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CMS to cut Medicare payments to skilled nursing facilities

Medicare payments to skilled nursing facilities will be cut by $3.87 billion for FY 2012, the Centers for Medicare & Medicaid Services announced in a final rule. The cut is an 11.1 percent drop from FY 2011 but is still 3.4 percent higher than FY 2010 rates and should correct an unintended spike in 2011 payment levels.

"CMS is committed to providing high quality care to those in skilled nursing facilities and to pay those facilities properly for that care," said CMS Administrator Donald Berwick, MD, in a statement. "The adjustments to the payment rates for next year reflect that policy."

The cut will re-align Medicare costs that unexpectedly skyrocketed this year after CMS updated the skilled nursing facility classification system (RUG-IV), which designates payment rates aligned with patients' use of services. The reclassification was supposed to keep spending levels unchanged from the previous year but actually resulted in a significant increase.

[See also: OIG tells CMS to take immediate action on SNF billing.]

"Additional data analyzed by CMS since publication of the proposed rule confirmed the extent of the overpayments that have occurred since implementation of the RUG-IV system," Deputy Administrator and Director of the Center for Medicare Jonathan Blum said in a statement. "We are also making several improvements to our payment system to strengthen its integrity."

Alan Rosenbloom, president of the Alliance for Quality Nursing Home Care, said in a press release issued in reaction to CMS' final rule, that the cuts go far beyond any corrections needed.

"The ill-considered nature of the rule and its dire implications to seniors, providers and jobs are significant, immediate and dangerous," Rosenbloom said. "Plummeting state Medicaid funding, $14.6 billion in Medicare cuts contained in the Affordable Care Act (ACA), rising patient acuity, shrinking length of stay, escalating costs and having the lowest operating margin of all provider groups contributes to the SNF sector's instability in the face of growing demand for care and services."

"Lawmakers will now be placed in the unfortunate position of having to deal with an increased threat to local seniors' access to care as a result of this egregious regulatory action. Never in the history of the Medicare program has either CMS or Congress implemented such a large correction in one year," he concluded.

The Associated Press reported that shares of skilled nursing facility operators nosedived on Monday but a report issued on Wednesday by Moody's Investors Service said that while the cuts will cause reductions in revenue for skilled nursing facility operators, they won't immediately impact nursing homes' credit ratings. Those operators facing the biggest impact are the ones, like HCR Healthcare and Skilled Healthcare Group, receiving a larger proportion of revenue from high-acuity Medicare patients.

The final rule becomes effective on Oct. 1.