Response to DHFS Nursing Home "Fact Sheet"

October 18, 2000

To: Interested Legislators

From:

Subject: Responding to DHFS Nursing Home "Fact Sheet"

Your office should have received a September 20, 2000 memo from Department of Health and Family Services Secretary Joe Leean concerning Medicaid reimbursement for nursing homes.

Before responding to the individual bullet points the Secretary presented, we would like to offer the following general comment:

First, we do not dispute the Secretary’s facts. However, the facts he presented are not directly relevant to the issues. They do not address, contest or refute any of the key findings contained in the BDO Seidman study which documented in detail the magnitude of the Medicaid funding and payment crisis confronting the state’s nursing facilities. We are concerned the Secretary’s offering may divert attention from our core findings and issues. We cannot allow this to occur. To that end, we offer the following point-by-point response to the Secretary’s “fact sheet.” “Medicaid paid $903,000,000 (all funds) to nursing homes in 1999.”

Response:

The issue is not what was paid, but rather what Medicaid did not pay.
Utilizing the DHFS’ own cost and payment data, the BDO Seidman study documented (and the Secretary has not contested) that Medicaid paid $100,000,000 less than the audited costs nursing facilities incurred in providing care to Medicaid recipients.
83% of Wisconsin’s nursing facilities did not receive a payment rate that met the cost they incurred in providing care to their Medicaid residents. The average facility loss was $10.90/day.

“Wisconsin had approximately 30,000 Medicaid residents in 1999."

Response:

This is true.
Medical Assistance recipients represent 70% of the approximately 43,000 individuals residing in Wisconsin’s nursing facilities.
The failure of the Medicaid Program to pay for the cost of care received by the 30,000 Medicaid recipients residing in Wisconsin’s nursing facilities has forced the other 13,000 nursing home residents who are attempting to privately pay for their care to subsidize the underfunding of the Medicaid program. Private pay residents in many areas of the State pay over $50 per day more than the actual cost of care and services they receive in order to offset these Medicaid deficits.
Many county-operated nursing facilities rely on local tax levies to offset Medicaid underfunding. In this case, it is the local property taxpayer who is subsidizing these Medicaid deficits.

“Approximately 8,400 nursing home beds are empty in Wisconsin.”

Response:

The issue is not empty beds. The issue is achieving adequate payment for the cost of care required to meet the needs of the Medicaid residents that are being cared for in 30,000 beds across Wisconsin.
The Medical Assistance Program does not pay for empty beds.
The Medical Assistance Program imposes significant financial penalties by reducing payment rates for facilities that have occupancy levels less than 91%.
In a number of facilities, beds remain vacant by design because staffing shortages, caused in many cases by the inability to provide a competitive wage, have forced these facilities to halt admissions.

“Wisconsin Medicaid rates are 28th highest in the country for 1998.”

Response:

This may be true, but it is essentially irrelevant. Being 28th in the country also means that more than half of the states in this country pay rates higher than Wisconsin. Is this a position we should be proud of or ashamed of?
While Medicaid rate comparisons are often made among states, higher or lower rates are not necessarily an indication of a better or more equitable payment system. What is relevant is whether Medicaid reimbursement adequately covers the costs incurred by nursing homes in that state.
In 1999-2000, 83% of Wisconsin’s nursing homes did not receive a Medicaid payment rate that meets the cost of the care they provided to their Medicaid recipient residents. Given the additional rollbacks in the 2000-2001 payment system, this percentage undoubtedly will increase.
In terms of payment of costs, Wisconsin has been identified as having one of the worst Medicaid payment systems in the country.

“Wisconsin’s Medicaid rates for nursing homes are higher than Michigan, Indiana, Illinois, Missouri and Nebraska in the Midwest.”

Response:

“Forty-eight nursing homes in Wisconsin (out of a total of 442) are currently in receivership. Forty-four of those homes are part of corporate chains and 34 of those homes are part of national chains that have filed for Chapter 11 bankruptcy.”

Response:

This is true today, and the numbers will be even worse tomorrow if nothing is done to remedy the Medicaid funding crisis.
Taking into account all sources of payment (Medicare, Medicaid, private payment and insurance), the BDO Seidman study found the average margin for all Wisconsin nursing homes in 1999 was a negative 4.79%. All ownership categories - proprietary, not-for-profit, and government facilities - experienced negative margins.
As the BDO Seidman analysis concluded: “Without question, the inadequacies of the Medicaid payment system have had the greatest impact on the deterioration of the financial and operational condition of Wisconsin’s nursing facilities.”

“The Medicaid nursing home rate has received larger increases in the last two budgets than other Medicaid providers.”

Response:

Wisconsin’s nursing home facilities serve far greater numbers (30,000) and percentages (70%) of Medical Assistance recipients than any other health care provider in the state.
While state budget increases for nursing facilities have been greater than what other Medicaid providers received, none of these nursing home rate increases have kept pace with normal inflation increases. Nursing home costs have exceeded normal inflation each year due to several factors, including increased resident acuity and the state’s severe labor shortage.
The 2% Medicaid funding increase provided to nursing facilities in 2000-2001 will result in 20% of the state’s facilities receiving an actual rate cut and nearly 52% of all homes receiving a rate increase of less than 2%. The reason: Costs incurred outpaced the 2% rate increase provided in the 1999-01 state budget. Average Medicaid losses will increase by an additional $2-3 per day, or in excess of $300,000 per year for a 100-bed facility with a 70% Medicaid recipient census, because of this underfunding.

What is the Funding Solution we seek?

We need State Legislators and the Governor to support, at a minimum, funding necessary to raise the Wisconsin Medicaid nursing home payment system to a level comparable to other states.*

The BDO Seidman study indicated the current year cost of improving Wisconsin’s nursing home payment system to a level comparable to that of other states would be approximately $32 million GPR ($80 million all funds). For the 2001-2003 biennium, the cost of achieving a comparable funding system and providing a 4% annual inflationary increase (necessary to avoid a fiscal deterioration of this comparable system) is projected to increase this cost to $48.7 million GPR in 2001-2002 and $65.4 million GPR in 2002-2003.

It must be noted that this new funding system would not be ‘generous” by any standard. It is equitable, given the payment levels established by many other states. Even under the new system, 40% of Wisconsin nursing facilities would continue to sustain Medicaid losses (compared to 83% presently).

This funding increase would address nursing facilities’ existing structural deficits (i.e., the growing gap between necessary costs and inadequate Medicaid payments), but would not directly address efforts to raise staffing levels to the optimal levels identified in a recent federal HCFA study, substantially increase wages and benefits, or fund a new Medicaid payment system based on resident classifications similar to the Medicare prospective payment system.

*The BDO Seidman study proposes modifying the Wisconsin payment system to one with three main cost centers (direct care, support/indirect care, and property) plus a pass-through of property taxes. Ceilings for direct care and support/indirect care would be set at 15% and 10% above statewide medians, respectively. The property payment would be increased from 7.5% of facility value to 9.5%. Under this proposal, 60% of the state’s nursing facilities would get their Medicaid-incurred costs paid.

The Wisconsin Health Care Association (WHCA) represents 250 for-profit, not-for-profit, a nd government-operated nursing facilities. The Wisconsin Association of Homes and Services for the Aging (WAHSA) represents 198 not-for-profit and government-operated facilities. (Some facilities belong to both organizations.) For more information, please contact Tom Moore at WHCA (608-257-0125) or John Sauer at WAHSA (608-255-7060).

Wisconsin Association of Homes and Services for the Aging
204 South Hamilton Street Madison, WI 53703
Telephone: (608)255-7060 FAX:(608)255-7064