Skilled Nursing Facilities Facing a Financial Crisis from COVID-19

Skilled nursing facilities are on the verge of collapsing due to historic underfunding and the financial repercussion of the COVID-19 crisis, according to a new report from the American Health Care Association and National Center for Assisted Living (AHCA/NCAL).

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Evidence compiled by the dual association showed that occupancy rates are plummeting as the cost of personal protective equipment and other necessary supplies increases by as much as 103 percent. These factors are creating the perfect storm, resulting in devastating revenue losses of up to 23 percent, or $57 billion.

Hospitals and other healthcare providers are also up against significant volume and revenue losses as a result of the COVID-19 crisis, with the former losing $50.7 billion a month fighting the coronavirus according to estimates from the American Hospital Association (AHA).

However, historic underfunding of skilled nursing facilities could spell the end for more of these providers, AHCA/NCAL indicated in the report.

Skilled nursing facilities and their peers – assisted living communities, sub-acute centers, and homes for individuals with intellectual and developmental disabilities – already operated on razor-thin margins prior to the pandemic, AHCA/NCAL explained. The reason why: Medicaid reimbursement.

The report referenced recent data from the nonpartisan think tank The Center on Budget and Policy Priorities that showed Medicaid covers over 60 percent of all nursing home residents but just 50 percent of the costs for long-term care services and support.

Medicaid reimbursement rarely covers actual costs of care for beneficiaries. At best, Medicaid covers 80 percent of a nursing home’s expenses for treating a beneficiary, David Grabowski, PhD, professor at Harvard Medical School told the Senate Finance Committee last year.

“The economics of nursing home care hinges on admitting enough short-term Medicare beneficiaries to cross-subsidize the care of long-term residents with Medicaid coverage,” Grabowski later wrote in a May 2020 JAMA Viewpoint article with Brown University professor Vincent Mor, PhD.

“Nursing homes that are predominantly dependent on the lower Medicaid reimbursement are poorly resourced, have lower staffing levels, are located in poorer neighborhoods, have the most quality problems, and are most likely to close,” Grabowski and Mor stated.

The AHCA/NCAL report comes on the heels of a recent HHS announcement highlighting $4.9 billion in coronavirus relief disbursements to skilled nursing facilities. The federal department also released $15 billion to Medicaid providers last week.

The federal funding is an important resource for nursing homes and other long-term care providers to acquire urgently needed resources for testing, equipment, and staffing. But additional payments will be the providers from collapsing, according to AHCA/NCAL.

“Given the gravity of the situation we are facing with this deadly virus and its impact on our vulnerable residents, long term care facilities require additional support and funding from state and federal governments to reduce its spread,” Mark Parkinson, president and CEO of AHCA/NCAL, said on May 22.

“Notably, assisted living communities have yet to receive any direct aid, despite also serving vulnerable seniors. While building on support received from HHS, we are asking for additional consideration for all long term care facilities, whether it be in regard to additional testing, personal protective equipment, or funding.”

The AHA recently also urged CMS to provide skilled nursing facilities with additional funds for COVID-19 testing in an upcoming final ruling on the Medicare prospective payment system for skilled nursing facilities in fiscal year 2021.

The proposed rule would provide a 2.3 percent increase in Medicare reimbursement rates for skilled nursing facilities. The rate hike would provide another $784 million to the providers next fiscal year.

But AHA argued last week that COVID-19-positive patients “are widely acknowledged to generally require substantial additional clinical and other resources… While a portion of these costs have been supported with much-appreciated emergency funds, COVID-19 testing remains a particularly costly ongoing need, with the added expectation that it will resurface during future pandemics.”

Parkinson concluded the AHCA/NCAL report by saying, “The long term care industry welcomes the opportunity to work with Congress and the Administration on innovative solutions that address the real challenges ahead in terms of providing quality care while preserving and enhancing the vital Medicaid program for millions of Americans.”