Medicare and Medicaid Reimbursement Practices, Research Paper Example

Introduction

A nursing home operates similarly to any other business. In other words, it operates on a budget that caters to the needs of the population which it houses, ensures that staff salaries are covered, ensures that daily operational costs are covered, and ensures that all other aspects of its operation, such as marketing and promotion, are also covered (Belcher, 2012). The success of operating a nursing home depends largely on the accuracy of its budget. As such, it is crucial that a nursing home budget is designed to accommodate all expenses associated with operating the nursing home through a clear cost analysis. Furthermore, nursing homes receive funding from outside sources on local, state, and federal levels, as well as from Medicare (Belcher, 2012). Medicare is a social insurance program designed by the United States Federal Government which guarantees that Americans aged 65 and older will access to health insurance (Komisar, Cubanski, Dawson, & Neuman, 2012). However, payments from outside sources are often dependent on new legislation and the number of residents within the nursing home.  This paper will examine the costs associated with operating a nursing home by addressing key issues such as reimbursement rates for short term stay, reimbursement rates for resident rehab, Medicare and Medicaid rules for nursing home reimbursement, overhead costs for operating a nursing home, and staffing costs. The author will examine these costs on a national level and then apply them to the state of Wisconsin.

Nursing Homes in the United States

Forbes Magazine estimates that the nation’s senior citizens will account for nearly 20 percent of the nation’s population by 2030 (Nelson, 2007). In fact, the number of seniors aged 85 and older will have quintupled by 2050. These statistics indicate an enormous opportunity for entrepreneurs in the senior living industry. To date, there are more than 60,000 senior living facilities in the U.S. These facilities range from retirement homes that offer minimal medical support, to nursing homes that offer comprehensive medical support for its residents (Nelson, 2007). The extent of medical services offered by a senior living facility greatly impacts its operating costs. An average-sized facility with 80 units, which offers minimal health care to its residents, costs an estimated $11 million annually to operate (Belcher, 2012). This price includes the purchase of the land, staff salaries, marketing expenses, and resident care. In essence, it costs between $130,000 and $145,000 to operate a room in a senior facility that offers minimum medical services to its residents (Nelson, 2007). A facility that offers maximized medical care to its residents operates at costs up to 50 percent higher than that. Increased costs associated with facilities that offer medical care to its residents refer to more qualified medical staff and more medical equipment on the premises (Belcher, 2012). It is important to note that a nursing home with 80 units typically consume nearly 20 percent of its annual revenues.

As mentioned before, there is a significant increase in the nation’s aging population. The result of this increase is that a rising number of older citizens are being diagnosed with chronic diseases (Arling, Nordquist, & Capitman, 1987). The effect of the rise in chronic diseases among the elderly has necessitated a greater need for quality care among this population. As such, more senior citizens require medical care on a long-term basis. The solution is that an increased number of older citizens are placed in nursing homes; however, many of them cannot afford to pay for all the expenses associated with being housed in a nursing home. This is where Medicaid assistance comes in. Over the past three decades, nursing home costs have seen an annual growth rate of nearly 20 percent (p. 256). Through the Medicaid program, state governments are in a monopolist position as the primary funders of nursing home services. The result is that the majority of nursing home providers modify their operating policies according to governing limitations and reimbursement levels enforced by states (p. 256). Although providers often seek residents or patients that can afford to pay out-of-pocket, because they are typically charged higher rates, Medicare patients represent the majority of the market.  It is therefore not feasible for nursing homes to ignore Medicare patients and focus solely on private-pay patients.

Nursing home residents are charged flat daily rates for semi-private or private rooms. Any additional services required by that resident (such as specialized care) is an addition to their bill. Currently, state and federal government agencies foot an estimated 70 percent of all national nursing home costs (Wisconsin Department of Health Services, 2011). In addition, the U.S. government pays for some of all the costs associated with nursing home care for an estimated 85 percent of all residents. This means that nursing homes design their care delivery system to coincide with the government’s payment system.  Various factors determine the government’s pricing model and reimbursement system. These factors include insurance, ancillary services, plant costs, wages, utilities, and nursing and aide hours for each patient (The Office of the Legislative Auditor, 1991).

