New CMS Rule will Significantly Cut Medicare Payments to Skilled Nursing Facilities Beginning October 1, 2011 and Additional Cuts to Other Providers May Follow

On July 29, 2011, the Centers for Medicare and Medicaid Services (CMS) published the final rule for skilled nursing facility Medicare reimbursement in fiscal year 2012.  Among other things, the rule imposes an approximate 11% cut in Medicare reimbursement rates for all skilled nursing facilities.

CMS first introduced the cut in an April 28, 2011 proposed rule to recapture extra funds that were unintentionally reimbursed for therapy services under RUG- IV, the classification system implemented earlier this year.  Finalizing most provisions in the proposed rule, the final rule included a recalibration adjustment of 12.6%, which, coupled with the 1.7% market basket update, resulted in a net update of -11.1% (equivalent to $3.87 billion) in payment for fiscal year 2012.  Importantly, the impact on each facility will vary depending on its case-mix and geographic location.

CMS will host a national provider call on the rule on August 23, 2011, from 1:30 P.M. to 3:00 P.M. (EST).  Registration is open until 1:30 P.M., August 22, 2011, or when space has been filled.  Subject matter experts will discuss new MDS 3.0 policies, including allocation of group therapy and a question and answer session will follow the presentations.

Skilled nursing facilities are not alone in facing future cuts to Medicare reimbursements.  Namely, on August 2, 2011, President Obama signed the Budget Control Act of 2011 into law, which, among other things, establishes a joint “super committee” that is tasked with producing over $1 trillion in debt-reduction legislation that must be approved by Congress by end of December.  The super committee’s proposed legislation can include cuts to entitlement programs, such as Medicare and Medicaid. 

Importantly, if Congress does not agree on a debt plan by December 2011, the Budget Control Act allows for an automatic 2% cut in Medicare payments to hospitals and other providers.  Many hospitals and other provider groups responded that they would not be able to absorb these payment cuts without making corresponding reductions in services to patients.

If you have questions regarding the issues addressed in this article, please contact any member of the Seyfarth Shaw Health Care Practice Group.  We will continue to closely monitor the implications of these reimbursement cuts, healthcare reform, as well as other issues relevant to the healthcare field and provide informative updates.

By: Deborah Gordon and Daniel Sternthal

Deborah Gordon is a partner in Seyfarth’s Chicago office and Daniel Sternthal is a Senior Counsel in the firm’s Houston office.  If you would like further information, please contact your Seyfarth Shaw LLP attorney, Deborah Gordon at dgordon@seyfarth.com or Daniel Sternthal at dsternthal@seyfarth.com.