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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.

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.