[ENSG, PACS, SBRA, OHI]: Potential Timing of the Nursing Home Staffing Rule’s Demise
With the briefing in a federal lawsuit having concluded and Congress on the hunt for legislative savings, the question is when, not if, CMS’s minimum nurse staffing rule is killed, eliminating the overhang and potential cost burden for nursing homes [ENSG, PACS, privately held Providence] and post-acute care REITs [SBRA, OHI, LTC, CTRE]. We suspect resolution in the industry’s favor within the next 2-3 months. While we have long thought [here, here] that, under a GOP trifecta, Congress would likely repeal the rule, the courts remain a viable alternative for elimination.
Nursing homes and PAC REITs nevertheless remain at risk due to the congressional crosshairs on Medicaid. Despite President Trump’s vow to “love and cherish” this program for the poor, reforms are likely to serve as budget offsets for an extension of expiring tax cuts (e.g., work requirements, federal contribution cuts, provider tax limits, per-capita caps, etc.). While these do not target nursing homes directly, pressures on state financing could lead to payment cuts / freezes, reduced enrollment, and narrowed coverage of nursing home services.
Federal Lawsuit: AHCA v. Becerra
- We think Judge Matthew Kacsmaryk of the US District Court for the Northern District of Texas, a Trump appointee, is likely to side with the American Health Care Association (AHCA) – the nursing home lobby – and vacate the 24/7 requirement for registered nurses (RNs) and the minimum hours-per-resident-day requirements for total staffing, RNs and nursing aides.
- A ruling on the motion for summary judgment could occur within the next 2-3 months, if not sooner, should the judge decide not to hold oral arguments and purely rule on the briefings.
- The final briefings of the motion for summary judgment were filed January 17, and there is not yet any indication of a hearing being scheduled. While that can still be done at any time, the more time that elapses without a hearing being scheduled the more likely it is that a judge will rule on the briefings.
- Judge Kacsmaryk is said to be a conservative / textualist regarding statutory interpretation, and he is known not to shy away from controversial issues or nationwide “remedies” like vacating federal rules. As such, we see him as sympathetic to industry arguments that CMS failed to heed the statute’s text and instead relied on more general authority to impose stringent staffing requirements, while also violating the “major questions” doctrine with no clear congressional directive.
Should a ruling come in the next 1-2 months, however, we should note that it would likely deprive Congress of the estimated $22B in 10-year savings that could otherwise be used for a mid-March healthcare extenders package or extension of the Trump tax cuts. It is unclear to what extent Congress could book those savings if the rule’s vacatur is under appeal, which is itself a dubious prospect under following the change in administration.
Legislative Repeal of Nurse Minimum Staffing Requirements
- Following November’s GOP sweep, we have thought CMS’s nurse minimum staffing rule is not long for this world given Republican (and some Democratic) opposition and the $22B in offsets it could provide for other priorities.
- Recall that House Republicans included repeal in its circulated list of savings options, and senators asked HHS nominee Robert F. Kennedy Jr. about his support for eliminating this rule, bolstering our view.
- With government funding set to expire on March 15, a healthcare “extenders” package at that time will likely be the first available legislative vehicle, which we think is also likely to resurrect several other items that were abandoned from the December continuing resolution (e.g., PBM reforms).
- Alternatively, repeal could be added to a reconciliation / tax cut package, but Republicans have yet to coalesce around their strategy on those issues (i.e., one bill versus two), which will affect the substance and timing of what can be included.
- If a single bill approach is adopted – encompassing immigration, border, defense, energy, and taxes – the timing for action is likely much later this year, given the difficulties we suspect the GOP will have in reaching unanimity.
- If these efforts are separated into two distinct reconciliation bills, however, repeal of the nursing home rule could either be added to the initial tranche (immigration, border, defense, and energy), with enactment likely in 1H25, or paired with other healthcare savings to offset extension of the Trump tax cuts, where we think enactment is unlikely before Q4.