In some good news for senior housing providers, the Centers for Medicare & Medicaid Services (CMS) recently proposed increasing Medicare’s reimbursements to skilled nursing facilities by $750 million in 2015. To the senior housing industry, this announcement came as a pleasant surprise especially because members of Congress often propose cuts to Medicare and Medicaid as a way to help reduce the federal deficit. The most recent discussion involving cuts to these programs was due to Congress’ attempt to enact a permanent doc fix. At that time, many in the senior housing industry were concerned that Congress would pay for this fix with cuts to Medicare and Medicaid that would impact their reimbursements. However in the end, Congress did not enact a permanent doc fix so these cuts never materialized.

Details of the Rate Increase

Each year, CMS pegs the payment rate for skilled nursing facilities (SNFs) to the SNF market basket. The market basket essentially reflects the cost of certain skilled nursing care services and products. CMS calculated a SNF market basket increase of 2.4% and then reduced that figure by .4% after making some required adjustments to come up with a 2% increase from current levels for next year. This 2% figure is significantly higher than the 1.4% net increase that CMS proposed last year and the American Health Care Association/National Center for Assisted Living (AHCA) expressed its support of the increase in a press release that it issued after learning about it. Specifically, AHCA stated that “America’s skilled nursing care centers are pleased to see a proposed two percent market basket increase to providers’ Medicare reimbursement. These centers have shared in the sacrifice plenty through multiple government reductions over recent years.” While supportive, AHCA’s statement was also little guarded because the proposal has not been finalized and might change after the comment period has closed.

In addition to the potential Medicare reimbursement increase that could take place next year, senior living providers should also take note that CMS will begin linking reimbursements to new statistical area designations that were set by the Office of Management and Budget last February. Because of these changes, certain providers will move from urban status to rural status and vice versa. Estimates show that these changes could lead to a wage index decrease for 22% of providers. In recognition of this, CMS has proposed using a blended wage index for the first year for all providers in which every provider’s index would be split evenly between the current designation and the new designation. The agency believes that such a move is appropriate and will ease the transition for providers as the new policy takes effect. So that they are prepared for this change and for whatever rate change CMS implements, skilled nursing facilities should familiarize themselves with CMS’ proposals and can also express their opinions to the agency during the comment period if they choose to.

As CMS finalizes and implements it proposals, senior living providers and others who are interested in taking advantage of the senior living industry’s strong dynamics through an acquisition or other means should continue to look to the successful financing firm Cambridge Realty Capital for their capital needs.

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