THEY’LL TAKE IT
After Earlier Cuts, Nursing Homes Could See Small Funding Uptick
By VITA REED
Nursing homes, which took it on the chin during the late-1990s federal budget battles, could get a drop of money back.
The Department of Health and Human Services’ Centers for Medicare and Medicaid Services is proposing a 2.9% inflation-tracking Medicare payment rise for nursing homes.
That breaks down to an average increase of $8 to $9 per patient daily starting Oct. 1.
That should add some $400 million nationwide to the industry’s coffers.
Orange County has 75 skilled nursing facilities, according to the California Department of Health Services.
Federal regulators also said late last month that they are looking at another 3.26% payment increase for nursing homes. The proposal is undergoing 60 days of public comments.
Medicare pays about 20% of total long-term health costs of a skilled nursing facility patient. The rest comes from either MediCal, private insurers or out of pocket.
Getting more federal money is “important,” said Rick Matros (photo), chief executive of Sun Healthcare Group Inc., an Irvine-based nursing home company.
“The industry would not be solvent without Medicare,Medicare really subsidizes MediCal,” he said. “You have positive margins on Medicare and negative margins on MediCal and Medicaid. California pays one of the worst rates in the country.”
Embattled Gov. Gray Davis has proposed $370 million in MediCal nursing home funding cuts as part of his bid to balance California’s budget.
California’s average Medicare skilled nursing payment rate was $311 a day in fiscal 2000, the latest data available. By contrast, MediCal pays around $118 per day.
Sun’s Matros said the 2.9% increase wouldn’t make up for a move by Congress last October not to extend some Medicare funding that was lost in 1997’s budget cuts.
In an earlier interview, he said Sun stood to lose some $37 million in revenue this year because of that. Overall, Sun gets about half of its revenue from Medicaid and MediCal, with the rest coming from Medicare, private insurance or cash.
Fountain View Inc., a Foothill Ranch nursing home operator, stands to get some $5.75 million in Medicare revenue if both proposals are accepted, according to Chief Executive Boyd Hendrickson.
“An additional $5 million would kind of cure the ill of October 2002,we ended up losing about, oh, $25 to $30 a day out of the Medicare rate,” he said. “It’ll be a partial recovery for the industry, if, in fact, they do the 2.9% and 3.26% (increases).”
Skilled-nursing facilities, which mainly get money from MediCal and private payers, often use Medicare to cover costs that aren’t covered by other sources.
About 65% of California’s skilled nursing revenue comes from MediCal, while around 10% is Medicare. Health maintenance organizations and private payers make up the rest, said Darryl Nixon, director of reimbursement for the California Association of Health Facilities, the state’s nursing home trade association.
Medicare pays for a maximum 100 days of long-term care after a patient’s hospitalized for three days. It is primarily for patients needing short-term rehabilitation.
MediCal, which gets federal matching funds, pays for about 80% of a patient’s long-term healthcare costs after eligibility rules are met.
Medicare, including the long-term function, spent about $25 billion in California and $236 billion nationwide in fiscal 2001. As for California, state regulators estimate that about $2.9 billion will be spent by MediCal for skilled nursing facilities.
Overall, the nursing home industry’s also being smacked by higher costs for workers’ compensation costs and liability insurance, Sun’s Matros said.
“Liability insurance’s gone up geometrically,” he said. “If that’s not curtailed, there will be a wave of insolvencies.”
The nursing home industry’s already been through an insolvency run.
Sun filed for bankruptcy reorganization in 1999, citing lost revenue on declining Medicare funding. The company recently emerged from that process.
Besides Sun, other big nursing home operators sought cover in bankruptcy court during the late-1990s, including Vencor Inc., now Louisville, Ky.-based Kindred Healthcare Inc., and Integrated Health Services Inc. of Sparks, Md.
Many in the industry blamed the Balanced Budget Act of 1997 and its healthcare spending cuts for their woes.
A General Accounting Office study rebuked that, saying the sector’s troubles stem from bad business decisions by nursing home chains.
Ultimately, Sun’s Matros said, he and others in the long-term care industry would like to see a financing mechanism to cover the cost of care that’s separate from Medicare and Medicaid.
“But that’s not going to happen,” he said.
Meanwhile, Sun’s cutting its holdings in California from about 70 facilities, mainly skilled-nursing ones, down to fewer than 20 by the end of the year.
Besides the MediCal rates, Matros cited liability insurance and workers’ compensation costs as reasons for the paring.
