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2017: The Year of Deregulation for the Skilled Nursing Industry

On Christmas Eve, the New York Times published an article describing measures the Centers for Medicare and Medicaid (CMS) took during 2017 to reduce fines levied against skilled nursing properties. The skilled nursing industry may view this change as a welcome respite from real or perceived government over-regulation, especially in an era of downward pressure on occupancy and constrained budgets. Nursing home resident advocates, on the other hand, may view this move as an affront to resident safety. Deregulation remains a top priority for President Trump, and therefore efforts to reduce penalties for nursing homes should not come as a surprise.

Jordan Rau, author of the Times’ expose, cites several memos from CMS in his analysis of fewer and less severe fines for skilled nursing providers. The first was released in July, 2017. The memo explains revisions to the analytic tool used by CMS Regional Offices to determine the Civil Monetary Penalty (CMP) to be imposed on a nursing home found to be in violation of federal regulations. The impetus for the revisions, according to the CMS memo, is to reduce variation across facilities. The most impactful change resulting from this new guidance is the limitation of daily fines, which may now only be imposed on nursing homes if the violation is discovered during an active survey, which occurs about once per year. Violations occurring prior to the survey visit would only result in a one-time fine. Both daily and per instance fines “are intended to promote a swift return to substantial compliance for a sustained period of time, preventing future noncompliance,” the memo states.

The second set of guidelines issues by CMS came in October, 2017. This memo makes explicit revisions to the State Operations Manual, which instructs officers on the imposition of CMPs and other remedies for nursing homes found to be in violation of federal regulations. The revision to the manual reiterates the guidance in the July memo, stating: This guidance does not apply to past noncompliance deficiencies […]. The determination to impose federal remedies for past noncompliance is at the discretion of the CMS Regional Office. The gist of the revisions is to discourage the imposition of fines on nursing homes where a violation appears to be a one-time offense, rather than an on-going problem.

The final memo issues in 2017 delays the enforcement of violations related to Phase 2 requirements. Properties found to be noncompliant with certain regulations related to the updated Requirements for Participation rules issued in 2016 will not be fined for 18 months. The regulations remain in place and surveyors are instructed to note citations, but fines will not be imposed. Furthermore, facilities’ five-star scores will not be impacted by violations on the survey that occur between November 2017 and November 2018. Again, violations will be reported, but the five-star score will not be adjusted as a result of those violations.

These measures to deregulate the skilled nursing industry may be a welcome respite for operators. Indeed, David Gifford, senior vice president for quality for the American Health Care Association, said, “What was happening is you were seeing massive fines accumulating because they were applying them on a per-day basis retrospectively.” In March, AHCA wrote in a letter to then-Secretary of Health and Human Services Tom Price, “The use of CMPs is out of control.” AHCA contends that a financial penalty should not be used as a punishment but as a corrective measure, which the July memo apparently agrees with. A recent example of how steep penalties can be occurred in Pennsylvania, where a single facility was fined almost $800,000 in a single year for two major violations.

Not unexpectedly, many advocates for nursing home residents have expressed disappointment in this rollback of regulations. Following the New York Times article, opinion pieces cropped up in Mother Jones, Bustle, and the Minnesota Star Tribune expressing opposition to deregulation of the nursing home industry. Even former CMS administrator Andy Slavitt tweeted about his opposing view, citing the Times article. The timing of the article, published on the day after Christmas, may have served to limit the amount of public backlash to which nursing homes are often subject in the news.

The bottom line for operators is that they can expect to face fewer financial penalties this year than in previous years for violations on the survey. Five-star scores could still change, but will not change as a result of violations for the new regulations from Phase 2 of the Requirements of Participation. At a time when consistent downwardz pressure on occupancy continues to plague nursing home operators (see NIC’s 3Q2017 Skilled Nursing Data Report), a reduction in fines may be welcome. Providers will likely continue to focus on improving quality, as other levers reinforce the importance of quality.  This includes competition for managed Medicare contracts and benefits for 3-star-and-above facilities. Because the Trump administration has been rolling back regulations across the federal government and CMS Director Seema Verma’s background in drafting CMS waivers and expressed interest in giving states more flexibility, even more federal measures to deregulate the industry could occur in 2018.


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