New research paints a negative picture for nursing facility reimbursement under the Medicaid program for this year and next, with fresh projections calling for the average shortfall in reimbursement for 2011 to hit $19.55 per Medicaid patient day, an unprecedented high $3 wider than actual average shortfalls recorded in 2009.

“Between 2009 and 2011, Medicaid rates increased only 2.9 percent—the lowest two-year increase in the 10-year history of the report. As such, the projected Medicaid shortfall is at an unprecedented high, and the percentage of Medicaid allowable costs covered by the Medicaid rates is at its lowest point since 2003,” according to Eljay consultants, who wrote the study on commission for the American Health Care Association.

The actual shortfall for 2011 will likely be even higher than the $19.55 figure, report authors said, noting that “real” cost increases historically outpace projected inflationary rises for nursing facilities.

In raw terms, the unreimbursed nursing facility Medicaid allowable costs are projected to exceed $6.3 billion in 2011, another historically high mark.

The actual daily reimbursement shortfall for 2009, the latest year data are available, was estimated at $16.54 per Medicaid patient day, slightly less than the 2008 actual shortfall of $16.79. “The shortfall has increased by almost 83 percent between 1999 and 2009,” the report said.

To make matters worse, Eljay does not foresee a rebound in Medicaid rates coming any time soon, with even wider funding gaps coming as a result.

“Medicaid rate increases rebounded nicely after the 2002-2005 recession. Unfortunately, there will not be a repeat performance for nursing home rate increases in 2012 and beyond. State budget deficits in this latest recession were more than double compared to the last recession from 2002-2005,” the report said.
Also, only 20 states had nursing facility provider tax programs in 2003, most of which imposed taxes far below the federal maximum, making provider taxes a significant avenue for tax relief.

“Today, 40 states have nursing facility tax programs, many of which impose taxes at, or close to, the maximum tax allowed under federal law. In addition, provider taxes are a target for federal deficit reduction in future years, and state finances are too weak to replace those funds,” the report said.

Eljay said total tax collections reached $4.5 billion, and, overall, provider taxes on nursing facilities generate more than $6 billion in matching federal funds. In states with such programs, these taxes are used to reimburse an average of $21 per patient day in Medicaid nursing facility costs.

The final piece of negative news is that the current recovery from the recession has been slow at best, leaving states to grapple with major deficits, a situation made more challenging following the loss of enhanced FMAP (federal medical assistance percentage) funds under the now-expired Federal Recovery Act. Eljay sees 2012 as worse than 2011 due to all of the economic and budgetary pressure on states.

“With negligible rate increases across the country, and conservatively assuming costs increase at the same pace as the forecasted annual market basket, the 2012 projected Medicaid shortfall will climb to almost $25 per Medicaid day. Under this scenario, nursing homes will experience negative Medicaid margins averaging almost 14 percent,” the report said.

And there will not be enough help coming from the Medicare side of the ledger to balance the Medicaid gap, the report said, noting federal Medicare reductions have hit providers hard.

“With 2012 Medicare revenue reductions averaging $58 per Medicare day, it does not appear that future Medicare margins will be enough to subsidize the accelerating Medicaid shortfalls,” Eljay said.

“We estimate a negative Medicaid margin approaching 14 percent for 2012; assuming Medicare margins continue to average 18 percent, the 2012 shortfall from the two programs combined would exceed $2 billion,” Eljay said.