Shift in services leads to crisis for Minnesota's nursing homes

ST. PAUL -- Gone is the era when most recently retired folks lived out their declining years in nursing homes. These days, many older Minnesotans remain at home until the end of their lives.

ST. PAUL -- Gone is the era when most recently retired folks lived out their declining years in nursing homes. These days, many older Minnesotans remain at home until the end of their lives.

When senior citizens do head to a nursing home, they often need acute, short-term care, with the vast majority staying just days or weeks, not years.

While this shift in services may be a positive development for seniors who are healthier than ever before, the impact on nursing homes has been financially disastrous.

Three out of 10 Minnesota nursing homes are in a financial crisis, according to the Long-Term Care Imperative, a coalition of trade organizations.

Some say the industry is on the verge of collapse.


"We're losing over $1 million a year in our nursing home," said Chuck Hofius, chief executive officer for Perham Memorial Hospital and Home.

Hofius said that despite the fact that the 96 beds in his home are always full, government reimbursement rates have not kept up with rising costs of providing the high turnover, acute care.

"For every resident we admit, we lose $25 a day per person," Hofius said. "We can't charge more than the state is willing to pay. So we have to sell care at a loss."

Hofius' laments are nearly universal in the nursing home industry, particularly for homes in rural areas that typically are reimbursed at a lower rate than those in metro areas.

Nursing home administrators blame the current financial crisis in part on a state law capping the amount homes can charge patients.

Minnesota and North Dakota are the only states with so-called "rate equalization" laws for nursing homes. Minnesota's law went into effect in 1976 to prevent discrimination against Medicaid patients.

Rate equalization means a nursing home can only charge a patient Medicaid reimbursement rates, regardless of a patient's ability to pay.

"The world has changed a lot since 1976," said Gayle Kvenvold, president and chief executive officer of Minnesota Health and Housing Alliance, a member of the Long-Term Care Initiative.


The current average Medicaid daily reimbursement rate is $148, but Kvenvold said the actual cost of care averages $173 a day, leaving a $25 gap that many homes are unable to fill.

Additionally, a recent national study of 38 states, sponsored by the American Health Care Association, shows that Minnesota is falling behind when it comes to reimbursements to nursing homes. It ranks Minnesota as the state with the fourth largest shortfall between Medicaid reimbursements and allowable Medicaid costs.

Data provided by the Long-Term Care Initiative shows that nursing homes in northern Minnesota are in particularly bad shape financially.

Care Providers of Minnesota President and CEO Patti Cullen said there are three reasons why a higher percentage of northern facilities are facing financial hardship compared to the southern part of the state.

"Northern Minnesota has become less populated," Cullen said. "So there's a decline in nursing home occupancy. Also there are fewer facilities, and many rural nursing homes are attached to hospitals, which research shows puts an even greater strain on nursing home finances."

Some Minnesota homes appear to be in immediate danger.

"I've had conversations with three of our members who are looking at closure or sale of their care centers," Kvenvold said. "They're in that hard place of no longer being able to sustain their organization under current financial conditions."

Nursing home administrators say the gap is exacerbated by increased costs for heating, lighting, food and transportation. Hiring and retaining qualified nursing staff also are significant costs for nursing homes. Kvenvold said almost 23,000 jobs are at risk due to the financial crisis.


John Sewick, who runs the Good Samaritan Society nursing home in Pelican Rapids, said up to 75 percent of his costs go to staffing.

"I've been here almost eight years," Sewick said. "I know the staff and their families. Sometimes to my dismay, I have to make decisions that impact their lives."

Sewick said because his home operates on a thin margin, he regularly loses staff because he can't afford to give them the raises they deserve. He said that while nursing assistants are reluctant to leave, they usually can find higher paid work in a hospital or an assisted living facility, which are not subject to the same reimbursement caps. Sewick said he lost an employee to McDonald's.

The majority of revenue in any nursing home, metro or rural, goes to staff salaries. Sewick said 75 percent of his costs go to staffing.

Despite the state's projected $935 million deficit, the Legislature is considering some relief to the state's 400-some nursing homes.

Nursing homes are "a very tough business to be in," said Rep. Tom Huntley, DFL-Duluth. "We have not given them the kind of raises in the daily rate for their patients that we should have over the last 10 years."

Last year, lawmakers passed a law to start a process called rebasing, which is a step toward closing the reimbursement gap. Any increases to the rate will be phased in over eight years. The last time the state went through the rebasing process was in 1998.

Additionally this year, the House is advocating for a 2 percent cost-of-living increase for nursing home employees.


"That's a little bit of a catch up, but not enough to make them financially strong," Rep. Dean Simpson, R-Perham, said.

Like many in the Legislature, Simpson said he understands the fragility of the industry and wants the state to help.

"In every one of these communities, these nursing homes are the second largest employer, behind the schools," Simpson said. "It's about economic development for these communities. And they're part of the fabric of our community, taking care of the elderly in the last days of their lives, it's a critical time."

Sen. Tony Lourey, DFL-Kerrick, agreed with Simpson. He called the current nursing home situation, "a train wreck," owing to the tough economic times, aging population and the fact that two-thirds of the nursing home beds are funded by public money.

Lourey is sponsoring a bill that would encourage communities to develop proposals for how to integrate acute and long-term health care for seniors.

"We're looking for a better plan," Lourey said. "We need to strive for a system that's sustainable, where we can have an industry that's filled with the dedicated workforce we have today providing the best level of care to our parents and grandparents, and fulfill the promises we made to our seniors. But we have some significant challenges. It's going to take the whole community to put a spotlight on these issues and start recognizing the problem."

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