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Minnesota falls short on Medicaid for nursing homes

Minnesota’s long-term care facilities face a substantial gap between the rates paid by Medicaid for nursing home residents and the actual cost of providing care. This shortfall is not unique to Minnesota, but we struggle with a higher shortfall than most states. The national average shortfall between Medicaid reimbursement and actual cost of care is $12.48 per Medicaid patient per day, but Minnesota’s shortfall is almost double at $23.26. If that number sounds fairly reasonable, perhaps the total will make more of an impression — for 2008 the estimated total was $156 billion.

Medicaid clients make up more than 60 percent of total residents in Minnesota nursing homes. To add insult to injury, Minnesota has failed to adjust Medicaid payment rates in the last 14 years. As a result, Minnesota nursing homes are only able to cover 85.65 percent of actual cost. A healthy Medicaid system should have 95 percent cost coverage, but due to Minnesota’s unique policy of limiting the rates charged to private residents so they compare with Medicaid rates, Minnesota needs a cost coverage level of 97 percent  to ensure sound fiscal health.

If we compare Minnesota with some of our neighbors we see that we are at about the same level as Wisconsin, at $26.43 shortfall per Medicaid patient day. Iowa has a substantially smaller shortfall at $9.06, while North Dakota has a surplus $1.26 per Medicaid patient day.

Particularly dire in northwest area of state
Statewide, the reimbursement gap has caused 28 percent of all nursing facilities to suffer operating margins of negative 5 percent or more, effectively putting them at risk of closure. If these nursing homes close, the state would lose 112 of its 400 (as of May 2008) licensed nursing home facilities. The situation is particularly dire in the northwest area of the state, where more than half of the nursing homes are at risk of closure.  And since 2000 there have been 56 nursing facility closures statewide due to lack of funds and declining resident numbers.

The only reason many of these nursing homes are still in operation is because of the cross-subsidization of the deficit, making use of the positive Medicare operating margin to cover nursing home shortfalls. Additionally, facilities have had to reduce or eliminate benefits to their employees, reduce direct care staff hours and lay off staff. Three Links Care Center in Northfield has already reduced hourly full time positions from 80 hours per pay period to 75 hours, and eliminated matching funds to the retirement plan to cut costs.

The use of cross-subsidization with Medicare has helped Minnesota’s nursing homes stay economically afloat, but as of Oct 1, 2009, it was determined that Medicare payments to Skilled Nursing Facilities will decrease by about $360 million for fiscal year 2010, or about $6 per patient day. Additionally, there are currently two bills in the house and senate aiming to reduce Medicare to nursing facilities significantly over the next 10 years. It is unclear what this will do to the nursing homes’ ability to continue cross-subsidizing Medicaid with Medicare, but it will likely lead to increased cuts in staff hours, staff benefits and pay as a way to control costs.

The current demand for jobs has allowed places like Three Links to employ adequate numbers of caregivers, but the concern is that once the economy recovers they will no longer be able to retain and attract quality staff. But what is perhaps the most concerning consequence of cost cutting and tightening the proverbial belt is that as job satisfaction for employees diminishes, those likely to pay the highest cost are the residents.

“Almost every caregiver will tell you that they come back to this job day after day, not because they are earning high wages or receive great recognition for their work. They come back in spite of the hard physical and emotional work because they feel they are making a difference in the life of each resident they serve,” says Patricia Vincent with Three Links. With less time for employees to spend with each resident, many feel they can’t get to know the people they serve and are unable to provide the “something extra” they used to, making their jobs more draining and difficult.

Employees’ lives very difficult
Vincent explains that “there is a desperate sense” for many of her staff as they try to make ends meet. More employees are working two jobs, and they have dropped their health insurance as they no longer feel they can afford the premium. Many are unable to contribute to their retirement programs, and some have even taken out loans on their retirement or withdrawn funds as a last resort to pay the bills.

The 2007 report to the Minnesota Legislature emphasized the looming shift in the state’s demographic make up, as the 65+ age group is predicted to grow at a 40 percent rate, versus 5 percent for the 25-64 age group. Without considering the possible closures due to financial constraints, the report found that Minnesota is likely to have a shortage of nursing home beds by 2010 in a worst case scenario, or 2015 in a best case scenario. 

Greg Arling of Indiana University conducted a study of Minnesota’s nursing homes in 2008 and found that the most prevalent condition at admission was Alzheimer’s or other forms of dementia, depression, behavioral problems, incontinence, diabetes, cancer and hip fractures. Additionally, longer-stay residents (91-179 days, 180+ days) are more likely than short-stay residents (14-89 days) to receive Medicaid and have dementia or greater cognitive impairment.

