Impacts of Medicaid changes for skilled nursing operators

The Congressional Budget Office (CBO) determined that the House bill, as written, would reduce federal Medicaid spending by $793 billion over the next decade. That figure isn’t set in stone yet since the Senate must pass its version of the bill first.

Should these spending cuts go through, state governments will need to adjust accordingly. Each state runs its own Medicaid program with federal financial support. Currently, states have anywhere from 50% to 77% of their Medicaid expenditures covered by the federal government.

If federal spending decreases considerably over the next decade, state governments will need to raise taxes to compensate for the shortfall or operate on a substantially reduced budget, which may include a reduction in Medicaid enrollment in order to run these programs more efficiently.

The CBO estimates 10.3 million fewer people will have coverage through Medicaid if the proposed federal spending reduction moves forward.

State governments are exploring several ways to reduce Medicaid enrollment. These reductions are unlikely to negatively impact skilled nursing operators, as they are not targeted at their typical patients.

First, state governments could remove coverage for low-income Americans who are physically able to work in favor of them either buying their own individual policy or receiving workplace coverage. Since this is a working-age population, they are not using skilled nursing facilities.

Second, state governments could prevent non-U.S. residents from receiving Medicaid. Once again, this group does not make up a considerable share of skilled nursing residents.

Finally, states could reduce coverage for home and community-based services. For example, a retired couple with health issues qualifies for home support through Medicaid. They have nursing care, meals and other assistance brought to their residence. If states scale back these programs, the couple may no longer have the support needed to live at home and may have to relocate to a skilled nursing facility. In other words, this could potentially increase Medicaid enrollment for operators.

The reduction in Medicaid enrollment is unlikely to be a financial issue for skilled nursing facility operators. However, they must prepare for a possible reduction in future rate increases in matching funds from the federal government.

Under the “bed tax” system, operators pay a charge per patient day to the state government to help fund the Medicaid program. The state collects that revenue and requests a rate increase from the federal government, which is then reimbursed to the facilities. For example, an operator may pay $5 per patient day to the state and be reimbursed $9 from the federal government later.

The proposed bill and reductions in Medicaid spending would slow down the growth of future federal rate increases. It wouldn’t cut current payments, but operators will need to forecast reduced revenue growth from this system if the proposed bill passes.

This would be especially noticeable for operators in states that rely on a greater percentage of federal support for their Medicaid programs, including Alabama, Mississippi and West Virginia.

The OBBBA is still not law. The proposed Medicaid spending cuts will be hotly debated in the Senate this summer. However, facility operators should begin planning now for what could happen, in particular, a decrease in future rate increases.

Ultimately, nursing operators rely on government reimbursement and must plan around these stroke-of-the-pen risks that are beyond their control. All operators can do is continue providing the same high-quality care to their patients and support to their staff as they already do, regardless of what happens in D.C.

Operators have become more politically involved at the local, state, and federal levels to advocate for improved funding and to positively impact patient care and employee satisfaction. Through these lobbying efforts, providers can advocate for the funding they need, even in the face of federal budget cuts.

The CIBC Healthcare Banking division will closely monitor this legislation as it evolves, ensuring we’re ready to finance and support operators as they prepare for these developments. Learn more about CIBC Healthcare Banking Opens a new window..

Each of our specialists has a minimum of 25 years of experience in the business. They’ve gone through many cycles of government changes and reimbursement pressures. You can leverage that experience for guidance in these uncertain times.

Whether you have questions about the possible impact of this latest legislation or would like to review your financing options, the Healthcare Group is here to help.