Issue Paper

From:

Robert W. Lyons, Executive Director, AFSCME Council 40
Richard Abelson, Executive Director, AFCME Council 48
Dan Iverson, President, SEIU, Wisconsin State Council
Phil Neuenfeldt, Secretary-Treasurer, Wisconsin State AFL-CIO
John Sauer, Executive Director, Wisconsin Association of Homes and Services for the Aging
Thomas P. Moore, Executive Director, Wisconsin Health Care Association

Our varied memberships share a common goal:  To ensure the quality of care and the quality of life of each nursing home resident in Wisconsin.  We also share a common concern:  Namely, that the heavy dependence of nursing homes on increasingly inadequate Medicaid funding, combined with the State's extremely tight labor market, make it increasingly more difficult for nursing homes to recruit and retain caring and competent staff.  To avoid a potential crisis in care, the above organizations, which represent both nursing home operators and the caregivers they employ, unite under the name "Coalition for Quality Nursing Home Care" and seek your support for a 7% nursing home employee wage pass-through.

The proposed Medicaid rate increase for nursing homes contained in SB 45/AB 133, the biennial budget bill, simply magnifies the problem.  The $15 million "rebasing" of the nursing home formula in FY 1999-00 and the 1% rate increase proposed for  FY 2000-01 fall far short of meeting the costs facilities already have incurred to serve their Medicaid residents.  Indeed, Data Resources, Inc. (DRI), the firm the State uses for its own economic forecasting, has projected a 3.3% increase in health care costs due to inflation for 1999.

If the rate increases provided in SB 45/AB 133 fall below the rate of inflation in health care costs, which we anticipate, then many facilities will be facing rate cuts and the possibility of staff freezes or cuts.  Without an adequate Medicaid rate increase, the benefits of a wage pass-through will be lost because facilities facing a rate cut would be forced into the perverse position of rewarding one employee with a wage increase funded by the pass-through and by the termination of a position(s).  Even with a 3.3% rate increase, some facilities will experience rate cuts and would need to utilize funds from a wage pass-through to retain current positions.

In order to maximize the benefits to our caregivers of a wage pass-through, we also respectfully request legislative support for a 3.3% rate increase for Medicaid-certified nursing homes in each year of the biennium.

Coalition for Quality Nursing Home Care Wage Pass-Through Proposal

Under the Coalition proposal, all nursing home employees except the administrator and home office staff would be eligible for the wage pass-through, which could be used to increase wages, benefits, the number of staff and/or to offset potential nursing home rate cuts that would occasion staff reductions. The wage pass-through would be in addition to the 3.3% rate increase proposed above.  A nursing facility would be required to apply to the Department of Health and Family Services (DHFS) in order to receive the wage pass-through; a DHFS review of the facility's Medicaid cost report would ensure that the funds are spent for the intended purposes.  Failure to expend the wage pass-through funds for their intended purpose would result in the recoupment of those funds by the DHFS.

The benefits of this proposal are clearly illustrated in the following table, which highlights the wage increases for selected nursing home employees that would be generated if the 7% wage pass-through were to be used to increase wages (rather than increase benefits, increase staffing and/or offset facility rate cuts and corresponding staff cuts):

Annual Projected Cost:  The projected cost of this proposal admittedly is hefty:  We estimate a 7% wage pass-through would cost approximately $17 million GPR and $41.3 million all funds in FY 1999-00.  With the inclusion of a 3.3% rate increase, which we estimate would cost an additional $5.4 million GPR and $13.1 million AF over SB 45/AB 133 levels, the total request is estimated at $22.4 million GPR and $54.4 million AF in FY 1999-00 over the amounts included in SB 45/AB 133.  But the members of the Coalition for Quality Nursing Home Care firmly believe both our wage pass-through and our rate increase requests are needed and justified.

Why is a Wage Pass-Through Critically Necessary?

The reasons we request this wage pass-through proposal are numerous.  Consider the following:

• The nursing home formula was cut nearly $47 million in 1997-99.  Although the Governor and the Legislature approved Medicaid rate increases for nursing homes of 5% in FY 1997-98 and 3.5% in FY 1998-99, the dollars generated by those rate increases do not flow directly to nursing homes, but rather fund the nursing home formula.  The formula distributes those funds to individual nursing homes based on each facility's historical costs and whether those costs fall above or below the formula's maximum payment limits established for six service areas (direct care, support services, administrative and general, fuel and utilities, property taxes, and capital).  The 5%/3.5% Medicaid rate increases provided in 1997 Act 27, the biennial budget bill, resulted in a lowering of those maximum payment limits by $46.9 million.  The end result:  Nearly $47 million in Medicaid costs incurred by nursing homes in 1997-99 went unreimbursed.
  

• Direct caregivers bore the brunt of those cuts.  Of the $46.9 million cut from the nursing home formula in 1997-99, $41.8 million came from the  direct care cost center.  This is the nursing home formula cost center which provides the wages and benefits for nurses and certified nursing assistants (CNAs) in nursing homes.  A cut resulted because the maximum payment for facility direct care costs was reduced by the Legislature from 110% of the statewide median to 103%.  Our wage pass-through proposal is intended to restore the funding cut from the nursing home formula in 1997 Act 27.  The additional dollars will be utilized to increase staffing, to boost the wages/benefits of nursing home employees, or to retain current positions.
  