Medicaid and Medicare Reimbursement Rates

Medicaid covers an estimated 50 percent of private nursing home costs and Medicare covers an estimated 12 percent (Wisconsin Department of Health Services, 2011). In total, the U.S. government supports nearly 70 percent of the nation’s nursing home costs. These large numbers indicate vulnerability among nursing homes to the vagrancies of reimbursement policies toward nursing homes. Before the implementation of the Balanced Budget Act of 1996, Medicare reimbursements to nursing homes were determined according to the actual costs submitted on each patient (Wisconsin Department of Health Services, 2011). However, once the Act passed, Medicare was forced to integrate a potential payment system of reimbursement. The difference between the two reimbursements systems is that payment prior to the implementation of the Act required the nursing home to submit the actual costs associated with each patient’s individual care. After the implementation of the Act, nursing homes are mandated to use pricing formulas for each patient. These formulas are based on the patient’s intensity of care and the anticipated number of days that the patient will require care. The sum of that equation is then multiplied by the historic costs of that facility in that specific geographic location in 1998. An increased number of nursing homes argue that they are losing money with this new reimbursement system (p. 34).

Reimbursements for Medicaid are operated on a state level; however, large numbers of nursing homes claim the Medicaid reimbursements do not cover their actual costs (Komisar, Cubanski, Dawson, & Neuman, 2012). Medicaid reimbursements vary from state to state. For instance, some states utilize prospective payment systems similar to those employed by Medicare, while others reimburse nursing homes for their actual costs up to a preset maximum amount.

Despite the method of reimbursement offered through Medicare and Medicaid, it is evident that both agencies have a direct impact on the rates for residents who pay out of pocket for their care. This is true because as nursing homes lose money from reimbursements from Medicare and Medicaid, they tend to charge private-pay residents higher feel to cover the losses from Medicare and Medicaid (Arling, Nordquist, & Capitman, 1987). The only two states that prohibit its nursing homes from charging more than Medicare and Medicaid are North Dakota and Minnesota.

Effects of Nursing Home Reimbursement System

As mentioned before, most nursing home reimbursements come from the U.S. government. However, based on the reimbursement systems mentioned before, many nursing homes are losing money. In fact, nearly 10 national nursing home chains filed for Chapter 11 restructuring in 2000 (Arling, Nordquist, & Capitman, 1987). The nursing homes that did make profits are not making enough to hire more qualified staff to subsequently improve quality of care. The result is that quality of care decreases as nursing home income levels decrease. Without sufficient income levels, nursing homes are unable to employ competent nurses and certified nurse’s assistants. The result is that a large number of national nursing homes are understaffed, or adequately staffed with staff members that perform under adequate national standards (Komisar, Cubanski, Dawson, & Neuman, 2012).

Due to the lack of adequate reimbursements, nursing homes are unable to retain certified nurse’s assistants (CNAs) and are often shorthanded on nurses. CNAs are unwilling to work for $8.50 an hour in a position that offers no benefits. In addition, there is currently a nationwide shortage of nurses, so even if a nursing home is willing to pay an attractive salary to attract nurses, there simply are not enough nurses to meet the demand. The result is that the nurses who are currently employed at nursing homes are often overworked. In other cases, less qualified individuals are hired to substitute for nurses. In both instances, quality of patient care decreases. Another serious dilemma that arose as the result of staffing and funding problems is reported incidences of patient abuse and neglect. Abuse refers to any instance of blatant neglect, such as failure to bathe a patient, failure to offer food or water to a patient, improper use of restraint, and improper care which can result in pressure sores (Nelson, 2007). In other words, inadequate staff members administer improper care to patients and this improper care results in rising costs for the nursing homes that have to defend against lawsuits from patients and their families. For example, nearly 700 nursing homes in Florida faced $1 billion in lawsuits from abuse claims in 2002. The result of these claims meant that nearly 20 percent of the state’s nursing homes had to file for bankruptcy protection (Nelson, 2007). In addition, lawsuits typically have an adverse effect on a nursing home’s liability insurance. In some cases, liability insurance rates have increased by as much as 1,000 percent, which translates to nearly $6,000 for a bed over the course of a year.

