Nursing homes that participate in the federal Medicare or Medicaid programs are measured against a set of quality ratings, collectively referred to as the Five-Star Quality Rating. Established by the Center for Medicare & Medicaid Services (CMS) in December 2008, the Five-Star rating is an important tool for the facility itself to earn government reimbursements, insurance payments and patient referrals, and also for families researching nursing homes for their loved ones. There are changes on the horizon for how certain aspects of the Five-Star rating are reported and calculated, but first let’s recap the existing model.
Current rating system for nursing homes
Currently, there are three categories of measures that are rated individually on a scale of one to five stars, and then combined into an overall star rating for the facility.
- Health inspections: Ratings in this category are drawn from the number, scope and severity of deficiencies reported in the three most recent annual state inspection and the most recent 36 months of complaint surveys. The fewer deficiencies, the higher the star rating for this category.
- Nurse staffing: In this category, more Registered Nurse and overall nursing staff equals a higher star rating.
- Quality measures: This third category was based, until 2016, on the results of 11 distinct measures of quality reported using a standardized form. An example of one of these 11 quality measures is the percentage of residents falling one or more times with major injury.
New measures added to rating system
In recent years, several U.S. Senators, including Robert P. Casey, Jr. of Pennsylvania, began to question the methodology of the Five-Star Quality Rating System. Since then, several changes have been implemented to make the rating process more vigorous and dependable.
CMS added five new measures to the quality measures rating in July 2016, three of which are based on hospital Medicare claims. This is significant because the measures rely on data instead of self-reported information from nursing homes.
Another change expected as we move through 2017 is how the nurse staffing rating is calculated. Instead of the current self-reporting system, CMS intends to instead base this staffing rating on actual payroll data for the nursing home. This will enhance the nurse staffing rating by reflecting the level of staffing throughout the year, rather than what is currently being captured only at the time of the annual health inspection.
Financial and operational impact to facilities
Taken together, these changes will help improve the accuracy and reliability of the Five-Star Quality Rating, which is important to families selecting a nursing home and for hospitals and physicians referring patients. Beyond the reputational aspect, there are serious financial and operational impacts as well. As Pennsylvania transitions to a Managed Care model with Medicaid payments administered by insurance companies, it is expected that nursing homes rated beneath an overall three-star rating may not be eligible to contract with the insurer. If this is the case, a number of nursing homes throughout the Commonwealth may face significant financial challenges.
Families interested in reviewing current Five-Star Quality Ratings can visit the Nursing Home Compare website, where they can search by name or location, compare up to three facilities side by side and drill down into reported deficiencies.
The role of the Five-Star Quality Rating System will play an increasingly significant role in the financial success and sustainability of nursing homes, as the cost of caring for our aging population grows and places more demands on governmental support systems. With ratings potentially dictating which facilities will survive and which could be at risk of shutting down or being forced to merge with another provider, the move toward empirical, claims-based data instead of self-reported data will provide more assurance of accuracy and instill more confidence into the families, health care partners and government agencies that use it.
Contributed by James M. Spencer, CPA, MBA, Manager in RKL’s Senior Living Services Consulting Group. Jamie specializes in the preparation of financial models and analysis, including projections and forecasts, financial feasibility studies and transaction due diligence.