Jan. 1, 1999, was the day of reckoning for the nation's nursing homes. That was when most had to switch to the new Medicare prospective payment system for skilled-nursing care.
The new payment system, mandated by Congress in 1997, is a bid to shave $9.5 billion from Medicare spending on skilled nursing by 2002.
Under the system, facilities are paid a flat daily rate per patient. The rate is adjusted according to the patient's projected utilization of medical resources. Under the previous system, skilled-nursing facilities were reimbursed for the cost of services provided.
The specter of the PPS has already forced some nursing home companies to tighten their belts by cutting pay and laying off therapists and other staff.
The reimbursement change may spark a flurry of consolidation. Smaller nursing home operators, weighed down by the changes required by the PPS, may be forced to sell to larger corporations.
Industry watchers also say privatization is possible. The acquisition of Centennial Health by a New York investment firm last October might have begun a trend. With the PPS threatening short-term profits, it's not surprising that some nursing home chains would draw a curtain of privacy around earnings.
Home health agencies this year will continue to labor under Medicare's interim payment system, another 1997 congressional mandate. Industry watchers expect continued closures, and large integrated health systems will continue to sell unprofitable home nursing operations.
The interim payment system is HCFA's transitional device to keep home-care costs down while the agency designs a permanent fix. But because HCFA is committing so much time and so many resources to its year-2000 computer problems, the IPS is expected to remain in effect until well into 2000. Home health agencies say the plan's low reimbursement schedule and lack of risk adjustments are squeezing them dry.
Ann Howard, who heads the American Federation of Home Health Agencies, predicts that half the nation's 9,700 agencies will close in 1999 unless the reimbursement system is changed substantially.
In the meantime, home-care agencies will try to diversify, predicts Michael Kulczycki, executive director of the Illinois Homecare Council.