The Kaiser Family Foundation has issued a new report which traces the recent growth of Medicare payments and profits to nursing homes despite seemingly stagnant nursing home spending on actual care. Medicare payments to nursing homes have increased by 75% from 1999 to 2010 despite a gradual decline in both the number of nursing homes and residents. This means that Medicare nursing facility profit margins have been swelling – from 2000-2010 these facilities had an average profit margin above 10% per year, including an 18.5% profit in 2010.
The report also analyzes California nursing facilities and begins by examining their 2007-2010 profits. Profits over these four years doubled from $200 million to $400 million while facility spending on actual nursing services declined steadily.
The report concludes with policy options to improve the financial accountability of nursing homes. The first policy option is using a cost category reimbursement method for Medicare and Medicaid. This would require that nursing homes spend revenue according to set rates for categories such as nursing, therapy, administration, and profits. The report also considers a cost ceiling approach in which administrative and profits would be capped. The final option the report considers is the implementation of a Medical Loss Ratio (MLR), setting a minimum proportion of revenue that must be used on health care services, excluding administrative and profits.