Medicare Proposes To Increase Nursing Home Payments By Estimated 2.1 Percent 

May 10, 2001 

The Health Care Financing Administration announced today that Medicare proposes to increase payments by an estimated 2.1 percent for fiscal year 2002 to skilled nursing facilities that provide vital care to Medicare beneficiaries with serious health problems. 

The proposed changes, which will take effect Oct. 1, 2001, would increase Medicare payments to skilled nursing facilities in FY 2002 by 2.1 percent above the Medicare payments made in FY 2001. 

 The updates, which will be published in a proposed rule in the Federal Register on May 10, are based on increases in the cost of care and the provisions of three laws -- the Balanced Budget Act of 1997, the Balanced Budget Refinement Act of 1999 and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000. 

"The nation's skilled nursing facilities need to receive adequate payment for treating critically ill elderly and disabled Medicare beneficiaries," HHS Secretary Tommy G. Thompson said.  "This payment increase in the next fiscal year will help make sure that our most vulnerable citizens are getting quality care, while taxpayer money is spent wisely." 

The Balanced Budget Act required that Medicare pay for skilled nursing care following hospitalization based on a prospective payment system.  Hospitals have been paid under a prospective payment system for inpatient services since 1983. 

The nursing home prospective payment system was implemented in 1998. Under the system, each facility receives a base payment amount adjusted for local wages and the care needs of individual patients. 

The payment rates to skilled nursing facilities cover the costs of furnishing most covered nursing home services, including routine services such as room, board, nursing services, and minor medical supplies; related costs such as therapies, drugs and lab services; and capital costs including land, building and equipment. 

With next year's update, HCFA is proposing to begin the transition of "swing-bed" hospitals to the skilled nursing facilities' payment system, as required by law, except for critical access hospitals, which are exempt from the prospective payment system.  Under Medicare, "swing-bed" hospitals can use their beds to furnish either acute or skilled nursing care, as needed. Currently, "swing-bed" services are paid on a reasonable cost basis, subject to limits. 

The payment system is designed to ensure better patient care by relating payments to the condition of the patient, recognizing that some patients need more services or more expensive care than others.  For some beneficiaries, Medicare would pay more than $550 per day for their skilled nursing care. 

Under the previous system, which based payment on nursing homes' reported costs, the skilled nursing facility benefit was one of the fastest growing components of Medicare spending. 

The prospective payment system has been phased in to ease the transition for nursing homes. During the first three years of implementation, the rate for a nursing home was determined by a blend of a facility-specific rate and a federal rate.  All facilities should be paid under the full federal rate in FY 2002.