It is our most vulnerable elderly and those with the greatest need for care, along with those who work hard to provide this care, who suffer the consequences of the persistent shortfall in Medicaid reimbursement. Our state must take action to ensure the resources are available to provide elderly Minnesotans — our grandparents, our parents, our neighbors, our friends — with a quality place to live in their final years and qualified caregivers who earn enough money to fully devote their time and energy into their jobs and our loved ones.

Nina Slupphaug is a health care policy associate at Minnesota 2020, a nonpartisan progressive think tank based in St. Paul. This article originally appeared on the organization’s website.

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Comments (7)

  1. Submitted by Doug Beardsley on 11/13/2009 - 08:45 am.

    Great Article Nina…I appreciate that you took the time to get the facts correct about how Minnesota’s nursing homes are paid.

    Losing community nursing homes due to the current underfunding of Medicaid will be yet one more strike against the ability for rural towns to be able to care for the residents in their communities. A rural nursing home closure frequently closes the 1st or 2nd largest employer in the town, eliminates a source of community property taxes (for those facilities that are for-profit), eliminates a significant purchaser of local products, and…forces those who need care to leave their community.

    Solutions are not simple, but they are possible. The legislature (and our Governor) could properly fund Medicaid to pay the actual expenses it takes to care for the frail elderly….step up to the plate! If they continue to ignore the needs of our state’s elderly by not properly funding care, they could at least permit private pay residents to make up the difference between the Medicaid rate and the actual cost of care.

    Minnesota has historically been known for quality health care and a good social conscience. The Legislature and our current Governor have managed to slide backwards on both issues.

    If your mother or father needs a nursing home, will one be available, and if so, will it be funded at a level permitting them to provide quality, person-centered health care?

  2. Submitted by Thomas Swift on 11/13/2009 - 09:30 am.

    Wow; Medicaid is some great stuff, eh? We should expand it and enroll everyone in the country!

  3. Submitted by Richard Schulze on 11/13/2009 - 09:47 am.

    I’m with Mr. Swift, put all the “old folks” on an ice flow and let em drift out to sea. (serious snark) Every man for himself….

  4. Submitted by Thomas Swift on 11/13/2009 - 10:02 am.


    When we’re all signed up and secure under the government’s wing, by how much will Medicare underfund the ice plant?

    Will the elderly have to make due with a few, rapidly melting cocktail cubes?

  5. Submitted by myles spicer on 11/13/2009 - 10:56 am.

    Well, Mr Swift, it has often been said “a nation can be judged by how it supports it most needy citizens”. So it will be with America.

    Having public subsidy for nursing home care is common throughout the globe — and failure for our country to do this harks right back to health care reform and our reluctance to provide health, caring, and wellness for all citizens…ESPECIALLY those from “the Greatest Generation” who gave so much to our country in so many ways.

    The alternatives to offering either nursing home care or professional home care to those who are poor and ill is (to quote)…”don’t get sick, and if sick, die quickly”

  6. Submitted by Eric Schubert on 11/13/2009 - 01:56 pm.

    The entire State of Minnesota (not just the senior services profession of which I’m a part of) needs to take a leadership role in creating a new way to fund senior services. The current system . . . actually there is no system . . . is completely unprepared at a time more people need services and we find ourselves in the age wave.

    Most Minnesotans put no money aside for long-term services. They think Medicare will pay for Alzheimer’s care or extensive home services. And, then they find out – usually in crisis mode – that Medicare doesn’t pay for such services. Then they get another shock when they spend all their assets – learning that pretty much their only option for care and shelter through Medicaid is an institutional nursing home. There has to be a better way.

    If you want to be part of shaping a Minnesota solution, call the Citizens League, which has a whole bunch of people from a variety of areas – disability community, consumer groups, senior services, business, insurers, private citizens,etc., addressing this in a work group.

    This isn’t a partisan issue. It’s an every-Minnesotan issue. And it’s all about life quality and the state’s fiscal health.

    P.S. This summer I emailed every declared candidate for governor, asking them to include the age wave on their web site. I heard from only 3 candidates.

    1.One emailed back hand-wringing, saying “we don’t have any money.” (Hello . . . . That’s the point . . . that’s what we need to fix.)

    2. One had a staffer send a polite “Dear Jane . .. we received your email.”

    3. Paul Thissen did a video on it and has made the Aging of Minnesota one of his top priorities.

    Interesting responses from people who want to lead this state.

    Eric Schubert
    Vice President

  7. Submitted by Bob St Pierre on 11/14/2009 - 04:20 pm.

    Am I the only one to notice that the $156 Billion is obscenely exaggerated?

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