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Nursing Homes Receive Medicare Pay Raise for 2021

Published August 24, 2020

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Help is on the way for nursing homes.

The Centers for Medicare and Medicaid Services (CMS) announced July 31 that it will grant a 2.2 percent pay increase to nursing homes for fiscal year 2021, which begins Oct. 1.

That boost amounts to an additional $750 million and is in line with the 2.3 percent payment hike that was originally proposed by CMS on April 10, which would have totaled around $784 million. 

Equipment and care cost increases hitting nursing homes

The pay raise comes as a result of hefty cost increases for equipment and extra staffing needed to combat the COVID-19 pandemic. The finalized payment rule will also update the ways that certain billing codes are reimbursed under the Patient-Driven Payment Model (PDPM), which is the new Medicare payment system that went into effect for fiscal year 2020. 

Also in the rule is a 5 percent cap on wage index decreases, along with an updated definition of “urban” and “rural” facility classifications. 

The new rule also makes minor changes to the Value-Based Purchasing (VBP) program, for which providers automatically lose 2 percent of their Medicare reimbursements and are then given the opportunity to win them (and potentially more) back by meeting certain benchmarks. 

Approved Medicare pay increase is separate from federal coronavirus relief funds

Although the pay increase is largely a response to the added strain nursing homes have faced during the novel coronavirus pandemic, it remains separate from any financial support provided to nursing homes as part of recent congressional coronavirus aid packages and relief funds. 

Skilled nursing facilities are typically profitable on fee-for-service Medicare reimbursements, having recorded a 10.3 percent margin in 2018 (the most recent year for available data). However, those gains are often offset by long stays of Medicaid patients and other factors that resulted in an average total margin of -0.3 percent in 2018. That marked the first time since 1999 that the margin has been reported to be in the red. 

Learn more about how Medicare is responding to the coronavirus pandemic and the health care issues it is causing.