Facing $7M Annual Shortfall, Operator Exits Medicaid Business to Shore Up Rehab

For each of the last several years, LindenGrove Communities has lost a total of $5 million to $7 million caring for long-term residents covered by Medicaid — a shortfall that began to drag on the non-profit’s other business lines, including short-term rehabilitation.

And though the choice was difficult, LindenGrove president and CEO Linda Joel said her company’s recent decision to end long-term nursing home services at three of its four communities was necessary to ensure the Brookfield, Wis.-based operator’s survival.

“We’re a non-profit company. We don’t have deep pockets,” Joel told SNN. “We don’t have a slush fund to cover those $5 to $7 million now that all of the CMS changes have occurred with short-term rehab.”

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LindenGrove will cease offering long-term services at its Menomonee Falls, Wis. location as of September 30, with its buildings in Mukwonago and Waukesha to follow on November 30, according to the initial report in the Milwaukee Journal Sentinel. Medicaid beds will remain in service at its New Berlin community, while all four properties will continue to offer short-term, post-acute rehabilitation moving forward — along with other senior living and memory care services.

“We wanted to make sure there was access to long-term care in our system,” Joel said, noting that the facilities are all within about 20 minutes of each other.

Both LindenGrove and state officials will work over the coming months to ensure that affected residents find alternative sites of care within that timeframe, the Journal Sentinel reported in a separate story, with the provider offering far longer than the 90 to 120 days’ notice required by the state of Wisconsin.

Though the shortfalls have been occurring for years, the stress accelerated in 2016 with the implementation of the Comprehensive Care for Joint Replacement Model (CJR), which shifted reimbursements for common hip and knee replacements to a bundled payment model that the hospital, doctors, and post-acute providers must share.

The CJR drastically reduced the number of bread-and-butter joint replacement patients on the Medicare side of LindenGrove’s business, Joel said, eliminating a key financial safety valve for a state with deep Medicaid reimbursement problems: Providers in Wisconsin lose an average of $71 to $79 per day on Medicaid residents, according to a recent study from provider groups LeadingAge Wisconsin and the Wisconsin Health Care Association, and the trend has been blamed for a wave of more than 30 skilled nursing closures in the state since 2016.

This year alone has seen more than 10 nursing home closures in Wisconsin, along with the ongoing receivership of eight buildings operated by Dycora Transitional Health and Living. In the latter case, leaders at the chain — which had failed to make its base rent and needed help paying vendors and employees — explicitly cited the tough Medicaid landscape in the state as the reason for its distress.

“After careful consideration and a thoughtful analysis from an external consulting firm, we have made the decision to focus on a smaller geographic footprint,” CEO Julianne Williams said in an April statement provided to Skilled Nursing News. “Ultimately, this decision was necessary due to professional market demands.”

Part of the problem stems from the way that Wisconsin calculates its Medicaid rates for nursing homes: Because the system allocates money based on the number of patient days, SNF closures in the state have a cascading, vicious-cycle effect on the overall amount of money that ends up available for operators.

“Facilities are not able to maintain their operations, so they close their doors, and there are fewer Medicaid beds, and that means there ends up being less allocated in the payment formula for nursing homes,” Wisconsin Health Care Association president John Vander Meer told SNN back in April.

Many operators attempt to offset those losses with short-term Medicare services, which typically come with significantly higher reimbursements than long-term Medicaid care.

But the CJR shift created another crack in the overall reimbursement landscape, denying LindenGrove the ability to make up for the state’s low Medicaid reimbursements. Coupled with length-of-stay pressures caused by increasing Medicare Advantage penetration — which has brought the average rehab stay at the company’s buildings down to 10 days — and persistent labor shortages, the situation gradually became untenable, even as leaders gradually trimmed bed counts to reduce bed-tax burdens.

“The ability to offset those losses has been pretty devastated. You can’t offset those losses anymore,” Joel said. “Then you have nothing to cover that gap.”

But Joel stressed that unlike the other Badger State nursing homes that have either closed their doors or endured receivership processes, LindenGrove’s nursing wings will remain open for business, just with fewer total beds and an exclusively short-term focus. The goal, she said, is to ensure that the company can continue to offer its other business lines without sacrificing care.

“We are a quality provider, and we are not going to let that quality erode because we’re trying to hang on by a thread,” Joel said.

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