Cost Tracking for Nursing Homes

By Morrone, Anthony L.; Smoller, Jill | The CPA Journal, August 2003 | Go to article overview

Cost Tracking for Nursing Homes


Morrone, Anthony L., Smoller, Jill, The CPA Journal


Numerous changes in the economic environment, technology, and business practices have created a host of new conditions and problems for nursing home operators to manage. Not the least of their problems is the propensity to cling to obsolete ways of accounting. There are numerous reasons for nursing home operators to adopt new approaches to their costing problems.

Dramatic Changes

Care in nursing homes has broadened to include sub-acute admissions, shorter-stay residents, and altered staffing patterns. Registered muse staffing, as well as nursing hours per patient day, has increased in some cases to accommodate heavier-care residents. Nursing home operators have had to adapt to a new language, new definitions, and new documentation requirements, such as RUG III (resource utilization group), Prospective Payment System (PPS), and MDS 2.0 (cost reimbursement system).

All the disciplines involved assume greater burdens as a result of shorter stays and higher discharge rates. Shortened lengths of stay not only affect the nursing and rehabilitation departments, but they also create new burdens for the bookkeeping, dietary, social services, admission, administration, and housekeeping services. For example, drug costs per patient, once a stable and predictable cost, have skyrocketed dramatically as a result of short stays and sub-acute admissions. In addition, facilities used to be comfortable with a 99% occupancy rate; now they must handle 92% occupancy. This decrease in occupancy, coupled with fixed labor costs, increases the cost of care per unit.

Business Process Management

Managing such change requires not only acceptance by the operators of facilities, but also the cooperation and teamwork of all the disciplines. The accurate, timely, and consistent completion of the MDS 2.0 system requires a strong working relationship between the clinical and finance disciplines. This simple tool is vital to the legitimate reimbursement for a facility.

Not only is it essential to capture information on MDS correctly for proper reimbursement, it is equally important to consciously make decisions, as a team, about admissions. Creating an admission selection process based on clinical needs, drug costs, and necessary staffing patterns is a mechanism for dealing with change. Once a resident is admitted to a facility, all disciplines need to work cohesively. PPS demands the maintenance or betterment of outcomes while containing the cost.

Lingering Effects

Twenty-five years ago, New York nursing home managers were concerned solely with spending models. Nursing homes were reimbursed on a "spend it to get it" basis (within the constraints of a ceiling limitation) for Medicaid and Medicare. This is no longer the case.

Under Medicare PPS, payment price rates are all-inclusive, so facilities will not receive additional reimbursement if utilization exceeds the set amount built into the per diem payment rates. If costs grow faster than the per diem prices, surplus margins decrease or losses increase. Since there is no rebasing, these diminished margins or higher losses cannot be recovered in future years.

New York nursing homes used to be reimbursed by Medicaid and Medicare on an "average" cost basis. All allowable patient care costs (for all types of nursing home programs) were added together (without regard to payer source), divided by total days, and reimbursed on an average cost basis (except for Medicare ancillary costs, which were reimbursed on utilization of care given).

A nursing home today cannot rely exclusively on average costs. Residents admitted today are different from the past. Patient acuity has increased significantly. Discharges from hospitals to nursing homes for patients less than one week from post-operating care are now the norm. Nursing homes perform complex wound care and extensive IV therapy, along with a myriad of other technologically advanced services once provided only in acute care settings.

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