Payment Challenges facing today’s nursing facilities Source: Proposed SNF Rule CMS -1351-P Karen McDonald, BSN, RN KLM & Associates, LTC Consulting, LLC

Agenda Historical Payment System Medicare A RUGS IV 2012 Options Medicaid Challenges What Providers are Doing to Prepare

Nursing Facility Stats 15693 Facilities 54.6% Multi - Facility Chains 45.4% Independent 6.6 % Hospital based 67.5 % For Profit 25.7 % Non Profit 5.8 % Government Run Medicare Only 5.0% Medicaid Only 3.9% Dual Certified 91.1% AHCA Nursing Home “Operational” Characteristics Report March 2011

Nursing Facility Stats 1,394,537 Patients and Residents in 1,671,226 Beds = 83.4% occupancy 6.48% beds are dedicated to specialized services 73.1% Alzheimer’s 13.1 % Rehab Average Staffing Direct Care 3.63 HPPD RN .39 HPPD LPN .82 HPPD Nursing Assistants 2.42 HPPD What does that mean? On average, each resident in a 24 hour period received 2.42 hours of direct care from a Certified Nursing Assistant AHCA Nursing Home “Operational” Characteristics Report March 2011

Residents Sicker Bigger Needier

Residents Statistics Key Payer Sources Skin Integrity 14.2 % Medicare 63.6 % Medicaid 22.2 % Other Skin Integrity 6.57 % with Pressure Ulcers 3.68 % upon Admission 78.25% have Preventative Skin Care in place AHCA Nursing Home “Residents” Characteristics Report March 2011 CMS Form 672

Presentation Information Funding / Payment Remember Payer Breakdown? 14.2 % Medicare 63.6% Medicaid 22.2 % Other Currently Medicare Patients help to pay for Medicaid Residents Shortfall anticipated at $17.33/day / Resident Unreimbursed allowable Medicaid charges in 2010 5.6B Medicare margins can no longer compensate for increasing Medicaid shortfalls Elimination of FMPA (stimulus $$ July 1, 2011) State revenue up should be able to cover CONFIDENTIAL

Presentation Information Funding / Payment Medicare Transitions of Care More home care Funding to follow the resident Anticipated 12.5% RUGS plus an additional 1.5% inflation factor adjustment, Oct. 2011 Case Mix is the game ADL’s drive the payment in many state Medicaid programs and the Medicare program CONFIDENTIAL

Minimum Data Set (MDS) Mandated Resident Assessment Instrument (RAI) Payment is based upon “groupers” (66) Medicare Day 5, 14, 30, 30, 30 Medicaid (Case Mix Stated) Quarterly after Part A stay Rehab services are the driver for highest payment

Background July 1, 1998 (44 RUGS) SNF PPS per diem for all Medicare Part A routine, ancillary and capital related costs Adjusted to reflect Wage rages Patient case mix, RUGS (effort) January 1, 2006 Refinements (53 RUGS) Added 9 new categories October 1, 2010 Refinements (66 RUGS) MDS 3.0 RUGS-III to RUGS-IV was mandated budget neutral

Background Over ½ states utilize a RUGS based system for Medicaid MDS data drives the classification Nursing needs ADL impairments Cognitive status Behavior problems Medical diagnosis Residents with more resource needs are assigned higher groups Each October, CMS must issue new rates based upon “parity” and cost adjustments

RUGS-IV Eight major classifications Rehabilitation Plus Extensive Services Rehabilitation Extensive Services Special Care High Special Care Low Clinically Complex Behavioral Symptoms Cognitive Performance Problems Reduced Physical Function

Rehab Plus Extensive 2 or more dependant ADLS Receiving therapy Has trach, vent, or infection isolation Rehabilitation Extensive Services 2 or more dependant ADL’s Trach, vent, or infection isolation Special Care High Serious medical condition Comatose, septic, DM, Quad, COPD, fever, IV, RT Special Care Low CP, MS, Parkinson's etc all ADL dependant

Behavioral Symptoms and Cognitive Performance Clinically Complex Pneumonia, hemiplegic, surgical or open wounds, burns, chemo, O2. IV, transfusions Behavioral Symptoms and Cognitive Performance ADL dependence of 5 or less Behavior or cognitive problems Reduce Physical Function Residents who needs are primarily for support with activities of daily living

So What is the Plan for FY 2012?

