.net;

To contact the editor responsible for this story: Adriel Bettelheim at abettelheim@bloomberg.net.


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