FY'06 Medicare payments to LTCs could rise 3.1%.

Long term care facilities could receive a 3.1 percent increase in Medicare reimbursement payments for the 2006 fiscal year, pending a final ruling by the Centers for Medicare & Medicaid Services (CMS) later this spring. That's up from a zero gain proposed by a federal advisory panel at the start of this year.

CMS Administrator Mark McClellan said the proposed increase represents the government's attempt to make a "smooth transition" from its old cost-based payment methodology--where facilities were reimbursed based on pre-determined costs, regardless of how much the facility might actually have paid--to one where facilities report their operating costs to the government on a periodic basis.

If finalized, the rate increase will have taken place despite concerns regarding rising Medicaid/Medicare costs. The Congressional Budget Office expects Medicaid spending to increase to $186 billion this fiscal year, about 5.6 percent more than last year, while Medicare will rise to $325 billion, up 9.4 percent from fiscal 2004.

"My first reaction is ... any increase is good," said Darren Trisel, administrator at Asian Community Nursing Home in Sacramento, Calif. "But ... will the 3.1 percent cover the inflation rate of overall medical costs? Typically, wage increases alone average more than the 3.1 percent proposed increase--especially in the medical profession--let alone other overhead considerations like liability insurance, workers compensation and medical equipment/technology costs."

Trisel added that when discussions about rate increases occur, changes are implemented over a period of time or after a period of time. In that sense, a 3.1 percent increase might equate to only a 1 percent annual gain if there isn't another raise for several years, he said. "That rate of increase might not even keep up with inflation," Trisel said.

Yet, the alternative wasn't as pleasant. In early January, the Medicare Payment Advisory Commission (MedPAC) recommended that Congress freeze payment rates for skilled nursing facilities and home care during fiscal 2006 at their current levels.

In its preliminary report, MedPAC said such an action would reduce Medicare spending on home care and skilled nursing facility matters by up to $600 million each in fiscal 2006. The agency's final report will be presented to Congress in spring.

Long term care industry members note that Congress actually helped the industry last year when it allocated Medicare funds to offset inadequate reimbursement levels offered by Medicaid, the government's state-sponsored reimbursement program. According to the American Health Care Association, Medicaid underfunds two out of every three nursing home residents, for a total loss of $4.1 billion annually.

Medicare funding helped stabilize the nursing home sector, allowing providers to invest in staffing and quality services, according to Stephen Guillard, chair of the Alliance for Quality Nursing Home Care in Washington, D.C. AQNHC is a coalition of the nation's largest long term care providers' companies.

Guillard noted that a recently released report, "Skilled Nursing Facilities: The Phoenix Rises Again," details how changes in Medicare's method of paying for skilled nursing care could hurt providers.

The report noted how skilled nursing providers "have been on an economic roller coaster ride of Medicare cuts followed by temporarily restored funding" since the passage of the Balanced Budget Act in 1997. According to Guillard, 15 percent of the industry has had to seek bankruptcy protection since then.

"Quality and economic stability go hand-in-hand," he said. "(It's) clear that the long term care sector will have trouble sustaining the blow of another major hit in funding."