August 14, 2023

The True Cost of Employee Turnover Might Cost Skilled Nursing Facilities Even More

By Scott Manson, CPA, Managing Director, Advisory Services

The True Cost of Employee Turnover Might Cost Skilled Nursing Facilities Even More Senior Living Services

The Centers for Medicare and Medicaid Services (CMS) released its Prospective Payment System and Consolidated Billing Skilled Nursing Facilities (SNF) Final Rule for Federal Fiscal Year 2024. The rates effective for service dates from October 1, 2023, through September 30, 2024 (FY2024) include an overall 4.0% increase from the prior period rates, included in this are a 3.0% estimated market basket increase, FY2022 3.6% market basket forecast adjustment, less a 0.2% productivity adjustment, and less an approximate 2.3% parity adjustment.

Very few SNFs can expect to receive an exact 4.0% Medicare increase from the prior year because of the complexity of the rate formula. In FY 2024, even more of the base rates are subject to geographical wage index adjustments than the prior year. As labor costs become a larger part of operating a SNF, the geographical adjustment has increased to 71.1% of the base rate.

Most skilled nursing operators know that Medicare rates and wage indices are beyond their immediate control. Sometimes the smaller yet controllable items can be the difference between operating at a profit or a loss. This is where Medicare’s Value-Based Purchasing (VBP) reemerges.

According to CMS, a recent 2019 study comparing nursing homes annualized turnover rates with the overall five-star ratings for the facilities found that the average total nursing staff annual turnover rates were 53.4 percent among one-star nursing homes and 40.7 percent for five-star facilities. The same study found a statistically significant relationship between higher turnover rates and lower performance on clinical quality measures, including hospitalization rates, readmission rates, and emergency department visits.

CMS is finalizing the use of Nursing Staff Turnover as a performance measure used in calculating its VBP adjustment for FY2026 rates. The year 2026 seems like a long way off, but SNFs are already submitting the data that will go into the calculation through the Payroll-Based Journal. Each employee already has a unique identifier and the daily hours worked are collected. With some exceptions, when an employee goes 60 days without working during the period October 1, 2023, through September 30, 2024 (the performance period), then employee turnover has occurred. The baseline period for employee turnover measurement was October 1, 2021, through September 30, 2022, and has already passed.

Employee turnover will factor into the VBP adjustment applied to each facility rate for the FY2026 program year. Similar to other VBP calculations, the achievement or improvement score will be used to rank facilities from lowest to highest. The higher-ranking facilities will receive an increase in their base rates, and the lower receive a decrease. Most SNFs know that employee turnover results in additional hiring, onboarding, and training costs and effects quality. It will now also affect Medicare reimbursement in FY2026. Other measures are also included in VBP that affect reimbursement in the current year and going forward.

The VBP adjustment is also called the Incentive Payment Multiplier (IPM). Each facility receives its own IPM. The facility-specific IPM has been on hold for the last two years due to COVID. When margins are thin, the IPM can be the controllable item that makes the difference between profit, break-even, or loss.

Medicare SNF reimbursement will be adjusted up or down again by the IPM, beginning with service dates on October 1, 2023. This IPM is based on the SNF 30-Day All-Cause Readmission Measure. Do you know your SNF’s IPM? On August 1, 2023, CMS announced that the facility-specific IPMs are available for download via the Internet Quality Improvement and Evaluation System (iQIES). SNFs should know this number because it will affect their reimbursement and budgets. Since it is facility-specific, not entering it in the billing software properly will also cause reconciling issues later.

CMS has recognized nursing staff turnover as a quality issue, and it will affect future reimbursement. SNFs will need to start planning quickly as the measurement period begins soon. Download the Medicare SNF rate calculator, and contact your Marcum adviser if you have questions on the Incentive Payment Multiplier.

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