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Nursing home funding models

Published (3/23/2012)
By Sue Hegarty
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Ninety-two-year-old Christine Stone spends a lot of time visiting friends in Minnesota nursing homes.

“And I’ve been impressed that the care has been at the same level for all patients in all those nursing homes,” said Stone, a senior advocate from AARP.

She credits a Minnesota law that requires nursing home residents who pay privately for their care to pay the same rate as those on public assistance.

That would change under HF2374, which would allow nursing homes to increase rates 2 percent on private pay residents above those on public assistance.

Opponents of the bill fear those on public assistance would receive inferior treatment.

Driven to Tiers, a 2004 study published in the Milbank Quarterly, revealed that nursing homes create a two-tiered system of care, with residents on public assistance receiving worse care, according to Rick Varco, political director for SEIU Healthcare Minnesota, which represents 3,500 Minnesota nursing home employees.

“It’s wrong to treat residents unequally. This bill will lead to unequal treatment,” Varco said.

But nursing homes say they can’t afford to care for residents at the rates paid by Medicare and Medicaid. Every day, they are providing care at a deficit of $28 per resident, according to Aging Services of Minnesota. The Department of Human Services acknowledges there is a problem.

Rep. Steve Gottwalt (R-St. Cloud) supports the bill, saying, “We’re forcing everybody to pay below cost. If you’re a business, you can’t do that.”

Park River Estates Care Center, a 99-bed facility in Coon Rapids, provides daily care at a cost of $194 per resident, but is reimbursed at $164, according to Administrator Thomas Pollock. His staff has not had raises in four years and he’s had to increase the deductibles on employee benefits.

Rep. Mary Kiffmeyer (R-Big Lake), who sponsors the bill, said “Our nursing homes and long-term care facilities are very challenged in this environment.”

The provision was in the omnibus health and human services bill that was vetoed by the governor last year. Sen. David Hann (R-Eden Prairie) sponsors the companion, SF1948. Both bills await action by their respective full legislative bodies.

Fair share or penalty

The bill won’t cost the state any more, but opponents say it’s a tax on private-pay residents.

“My husband and I lived frugally our whole lives. I would like to be able to pay my own care if I should need it, but when you allow nursing homes to charge me more, I worry that my money will not last as long, and then maybe I, too, will end up on Medicaid. Should I be penalized for living frugally and saving money?” Stone said.

AARP also opposes the bill.

“This proposal will force nursing home residents who pay their own way to pay more, resulting in a significant cost shift,” said Michele Kimball, AARP senior state director.

The objective may, in fact, backfire.

“Increasing costs to private-pay residents means they spend down faster and become eligible for Medical Assistance sooner,” Kimball said.

Others say the bill is a solution devised in the seven-county Twin Cities metropolitan area but isn’t supported by many Greater Minnesota nursing homes.

“We’re all in need of funding, but the Legislature is missing the point — that they have the responsibility to finance nursing homes but they shouldn’t do it on the backs of private-pay residents,” said Phil Lord, administrator of Belgrade Nursing Home. Using his facility as an example, he said a private pay resident could see rates increase $5,361 within four years if the bill passes.

Minnesota ranks 21st among states in private pay nursing home affordability. As the cost of care rises, rates have stayed the same, along with employee salaries and benefits. Some facilities have reduced or eliminated benefits, said Kari Thurlow, vice president of advocacy for Aging Services of Minnesota. That directly impacts the level of care.

Some nursing homes have remained open because they were able to maximize their federal Medicare payments. “That’s not a viable option any longer,” Thurlow said. The Centers for Medicaid and Medicare Services decreased Medicare rates to nursing homes by 11 percent last October, adding to the problem.

Of all the models for elder care, such as assisted living centers, hospital care centers and group housing, nursing homes are the only model required to charge equal rates. They have adapted to the federal cuts and frozen state rates by diversifying their operations and spending down their reserves.

“There’s no hidden revenue here. They’re running out of options,” Thurlow said.

Kiffmeyer worked her way through nursing school by working in a nursing home.

“This at least fixes the private-pay side,” she said.

But Rep. Patti Fritz (DFL-Faribault), a nursing home nurse for 41 years, doesn’t think raising rates on some residents is the right solution. “This tiny bit of money is not going to solve this,” she said.

Nursing home sustainability

Not all nursing homes appear to be created equal, however. For-profit nursing homes generally do better than not-for-profit or government run facilities, according to Greg Tabelle, audit director with the Department of Human Services.

“If you’re in the business for profit, then you’re more motivated to make a profit. Their costs are lower and they watch their expenses better,” Tabelle said.

There also are a few allowances for charging private payees more, such as a private room upgrade.

Pollock estimated that at his facility, $164 per day represents a $6.83 per hour reimbursement based on a 24-hour period.

North Dakota is the only other state that requires equal rates at nursing homes, but it has a higher Medicaid rate than Minnesota.

“It’s not a problem because they cover our costs,” said Robert Dahl, CEO of Elim Care, which operates nursing homes in Minnesota, North Dakota and Iowa. “In Minnesota, reimbursement has not kept pace. The policy can work and it was intended to work well, but that requires a state to keep up with costs.”

Elim Care’s Iowa nursing homes charge private pay residents “what the market will bear,” Dahl said.

Rep. Erin Murphy (DFL-St. Paul) said the debate is too focused on not meeting costs. She wants someone to show her what those costs are. “Some of the nursing homes in this state are profitable. Others are struggling. I’m not sure this is the right solution. I’m trying to figure that out.”

Then there are clients who maybe could afford to pay more, but they default to hiding or spending off their assets to go on Medical Assistance.

“Many people will feel justified transferring their assets if they feel like they’re going to be picking up not only the cost of their care but the underpayment of government,” said Rep. Diane Loeffler (DFL-Mpls). She thinks a better solution would be to find a way for government to adequately fund nursing homes.

While DFLers on the committee said government needs to sufficiently fund nursing homes, Republican members argued that the current model is not sustainable.

“We get more and more people on a program that we can less and less afford,” said Gottwalt. “We have created perverse incentives in this society for people not to do for themselves and rely on public programs. If you have the resources to pay for your care, we’d like you to do that because Medical Assistance funding should be saved for the people who absolutely can’t afford it.”

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