White House eases up on nursing-home cuts

An intense lobbying effort by the nursing-home industry and the strong objections of dozens of members of Congress have encouraged the Bush administration to curtail a proposal to trim up to $24 billion in Medicare payments to nursing homes.

The Centers for Medicare and Medicaid Services (CMS) issued a proposed rule late Friday that would substantially alter the formula used to determine payments to nursing homes and, in the process, eliminate “add-on” payments that have been in place for several years.

The administration also proposes an approximate 3 percent across-the-board payment increase for fiscal year 2006 that it says will ease the pain of ending the add-ons. The regulation is slated to be published in the Federal Register on Thursday.

Although nursing homes appear to be slated just about to break even in the 2006 budget, the regulation represents a victory for the sector.
The White House also is poised to claim credit for a portion of the $10 billion in budgetary savings that would have resulted from its original proposal, which was based on a rule change called for in existing law. CMS estimates that the elimination of the add-on payments would save $1 billion in the next fiscal year.

The add-ons would be permanently abolished, but the 2006 savings would be offset by $510 million in new spending for a “market basket” payment-rate increase and $510 million in new spending related to the underlying changes called for in the payment system.

The Republican leadership in Congress also stands to benefit from the finesse employed by the administration in crafting the regulation. A proposed rule that took away billions from nursing homes might have led to calls for Medicare-related legislation that, in turn, could have served as a magnet for a multitude of costly and politically contentious changes to the program.

Many members of Congress also have weighed in during recent weeks. The release of the letter was delayed for about a month while administration officials considered how to enact the changes without triggering a political backlash.

Separate bipartisan letters were sent by 32 senators and 43 House members, respectively, along with letters from House Ways and Means Committee Republicans, three GOP governors and Sen. Orrin Hatch (R-Utah) in opposition to the original plan outlined by the administration.

The White House’s budget request for next year called for the elimination of the payment add-ons and a “refinement” of the payment system, but did not refer to a payment increase. In addition, the Medicare Payment Advisory Commission had recommended that nursing homes receive no payment increase next year — as it has for several years.

Industry groups expressed cautious support for the regulation but vowed to scrutinize closely the changes to the complex reimbursement system.

Former Rep. Hal Daub (R-Neb.), now president of the American Health Care Association (AHCA), indicated that the lobbying push is far from over.

Describing the rule as broadly written, Daub said the organization views the proposal as “an invitation for us to come back and show other options.”

The association expects to understand better the financial impact of the rule in the coming days. “We still believe that there’s a significant amount of progress” to be made, Daub said.

Stephen Guillard, president and CEO of Harborside Healthcare and chairman of the Alliance for Quality Nursing Home Care, said that “at first glance [the administration proposal] appears to be a framework that we can work with. However, we also need to make sure that there aren’t any hidden reductions that aren’t immediately apparent.”

The Alliance, an independent offshoot of the AHCA, is composed of investor-owned companies that disproportionately depend on Medicare payments, which are higher than the Medicaid payments on which most nursing homes rely.

The Alliance has been particularly aggressive in fighting the rule, hiring well-placed lobbyists, such as former CMS Administrator Tom Scully, to plead their case with Congress and the administration.

Nursing homes will have extra time to prepare for the changes to the payment system. The end of the add-on and the modifications of the formula will not take effect until Jan. 1, 2006, even though the “market-basket” payment increase will kick in Oct. 1 at the start of the fiscal year.

In addition to ending the add-on payments and promising a boost to the regular payments, the proposed rule also would realign how Medicare reimburses for specific types of services. Significantly, payments for “medically complex patients” and for rehabilitation services would be increased.

The regulation also asks for comments on how to implement “pay for performance” mechanisms that would tie reimbursements to improvements in the quality of care at a nursing home.