Issue Paper

A Proposed Legislative Solution
to the Underfunding of Nursing Homes
by the Wisconsin Medicaid Program

The Issue:

The Wisconsin Medicaid Program fails to fund/reimburse 83% of the nursing facilities in this State for the costs they incur to serve their Medicaid residents. Stated differently, the deficit between the costs nursing facilities incur to care for Medicaid residents and the reimbursement government provides to pay for the costs to care for those Medicaid residents is $100 million. These findings came from a September 2000 study of the financial condition of Wisconsin nursing facilities conducted by BDO Seidman, LLP, an accounting and consulting firm which concluded the Wisconsin nursing facility payment system “ranks near the bottom in adequately reimbursing the Medicaid costs of nursing homes” compared to payment systems in other States.

The Proposed Solution:

  1. Provide for a 4% Medicaid rate increase for nursing facilities in each year of the 2001-03 biennium.
  2. Restore the $22 million in cuts made to the 7/1/00 - 6/30/01 Nursing Home Payment Formula.
  3. Collapse the current seven nursing facility cost centers funded through the Nursing Home Payment Formula into three: direct care, indirect care, and capital.
  4. Establish the Medicaid payment ceilings for services provided under those three cost centers (also known as “targets”) at 115% of the statewide median of nursing facility direct care (nursing) costs, 110% of the statewide median of facility indirect care costs (laundry, housekeeping, dietary, maintenance, fuel and utilities, property taxes, and administrative/general), and capital costs at 9.5% of a facility’s value.

The Cost to Fund This Solution: $48.7 million GPR in 2001-02 and $65.4 million GPR in 2002-03.

The Rationale:

  1. Because the 2% Medicaid rate increase the Governor and the Legislature provided nursing homes in 2000-01 did not approach the 4.58% increase in Medicaid costs the average nursing facility was incurring, the Nursing Home Payment Formula had to be cut by $22 million for July 1, 2000 - June 30, 2001.

  2. In order to cut the 7/1/00 - 6/30/01 nursing home formula by $22 million, the cost center targets had to be lowered. The direct care target, the maximum amount Medicaid will pay Wisconsin nursing facilities for the nursing costs they incur, was cut from 102.3% of the statewide median to 100.33% of the statewide median under the 7/1/00 - 6/30/01 formula. In support services (laundry, housekeeping, dietary and maintenance), the target was dropped from 102% of the statewide median to 95%.

  3. By contrast, the BDO Seidman study found that in 25 state nursing home payment systems reviewed, 17 of those 25 states set direct care targets at least 15% above the median. The range was from 5% above the median to 35% above the median, compared to Wisconsin’s 0.33%. The same was seen in indirect care, where the majority of states reviewed set targets between 10-15% above the median. In Wisconsin, the target is 5% below the median in support services, is at the median for fuel and utilities, and is 8.8% below the median for administrative costs.

  4. The Wisconsin Department of Health and Family Services has stated Wisconsin’s Medicaid rates for nursing facilities are 28th highest in the nation. We are not certain whether that is something to be proud of or ashamed of. However, according to the BDO Seidman study, “higher rates are not necessarily an indication of a better or more equitable payment system. What is relevant is whether Medicaid reimbursement adequately covers the Medicaid costs incurred by nursing homes in the state….Our experience, based upon having prepared cost coverage analyses in over 20% of the states, and having worked in the development or application of Medicaid payment systems in numerous others, is that Wisconsin ranks near the bottom in adequately reimbursing the Medicaid costs of nursing homes.”

  5. The BDO Seidman study stated there are two primary reasons why Wisconsin’s Medicaid payment system for nursing homes ranks near the bottom: Because the targets now set are at the lowest level of any of the 25 states studied and because our seven cost centers are more than most states. More cost centers mean fewer facilities are being fully reimbursed for their Medicaid costs since each cost center has its own target.

  6. In order to modify Wisconsin’s payment system to make it comparable, though clearly not superior, to other states, BDO Seidman recommended the current seven cost centers be collapsed into three and that the targets be set at 115% of the statewide median for direct care, 110% for indirect care, and 9.5% of a facility’s value for capital. Under this proposal, the number of facilities which would be fully reimbursed for their Medicaid costs would increase from 17% to 60%.

  7. Even making Wisconsin’s payment system comparable to nursing home payment systems in effect throughout the country will still leave 40% of the state’s 442 nursing facilities not being fully paid for the Medicaid costs they’ve incurred.

  8. Collapsing the number of cost centers and raising the targets of the three new cost centers will only attack the $100 million “structural deficit” nursing facilities currently face. It merely is an approach to maintain the status quo; it does not provide additional funding to remedy current staffing shortages or enhance employee wage and benefit packages.

  9. The 4% Medicaid rate increase proposed for nursing facilities in each year of the 2001-03 biennium is a realistic projection of facility inflationary costs. Any percentage increase lower than real inflation will exacerbate the current Medicaid deficit and will fail to address the critical staff recruitment and retention problems facing nursing facilities today. If those problems aren’t adequately addressed, access to quality care may be jeopardized.

    The Wisconsin Association of Homes and Services for the Aging (WAHSA) is a statewide membership organization of not-for-profit corporations principally serving elderly and disabled persons. Membership is comprised of 190 religious, fraternal, private and governmental organizations which own, operate and/or sponsor 194 not-for-profit nursing homes, 71 community-based residential facilities, 39 residential care apartment complexes, 100 independent living facilities, and 446 community service programs which provide services ranging from Alzheimer's support, child day care, hospice and home care to Meals on Wheels. For more information, please contact the WAHSA staff at (608) 255-7060: John Sauer, Executive Director; Tom Ramsey, Director of Government Relations; or Brian Schoeneck, Financial Services Director.

    WAHSA 204 South Hamilton Street Madison, WI 53703
    Telephone: (608)255-7060 FAX:(608)255-7064