• SB 45/AB 133 will not provide the funds needed to either significantly increase staffing or boost wages.  Indeed, as noted above, the end result of the rate increases provided in SB 45/AB 133 would be a rate decrease and possible staff cuts for some facilitites.  For the remainder of facilities, this proposal basically allows them to tread water.
  

• Nursing homes rely heavily on Medicaid funding.  Medicaid is the primary source of payment for 69% of the residents in Wisconsin nursing homes.  If the funding provided through the Medicaid program is not sufficient to allow facilities to recruit and retain competent staff, quality of care inevitably will suffer.
  

• Unfunded mandates inhibit a facility's ability to recruit and retain caregivers.  Last session, the Legislature passed bills which increased nursing home minimum staffing levels and which require employee criminal background checks.  Neither bill contained additional funding.
  

• Decreased Medicare funding only will exacerbate the problem of Medicaid underfunding.  In past years, expanded Medicare coverage of nursing home stays has reduced Medicaid patient days and expenditures.  However, a Prospective Payment System for Medicare skilled nursing facilities (SNF), which was mandated by the federal Balanced Budget Act of 1997, went into effect 7/1/98 and is expected to reduce Medicare payments to SNFs by 17%, or $12.8 billion, over the next 5 years.  This reduction in Medicare revenues will place additional pressure on the already underfunded Medicaid program and will limit a SNF's financial ability to provide necessary wage and staffing increases.
  

• CNA wages do not do justice to the difficult work they do.  CNAs comprise over two-thirds of the employees who provide direct hands-on care to nursing home residents.  The average wage for a CNA in Wisconsin is $8.32/hour, or an annual salary (52 weeks x 40 hours) of $17,306 before taxes.  Because of their significant reliance on the Medicaid program for reimbursement of costs incurred, nursing homes are severely constrained in their ability to provide better wages for their workers.  Are we comfortable in the thought that those caring for our fathers and our mothers, or our grandparents, are being paid $8.32/hour on average, which is less than a telemarketer or a door-to-door salesman?  Is an annual salary of $17,306 sufficient to raise a family for the many CNAs who are single parents?  We think not.
  

• Facilities are facing a critical shortage of competent CNAs at a time when the labor market is extraordinarily tight.  Staff recruitment and retention is the #1 problem facing nursing facilities in Wisconsin.  Keeping in mind the average wage of a CNA in Wisconsin is $8.32/hour, and that CNAs must complete a minimum training program of 75 hours, pass a competency test and undergo a criminal background check, consider the following findings of an October 1998 study of job openings conducted by the UW-Milwaukee that was updated in January of this year:
  

1. The number of full-time and part-time jobs open during the week of May 18 in the Milwaukee-area was the highest since 1995; employers were looking to fill 19,259 full-time positions and 15,263 part-time positions.  Those figures had risen to 21,515 open full-time positions and 15,476 open part-time positions when a similar survey was conducted during the week of October 19, 1998.
   
2. For entry-level jobs demanding a high school diploma but little else, employers were paying an average of $7.90/hour last May; that figure rose to $8.07 in October.
   
3. Companies offered at least $8/hour for nearly half the beginning-level, full-time positions they were trying to fill - jobs that required neither a high school diploma nor any work experience.
   
4. When employers are attempting to fill positions with job responsibilities that include caring for extremely frail elderly people, many of whom suffer from dementia or are otherwise behaviorally difficult, at a wage that is comparable to a fast-food restaurant employee or other beginning level jobs, is it any wonder the UW-Milwaukee study placed the position of CNA at the top of its list of the most difficult positions to fill?
   
5. Once again, keeping in mind the wage and the job responsibilities of a CNA, the dilemma facing nursing homes is clearly illustrated in this recent Milwaukee Journal Sentinel quote from John Metcalf, director of human resources policy for Wisconsin Manufacturers and Commerce (WMC), in response to the UW-Milwaukee study:  "People can easily walk across the street and find another job for 50 cents more.  Workers, for whatever reason, are not staying long in one place.  Jobs are plentiful.  They can choose when they want to work and when they don't want to."
   

• The turnover rate for CNAs in nursing homes is threatening quality care.  According to the most recent data compiled by the DHFS, the turnover rate for full-time nursing home CNAs is 54%; for part-time CNAs, that figure shoots to 76%.  And high turnover, according to the DHFS Center for Health Statistics, hurts quality care.  In a 1994 report, the Center noted:  "One important aspect of quality of care in nursing homes is the continuity of employment among the nursing staff.  Low continuity can lead to staff shortages, which in turn allows less time for resident care.  A time lag usually occurs between the date an employee leaves a facility and the date a replacement begins to work.  Training of new employees also absorbs time.  Therefore, it can generally be assumed that the lower the turnover among nursing employees in a nursing home, the better the quality of care will be."  It certainly is within reason to argue that a fairly low wage for a difficult job in a tight labor market results in high turnover.  In the case of nursing homes, the DHFS itself concludes that high turnover can compromise quality of care.
  

• Can we avoid a reoccurrence of the Mount Carmel situation?  On October 19, 1998, the DHFS moved to delicense Mount Carmel Health and Rehabilitation Center in Greenfield.  In Mount Carmel's case, there appears to be a clear link between a shortage of staff and quality of care.  Indeed, one of the key reasons Mount Carmel was able to retain its license in early February of this year was because of its efforts to bolster its staff.   We submit that in order to avoid future reoccurrences of the Mount Carmel situation, facilities must be afforded the funds necessary to provide for staffing increases or to boost the wages/benefits of their current employees, where needed.
  

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