The Federal Budget and You
If, like most of us, you watched the rather infantile game of "chicken" play out on the national media last week, you are relieved to know that the nation will not default on its debt, or if it does, it won't do so this week. While that is good in many respects, it is very bad in one other. Cuts in budgets at nursing homes are coming in 2012, and they are a direct byproduct of the budget debacle in Washington.
The late senator Everett Dirksen is reported to have said "a million here, a million there, and pretty soon you're talking about real money." Since most of us in health care will never earn a million dollars in our entire lifetime, most of us consider a million dollars to be real money and a lot of it. But, in the context of the budget, a million dollars hardly shows up at all.
On August 1, 2011, the Centers for Medicare and Medicaid Services, the federal agency that provides funding to states for most of the revenue paid to nursing homes, announced that it was cutting reimbursement rates to skilled nursing facilities by 11.1 percent or a total of 3.87 billion dollars. Just so we're clear, that number is written like this: $3,870,000,000.00
There are 16,100 nursing facilities in the United States according to the CDC. Those 16,100 homes have 1,700,000 beds, and an 86 percent occupancy rate. The average length of stay for most residents is 835 days. If you divide that budget reduction by the number of beds you see that every nursing home is going to lose roughly $2,276 per bed. A 100 bed facility could take as much as a $200,000 drop in revenue just from Medicare reimbursements. Larger facilities will take a larger hit. Nursing home chains that are "leveraged" (meaning those that have a great deal of debt and require high income streams to meet that debt) are not going to fare well under the budget reduction.
The federal government is not modifying any of the rules or regulations with respect to how care is administered, how facilities are staffed, or what must be provided to residents. But facilities are going to be under tremendous budgetary pressure to reduce the number of nursing hours and cut costs where they can.
The news is not good. Stockholders and boards will demand concessions in terms of costs at facilities, and since 70 percent of the cost of any such facility is its nursing staff, the nursing staff will bear the burden the most. Smaller homes that are privately held and those not-for-profit may better be able to absorb the budgetary effect of the change, but they too will be under great pressure.
Smart managers will start looking now for places to made adjustments to budget. It is no longer a question of if cuts are coming, but when. And those cuts may prove quite troubling to administrators and staff alike.