SNF Proposed Rule Two Options Option A Recalibration of the Parity Adjustment Option B Standard Update without Recalibration

Option A Recalibration Background To move from RUGS-III to RUGS-IV and stay budget neutral, CMS applied a 61% upward adjustment across all nursing CMI’s based upon analysis of 2009 data Comparable actual data available for quarter 1 2011 realized utilization patterns differed significantly from the projected Number of residents grouped in the highest paying RUG therapy categories greatly exceeded expectations Why? Movement from concurrent to individualized therapy

Option A Recalibration Background Parity was not achieved and RUGS-IV triggered a significant increase in overall payments Conclusion The 61% increase would have to be lowered to 22.55% if applied equally across all CMI’s Most change was reflected only in rehab groups, so the decrease only applies to the nursing CMI for the RUG-IV therapy groups

Projected utilization was .18% of days, it was actually .60% Projected utilization was lower or as expected

Option A Recalibration Impact If parity decreased across the rehab groups and left as is for the others, the impact is an increase only to 19.81% for the rehab groups (not 61%) Results in a $4.47 billion change in reimbursement 2012 market basket inflation adjustment is $530 million resulting in a net $3.94 billion savings to CMS or a net 11.3% decrease to nursing facilities

Option A Recalibration Issues Utilization of 1 quarter of data Increase coincides with movement to RUGS-IV and MDS 3.0 Movement away from concurrent to individual and group therapy hence greater costs SNF proposed rule would eliminate the existing incentive to substitute group therapy for concurrent and individualized therapy CMS maintains that concurrent therapy should be the exception, group only 25% but they did not anticipate the cost of moving to individual therapy

Option B Update without Recalibration Recognizing that this increase may be a temporary aberrance resulting from the limited 2011 data, the movement to RUGS-IV and the MDS 3.0 They reserve the option to do nothing except normal wage index and market basket changes Neither plan reflects changes to the AIDS add on

Comparable Rates RUG-IV Urban-A Urban-B Rural-A Rural-B RUX 735.16 882.55 752.19 893.01 RVX 654.35 798.53 596.61 798.67 RHX 592.85 733.83 530.66 726.59 RMX 498.97 678.39 537.89 666.47 RUC 557.34 643.85 582.28 664.94 RVC 478.13 559.83 492.53 570.59 RHC 416.63 495.13 423.51 498.52 RMC 366.00 441.30 367.99 439.93 RLB 355.85 437.55 351.85 429.91 ES3 671.15 671.18 648.24

Distribution Rehab plus Extensive Rehab Extensive Services Urban 2.65% Rural 2.09 % Rehab Urban 89.32 % Rural 87.82% Extensive Services Urban .58% Rural .45%

Medicaid FMAP Funds decrease to many states on July 1, 2011 Anticipated state revenues better than expected hence proposed Medicaid cuts not as great as expected Bottom line, if Medicare Part A rates cut and any Medicaid cut, the impact is great to any facility

How are Providers Preparing? Lobby AHCA and The Alliance for Quality Health Care Attacking on the employment side LTC represents the 2nd largest employer in the nations health care sector Data integrity, how can they base on 1 quarter Revenue side Increase the acuity of the resident admitted to increase the Rehab plus Extensive patient load Decrease returns to hospital, close the back door Expense side Budgeted $PPD’s Changing mix of staff Decreasing overhead at “corporate” or management level

Bottom Line SNF Rule remains out for comment Anticipate Option A will be passed

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