Wisconsin Reimbursement Procedures

Although Medicaid reimbursement rates for state government facilities in Wisconsin are comparable to national rates, Medicaid employs different procedures for reimbursements for non-state governmental nursing homes (Wisconsin Department of Health Services, 2011). The state pays a daily rate to non-state governmental nursing homes in accordance with reimbursement provisions set forth by the State Medicaid Plan. Typically, daily payment rates are lower than the cost of providing Medicaid services. The local government absorbs this deficit and becomes eligible for federal matching up to the Medicaid Upper Limit (p. 9). However, this amount may not exceed the cost of providing services to residents who rely on Medicaid. The state, therefore, makes a claim based on cost reports submitted by the nursing home. In addition, the state prefers to use the Medicaid cost report, instead of the Medicare cost report for various reasons. For instance, not all nursing homes in Wisconsin participate in the Medicare program. It is therefore easier to establish a consistent cost-finding platform through the use of a Medicaid cost report. Also, the Medicaid cost report provides an inclusive tool for the entire operation, instead of just for a segment of the nursing home, which is what Medicare allows for. In other words, a Medicaid cost report consists of three separate calculations. First, authorities conduct an interim payment calculation. Next, they conduct an interim settlement, and finally, a final settlement. Each calculation relies on the most recent cost calculations, Medicaid payment information, and Medicaid utilization information (p. 9). In addition, Medicaid allows for medical transportation to be billed separately. However, these bills may not exceed $10 a day for each resident. Furthermore, under the Medicaid cost report, a nursing home may submit a bill for oxygen, given that the nursing home uses a claim form specifically issued by Medicaid’s department for oxygen billing. However, despite the fact that the nursing home may submit a bill for oxygen to Medicaid, the nursing home shall remain responsible for the majority of the oxygen fees.

Given the information examined for this paper, it is evident that Medicaid covers more than 50 percent of all costs associated with running a nursing home. This not surprising as Medicaid is the fifth largest expenditure for U.S. Federal Government. It is preceded only by social security, defense, national debt, and Medicare (Sauer, 2010). In fact, nearly 35 percent of all Medicaid payments are allocated to long-term care services for the elderly. A subsequent result of these factors is that states will have to accept a possible lack of funds in the near future to adequately cover Medicaid costs; specifically for long-term care. If no changes are made, such as asking the federal government for more funds, or increasing taxes, then quality of care in nursing homes will continue to decrease as a demand for Medicaid increases (Sauer, 2010).

Summary

A nursing home is an environment where elderly patients go to recover from an illness, or receive medical attention in a setting that is not a hospital. In other words, it offers long-term care to the nation’s growing sick and elderly population. Costs associated with living in a nursing home are often exuberant and not all nursing home residents can afford the cost of stay. In the event that a resident is unable to afford his or her accommodation in a nursing home, and all the medical attention they receive, government-funded programs, such as Medicare and Medicaid foot the bill for those residents. However, various policies have been designed where Medicaid and Medicare do not adequately reimburse nursing homes for their expenditures. The result is that many nursing homes find it increasingly difficult to operate successfully. For instance, although Medicaid covers a large portion of a nursing home’s operating costs, it hardly ever covers all of it. In other words, the nursing home is responsible for covering the deficit that is not covered by Medicaid or Medicare. They typically use annual profits to cover these expenses. However, in doing so, the nursing homes have very little extra funds to hire adequately trained staff. In addition, with a nationwide shortage of nurses, nursing homes find it increasingly difficult to employ properly trained staff. As such, other people, with inadequate medical training, are hired to fulfill a nurse’s duties. This often results in a decrease of quality in care and can even result in instances of patient abuse or neglect. In the event that an abuse or neglect claim is filed against a nursing home, the nursing home is responsible for covering all damages; typically in monetary form. Such practice further feeds the perpetual cycle of funding issues that a large number of nursing homes face today.  It is therefore crucial that the government develop a new reimbursement system so that nursing homes nationwide can breathe with more ease, so they can employ competent staff, and finally improve quality of care. Less than 40 percent of new nursing home residents will stabilize enough to where they can be discharged. However, the other 60 percent are new patients that will require quality care.

References

Arling, G., Nordquist, R. H., & Capitman, J. A. (1987). Nursing Home Cost and Ownership Type: Evidence of Interaction Effects. Health Services Research, 255-269.

Belcher, L. M. (2012, September 24). Nursing Home Budget Plan. Retrieved from Chron.com: http://smallbusiness.chron.com/nursing-home-budget-plan-13238.html

Komisar, H., Cubanski, J., Dawson, L., & Neuman, T. (2012). Key Issues in Understanding the Economic and Health Security of Current and Future Generations of Seniors. Washington, DC: Kaiser Family Foundation.

Nelson, B. (2007, March 1). The Fundamentals Of Running A Senior Living Home. Forbes Magazine.

Sauer, J. (2010). Unspecified Medicaid Cuts: Nursing Facilities. Madison: The Wisconsin Association of Homes and Services for the Aging.

The Office of the Legislative Auditor. (1991). Nursing Homes: A financial review. Saint Paul: State of Minnesota.

Wisconsin Department of Health Services. (2011). Methods of Implimentation for Wisconsin Medicaid Nursing Home Payment Rates. Madison: State of Wisconsin.