Razor thin margins have been a hallmark of operators in the nursing home industry for some time, but lackluster Medicaid rates and the possibility of Congressional cuts to Medicaid may push some over the edge.

The spectre of closures, and in turn access issues for residents and their family members, has been haunting the industry for some time, made worse by the pandemic, higher cost of care, inflation and insufficient reimbursement.

In New York, Medicaid reimbursement is so low that it only funds about 73% of the cost of a Medicaid resident in a nursing home, according to Stephen Hanse, president and CEO of the NYS Health Facilities Association and NYS Center for Assisted Living. Nursing homes in the state are paid based on 2007 costs, he said.

“It’s so outdated, it’s unbelievable,” Hanse said. Medicaid reimbursement shortfall puts roughly 611 facilities in the state at a disadvantage, he said, coupled with the state staffing mandate of 3.5 hours per resident per day.

Since 2020, more than 14 nursing homes have closed in the state, Hanse said, and more than 2,000 beds have been decertified since 2019. Currently, about 7,200 nursing home beds sit unoccupied because of the staffing mandate and underfunding of Medicaid.

In January alone, a slew of closures and sales took place across other states, with one closure in Maine, another in Ohio, and two in Pennsylvania, while another county-owned nursing home in PA was sold to a New Jersey operator, according to local reports.

The threat of closures is greater in certain areas of the state, including Upstate and Western New York, Hanse said, because of difficulties in meeting union contracts. Moreover, for staff, there’s little access to public transportation, which means added workforce pressures, along with the overarching issue of low Medicaid rates.

Joe Murabito, owner of New York operator Elemental Management Group, said he has two facilities in Upstate New York that are reimbursed at $200 per resident per day, which is low compared to the average rate of $240 a day, and translates to about $8.34 an hour being paid by the state for each resident.

“Using cost report statistics, there was an average loss per facility in New York State of $2 million post Covid. For 2022 and 2023 it’s about $1.8 million,” said Murabito. “You’re using your rate to stay open at this point…you have this perfect storm of inflation. And you have a lot of scrutiny coming from the state Department of Health and the state Attorney General.”

Meanwhile, facilities in southern areas of the state are receiving well above average at $300 to $400 per resident per day, said Murabito. Medicaid rate disparities in different parts of the state exist because the local share of Medicaid costs is determined by the costs of serving enrollees residing in that local district prior to 2006. This leads to a regressive system where poorer counties bear a larger burden, according to a Citizens Budget Commission report in 2011.

Compounding issues

It’s been shown that operators in the state don’t have enough staff, with the Commissioner of Health and state Department of Labor showing that all 62 counties in the state had a shortage of long-term care workers in 2022 and for the first two quarters of 2023, Hanse said.

In terms of access, this shortage is especially felt in areas of Upstate New York, including Rochester, he said, which has underfunded facilities that don’t have the financial resources or staffing resources to have all of their beds open. It’s still an issue of hospital backlog that we’ve seen in previous years, continued in part because of the state staffing mandate.

And, these backups are happening in all parts of the continuum, he said, causing costs to drive up and limiting patient access to care.

“I’ve talked to the hospitals in Rochester. You have backups in hospitals, you have patients in hospitals who are not ready to return to the community. The hospitals are frustrated because they can’t move those patients through to the necessary care they need,” said Hanse.

Meanwhile, labor inflation in the upstate region is 53%, outpacing downstate by a factor of two for the last decade, Murabito said.

“A typical management approach would be to manage the payer mix. The factor that really shuts that reasoning down is inflation…the cost of labor has risen to the point in the last several years where you’re unable to manage the gap with the payer mix distribution. It’s unmanageable now,” said Murabito.

State funding needs an overhaul

Hanse said the state is failing to set policies in place to ensure continued investment in nursing homes, while the previous Cuomo administration disinvested in the sector. It will take a lot of work to get to where funding and policies begin to support the nursing home industry, he said.

State legislators are in the middle of budget negotiations right now, with a proposed $385 million for a Medicaid rate increase, tied to a managed care organization tax.

It’s a “band aid situation,” Hanse said, considering that for the last 16 years the cost of living, and annual increase in Medicaid was eliminated. On top of that elimination a 10% capital component of the Medicaid rate was eliminated, which is critical for investing in facilities, maintaining buildings and upgrading infrastructure.

“From a policy perspective, there’s no justification. What they are doing is harming buildings, which ultimately harm patients…no real new nursing homes are being built in New York, and [demographics are] getting older and older, and they need to be upgraded in a post-Covid environment,” said Hanse.

Considering an aging demographic, Hanse said the nursing home sector will be in crisis mode again before 2030 rolls around. To get the sector on the right track, associations are asking for last year’s $285 million investment in nursing home reimbursement to be made permanent and paid out annually, increase nursing home rates by 20%, and restore cuts in capital reimbursement enacted in 2024 and 2020.

A rate floor, Murabito added, is essential for areas of the state getting less than average Medicaid payments.

“We need to be on a road in New York where the state covers the cost of care for a Medicaid resident. We know they can’t do it in one fell swoop. I understand that that’s a lot of money, but they need to have a two, three, year, four-year phase-in to get us to cover those costs,” said Hanse.