Why a 10% Medicaid Boost Wasn’t Enough to Save Nursing Homes From Closure

The state of South Dakota earlier this year passed a significant increase to Medicaid reimbursement for nursing facilities in the state, prompted by a rash of closures.

But even with the extra dollars -– the state in April authorized a 10% increase in Medicaid reimbursement for nursing homes, which translated to a roughly $8-per-day increase per Medicaid bed — operators in the state are still struggling.

One facility, the Hudson Care and Rehab Center in Hudson, S.D., announced on November 1 that it would close. That announcement came after 14 closures in the past 20 years — six of which took place in the last year and six months, Mark Deak, the executive director of the South Dakota Health Care Association, told SNN.

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Those closures include facilities affected by the dramatic collapse of the Wood Ridge, N.J.-based Skyline Healthcare last year, and SNF leaders in January predicted “statewide disaster” without a boost in Medicaid funding.

Though the funding did come through, and though it’s provided relief, it may not be enough to save SNFs in the state.

“We will see more nursing homes close,” Tim Rave, the president and CEO of the South Dakota Association of Healthcare Organizations (SDAHO), predicted to Skilled Nursing News.

The SDAHO’s members include hospitals, nursing facilities, home health agencies, assisted living facilities, and hospice organizations.

Both Rave and Deak emphasized in interviews with SNN that SNFs in the Mount Rushmore State are grateful for the Medicaid boost.

The additional funding allowed SNFs to recruit and retain certified nursing assistants (CNAs), licensed practical nurses (LPNs), and registered nurses (RNs), reducing the facilities’ dependence on agency staffing, Deak testified in an October 30 hearing of the S.D. Government Operations & Audit Committee (GOAC).

South Dakota Public Broadcasting Radio first reported the news.

But the increase, which brought the daily Medicaid rate per bed to about $155 on average, isn’t sufficient to deal with the shortfall, which Rave explained in testimony before the committee. Using a hypothetical 50-bed facility with 50 employees as an example, he broke down what the numbers in the recent increase would mean. With an $8 a day increase for Medicaid beds, and a census of 60% Medicaid residents, that 50-bed facility would see an increase of $88,000 per year.

If that facility chose to increase the wages of its 50 employees by $1 per hour, however, would be $112,000, Rave testified.

“This leaves nothing for capital improvement,” he told the committee. “The average age of nursing home facilities is 40 years old, so a lot of them are older than that.”

The funding increase earlier this year didn’t close the so-called Medicaid gap, or the difference between the actual cost of providing services and the reimbursement paid for those services, Deak told SNN. That gap is about $42 per Medicaid resident per day, on average, he said.

Staffing accounts for two-thirds of facility costs, Deak told SNN, and historically low unemployment rates add to the challenge. Another problem is the state’s agriculture-based economy, which has had a down year, he noted.

“The Great Recession was certainly a factor, and in many ways the rates never really recovered from that time,” Deak told SNN. “But the increases just did not keep up at all with the increase in costs. As we look ahead, with what some have termed the ‘silver tsunami’ coming, it’s concerning.”

Effects across the continuum

The impact of SNF closures on their communities is significant, Rave emphasized in both his testimony and in an interview with SNN. The closure of a facility in Mobridge, S.D., forced residents to move and led their loved ones to consider the same, he testified to the GOAC, citing a hospital administrator who has seen the impact of the closure firsthand.

The ramifications of the closure, however, went beyond the facility. The school districts were affected by the departure of employees’ children, which in turn thinned out the community’s tax base.

“It’s been very difficult for the hospital, which has seen a significant decline in admissions as well as outpatient visits, ancillary services, and ambulance transfers,” Rave testified, reading from the administrator’s remarks.

Increasingly, hospitals may end up subsidizing that long-term care. In one notable merger, Sanford Health merged with the Evangelical Lutheran Good Samaritan Society, which had a range of senior living and care properties across several states, and another health system, Avera Health, has several nursing homes, Rave observed.

In Sisseton, S.D., for instance, the local hospital is subsidizing the nursing home to the tune of more than $110,000, he testified before the GAOC. The hospital actually purchased the 50-bed facility for $1, Rave testified, but it still cannot make ends meet.

“The hospital there is subsidizing the nursing home, just to keep the doors open,” he told SNN. “It provides the opportunity for a step-down, and a place for folks to go later on in life. But [the hospital] can only do that for so long.”

Patients who aren’t covered by the state’s Medicaid program are also affected, Deak told SNN. Operators frequently rely on private-pay residents to make up for the Medicaid gap, as it’s “the only way to keep the doors open.”

In fact, each private-pay resident in a nursing home covers approximately a third of the cost of another resident on Medicaid, State Sen. Susan Wismer — a member of the GOAC — told SNN in an e-mail.

“This threatens especially our border community nursing homes, as Minnesota and North Dakota do not allow this burden-shifting from the general taxpayer to private-pay nursing home patients,” she wrote.

Work remains

The goal when providers across the state came together was to try to get South Dakota on par with its neighbors, Rave told SNN. The 10% increase translated to about $18 million with federal matching funds for Medicaid, and though it’s a welcome boost for providers, Rave estimates it’s a little below half of what the state would have needed to become comparable to other nearby states.

And many of those other states have made increases to their nursing home funding, he added. That means that SNFs in South Dakota still have work to do in terms of securing funding, working in concert with legislators, associations, and other providers.

“It took us more than a year to get into this hole,” Rave told SNN. “It’s going to take us more than a year to get out.”