Here is excerpt number three from "The 11.1% Survival Guide for SNFs: 5 Tips for Thriving When Times Are Tough."
Tip 3: Optimize Your Payer Mix—It’s More Important Than Ever
After CMS issued RUG IV in 2010, many SNFs focused on obtaining high-therapy, high-rehab
Medicare patients, which had the highest reimbursement rates. Those RUGs, from RLA to RUX, took the brunt of the October 1 cuts from Medicare, representing a disproportionate percentage of the overall cuts. In fact, Medicare adjusted the reimbursement rates specifically to “correct” rates in those categories which they determined had been oversized with the introduction of RUG IV.
So, SNFs should stop seeking out those high-therapy and high-rehab patients now, right? Not so fast. Even with the reimbursement cuts, these are still the highest rate groups. And non-rehab groups on average will actually reimburse at higher rates. So even with the adjusted rates, the best strategy for SNFs is to increase their average daily Medicare census. This second analysis confirms why.
This analysis shows that even without an increase in overall census, a 2 percent increase in Medicare census would increase revenue by $3.2 million for a typical 20-SNF chain. And clearly, SNFs will realize the greatest performance and revenue results by building both overall census and Medicare census. If your SNFs’ budgets and projected investments do not support strategies that promote this kind of growth, then the coming era of diminished reimbursements and shared cost structures could indeed be painful.
Here’s something else critical to consider about Medicare cuts and your payer mix: 11.1 percent isn’t really 11.1 percent. First, that 11.1 percent cut only applies to your Medicare reimbursements. In the sample analyses we’ve provided here, Medicare accounts for 21.5 percent of overall revenue. Applying the 11.1 percent cuts to just the Medicare portion of revenue creates a cut of just 2.4 percent to overall reimbursement revenue.
Second, and perhaps more importantly, this is not a uniform 11.1% cut in Medicare reimbursements. That represents the average percentage cut across all 66 RUG groups. So if a SNF had an average daily occupancy of 66 Medicare patients, and no two patients were ever simultaneously assigned to the same RUG, then that SNF would indeed realize an 11.1 percent reduction in reimbursements for its Medicare census. But that’s clearly not a realistic representation of Medicare case mix.
As we mentioned before, the cuts are weighted heavily in the therapy and rehab categories. If your SNFs were not already admitting many of these patients, then they should not see any notable revenue losses from Medicare. In fact, their Medicare reimbursements could actually increase, particularly if those SNFs make a specific effort to bring in more rehab and therapy patients now. In any case, very few SNFs should expect to see overall reimbursements shrink by much more than 1 percent because of the Medicare cuts. Many will see no affect or even increases.
We recognize that states are also scaling back the already inadequate funding for Medicaid programs, and that those cuts will hit SNFs on top of the Medicare cuts. But diminished funding for Medicaid only strengthens the case for SNFs to do whatever they must to increase their average daily Medicare census.
A recent post on the Long-Term Living Magazine blog provides sharp analysis and perspective about the real impact of the cuts. Consultant Luke Fannon breaks down the real numbers based on analysis done with SNF clients, and makes recommendations that echo the ones we make in this survival guide.
Email me at dwalker@patientplacement.com if you'd like the complete free survival guide.
