The Impact of Medicare’s Payment Rates on the Volume of Services Provided by Skilled Nursing Facilities

Source: Congressional Budget Office Background Paper, Pub. No. 2761, July 2007

Rising costs in Medicare, Medicaid, and other federal health-related programs represent the central long-term fiscal challenge facing the nation. The Congressional Budget Office (CBO) is therefore increasingly focusing on analyzing the causes of those rising costs and potential policy responses.

Medicare’s spending under the fee-for-service portion of the program depends on the rates that Medicare pays to medical providers and the volume of services that medical providers supply to beneficiaries. The Congress has periodically limited growth in Medicare’s payments to providers to reduce spending. The effect on Medicare’s spending of changes in Medicare’s payment rates depends on whether and to what extent the volume of services adjusts in response.

In this background paper, CBO examines changes in the volume of services provided by skilled nursing facilities (SNFs) in response to changes in Medicare’s payment rates for SNFs. As with other CBO background papers, it is designed to make the agency’s analyses more transparent by explaining CBO’s methods and assumptions. In keeping with CBO’s mandate to provide objective, nonpartisan analysis, this paper makes no recommendations.

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