It appears that the glory days of investing in skilled nursing facilities (SNF) are over. In a report from Avalere Health, profits for these facilities are predicted to flatline by 2014, only three short years from now. As a result of the 11.1% reduction in Medicare reimbursement rates, estimates show that the skilled-care nursing industry will experience a reduction in overall margins, declining from 4.4% to 0.4%.

More onerous, the report, financed by the Alliance for Quality Nursing Home Care (AQNHC), reveals that payment reduction as well as group therapy changes in FY 2012 will reduce margins from 3.8% to 0.

A new regulation from The Centers for Medicare & Medicaid Services (CMS) will trim payments for this health-care sector by $79 billion over the next decade. These cuts come at a time when SNFs are already reeling from deep reimbursement cuts for Medicaid beneficiaries, with states besieged with huge budgetary deficits.

According to Avalere CEO, Dan Mendelson, “In the long term, there is concurrence among policymakers that SNFs hold the key to better patient management and cost reduction, but in the short term, these pressures on Medicare and Medicaid rates will be exceedingly difficult to manage.”

Alan G. Rosenbloom, president of AQNHC, concurred, “By adding substantial changes in payment methodology for therapy services, CMS also crossed the line from over-correction [of past inadvertent provider overpayments] into real Medicare cuts.”

To the health-care investor, it is of vital importance to be vigilant as to the outcome of this fall’s Congress’ Joint Select Committee on Deficit Reduction, the so-called ‘Super Committee’, which has been given the arduous task of uncovering $1.2 billion in cuts to the federal budget over the next ten years. Additional Medicare cuts would, undoubtedly, be calamitous to nursing home patients, deleterious for caregiver employment and deleterious to SNFs, which provide high quality patient care in a reasonably-priced setting.