Nursing Homes Crave Medicare Cash Influx From Hospital Referrals

Nursing homes that stopped taking new patients during the Covid-19 outbreak are once again accepting new admissions, hoping to recoup billions of dollars in lost revenue.

But the renewed activity hasn’t reduced the economic peril that the industry is facing due to the pandemic.

That’s because hospitals still aren’t performing as many elective procedures and surgeries, like joint replacements and heart procedures that often require nursing home care for Medicare beneficiaries after discharge.

These short-term rehabilitative stays, which average about 25 days, are the economic lifeblood for many nursing homes because traditional Medicare pays more than Medicaid, which funds the bulk of U.S. long-term nursing home care. Without lucrative Medicare patients to offset the lower-paying Medicaid residents, many nursing homes will struggle to survive—whether they’ve been hit by Covid-19 or not, said Mark Parkinson, president and CEO of the American Health Care Association and National Center for Assisted Living, which represents 14,000 nursing homes and long-term care facilities.

Nursing home occupancy, or census, is off nationally by an average of 20% at facilities with Covid-19 infections, Parkinson said. It’s off 10% at those with none.

“Not only have we lost census, we’ve lost census with the only payer that we don’t lose money on,” Parkinson said of Medicare patients. “It’s created an enormous challenge.”

Even when hospitals fully resume elective surgeries and procedures, nursing homes could still lose referrals to inpatient rehabilitation facilities or home care because of the lingering threat of Covid-19 in nursing homes, said David Grabowski, a professor of health-care policy at Harvard Medical School.

“After Covid, I think one of the implications is going to be anyone who can avoid a skilled nursing facility is probably going to do that right now and just try to be discharged home,” Grabowski said. “I wouldn’t necessarily assume that things are immediately going to return to their prior state.”

‘Big Difference’ in Payments

That could leave a large chunk of revenue hanging in the balance. Traditional Medicare paid $28.5 billion for 2.2 million nursing home stays in 2018, according to the Medicare Payment Advisory Commission.

Daily payments can range from $600 to $1,000 a day for Medicare patients rehabbing after a hospital stay, Grabowski said. “Whereas, a Medicaid day is $200 to $250. So it’s a big difference,” Grabowski said.

On average, Medicaid pays about 70% to 80% of what private health insurers do for nursing home care. But the program accounts for half of industry revenue and 70% of bed-days, the commission reported.

Medicaid rates for long-term care vary by state, but often do not cover the actual cost of care, the commission said. In some states, many facilities lose money caring for Medicaid patients.

It’s “an economic model that’s hard to comprehend, but they basically use those Medicare revenues to cross-subsidize the low Medicaid revenue,” said R. Tamara Konetzka, a health services research professor at the University of Chicago.

Nursing homes averaged a 10.3% profit on short-term Medicare patients in 2018, the commission said. The margin was 17% for nearly 1,000 facilities with lower costs and high quality.

“I think a lot of providers depend on that Medicare rate to do a little better than break even or lose money,” said Jon Riewer, president and CEO of Eventide Senior Living Communities in Moorhead, Minn. The company devotes about 75 beds across six facilities to short-term Medicare rehab patients. Occupancy is down 10% to 15%, Riewer said.

Getting that business back will be difficult, Riewer said. “These occupancies, in most cases, don’t return overnight,” he said. “And in some cases, may not return at all.”

‘A Huge Financial Hit’

Ravaged by Covid-19, nursing homes stopped taking new patients for safety reasons just as hospitals halted elective procedures in early March. The resulting three-month slowdown in new referrals may have cost the industry billions of dollars in Medicare revenue.

“I think that nursing homes took a huge financial hit during that three-month period on top of an already-precarious financial model. And so, all is not ‘well and good’ from a financial standpoint for most nursing homes,” said Rachel Werner, executive director of the University of Pennsylvania’s Leonard Davis Institute of Health Economics.

But after gradually boosting supplies of protective gear and Covid-19 tests for staff and residents, “the vast majority of facilities now are in a position to accept new admissions and most are now doing so,” Parkinson said.

Hospitals are resuming elective procedures as well. But it may take time for patients, nervous about contracting the virus, to return, Grabowski said.

Between March 1 and May 9, knee replacements were down 97% from the same period in 2019, according to data from 212 hospitals in 40 states compiled by Strata Decision Technology, a financial analytics company. Hip replacements were off nearly 77%.

However, volume for both surgeries is increasing. Hospital knee replacements rose from 14 to 66 in the final two weeks of the most recent reporting period, the data shows. Hip replacements increased as well, from 182 to 220.

Those low numbers across 212 hospitals suggest it could take some time for elective care to reach pre-Covid levels.

States Boost Medicaid Rates—For Now

In the meantime, states have used pandemic relief funds to temporarily increase their Medicaid nursing home payments during the pandemic.

California, Connecticut, Oregon and Rhode Island hiked their rates by 10%, according to LeadingAge, a trade group representing nonprofit nursing homes. The District of Columbia increased its Medicaid nursing home payments by 20%. Colorado provided facilities with payments equal to an 8% rate hike. And North Carolina raised payments by 5%.

New Mexico boosted Medicaid payments by 30% for Covid-positive nursing home patients. And Kentucky provided an extra $270 for Covid-positive residents. Alabama, Kansas and Virginia each raised their rates by 10%.

After the pandemic, however, the Medicaid rates will likely revert to their prior amounts. That’s because nursing home care is “not what taxpayers are most interested in funding,” Konetzka said.

“It’s hard to imagine that we’re not going to revisit how we pay nursing homes after this,” she said.