February 21, 2014
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Studies: PA’s Skilled Nursing Facilities on Financially Unsustainable Path

Increased Medicaid funding essential to allowing nursing homes to meet the demand for care now and in the future as senior population booms

HARRISBURG — Two new independent studies underscore the immediate dangers facing tens of thousands of Pennsylvania’s frail elderly and disabled residents as years of chronic underreimbursements have pushed many of the state’s skilled nursing facilities to the brink of financial collapse, with centers caring for high Medicaid populations at the greatest risk.

“Pennsylvania’s skilled nursing facilities are on a financially unsustainable path. That’s the bottom line,” said Stuart H. Shapiro, M.D., President and CEO of the Pennsylvania Health Care Association (PHCA), at a press conference at the state capitol today. “Two-thirds of their residents are in the Medicaid program and unless the state increases payments for their care, this profession is not going to be able to meet the needs of current residents — let alone the growing demand for care as baby boomers age. It’s not a choice; it’s basic economics. The money simply isn’t there to provide the care our citizens need.”

The data is clear. According to Avalere Health, a respected Washington, D.C. research company focused on health care, Pennsylvania nursing facilities have seen their margins drop by more than 60 percent between 2007 and 2012, from 3.2 percent to 1.2 percent. Those margins dip even lower, to 0.3 percent, for facilities that care for large Medicaid populations, according to the study, “Analysis of Total Profit Margins for Free-Standing Skilled Nursing Facilities in Pennsylvania.”

For facilities caring for more than 75 percent Medicaid residents, the margins have fallen almost 80 percent between 2007 and 2012.

As a result, nursing facilities are losing money, when adjusted for inflation, or returning margins so low that they cannot invest in necessary capital improvements or advanced technology that would enhance care, nor can they pay competitive wages that would increase staff retention, which is so vital to high-quality care. Some facilities have had to turn away seniors on Medicaid because they cannot afford their care, creating access to care issues in parts of the state.

“It often takes a crisis to spur action. Well, that crisis has hit Pennsylvania where the nursing home sector is so financially unstable that care is at risk,” said Avalere Executive Vice President Matt Eyles, who presented the results of Avalere’s study at the press conference.

Skilled nursing facilities care for the state’s sickest and frailest residents, such as those with advanced dementia or severe chronic health conditions that require around-the-clock care. Over the years, the acuity (sickness) level of residents has increased, as has the cost of care, but funding for long-term care has not kept pace, especially for Medicaid residents.

In fact, a second study released today, “A Report on Shortfalls in Medicaid Funding for Nursing Center Care,” prepared by Eljay LLC, a nationally recognized leader in long-term care consulting, made the same point and demonstrated that Pennsylvania is among the worst states for Medicaid reimbursements.

Pennsylvania reimburses nursing facilities $26 a day less per resident than the true cost of care. That shortfall has more than doubled since 2007, when it totaled $13.23 per resident per day. Unreimbursed Medicaid costs in Pennsylvania will exceed $470 million this fiscal year.

That means nursing homes today lose $9,500 annually for each Medicaid resident in their care, and two-thirds of all skilled nursing facility residents rely on Medicaid.

“In other words, that gap hasn’t just widened, it has become the Grand Canyon,” Dr. Shapiro said.

All health-care providers lose money on Medicaid patients, but none as much as skilled nursing facilities, whose Medicaid percentage is the largest among providers. Skilled nursing facilities also historically have the lowest margins among any health care companies, but even that gap is widening dramatically. According to 2012 numbers, pharmaceutical companies on average reported net margins of 25.8 percent; medical device companies, 19.6 percent; managed care plans, 5 percent; and hospitals 4.5 percent versus Pennsylvania nursing homes with an overall margin of just 1.2 percent. Pennsylvania nursing home margins are about half of the national nursing home margins.

Dr. Shapiro called on legislators to do two things:

1. Support the priority funding for seniors in Gov. Tom Corbett’s proposed budget by preserving the increase that will go toward increased utilization and costs for those being cared for in nursing facilities. Residents and caregivers in nursing facilities will receive a direct benefit from the additional dollars the Governor proposed: and

2. Again fund an “add-on” payment for nursing facilities that serve a higher than average percentage of Medicaid residents so that these facilities can continue to do so, and so that seniors don’t have to leave their communities for care.

“We’re asking legislators for $16 million in additional state dollars to ensure access to quality long-term care for those on Medicaid so that these facilities can continue to provide care and seniors will not be forced to leave their communities and their families for care,” Dr. Shapiro said. “That $16 million will be matched with about $17 million in federal funds.”

Over the coming months, Pennsylvania’s nursing home caregivers, the families and friends of individuals in nursing home too sick to advocate for themselves, and many others will be calling, emailing and visiting state legislators to make sure they understand the crisis confronting seniors who need long-term care.

“We’re asking legislators to fund this important program that helps to ensure access to quality care for our frailest, sickest, eldest citizens,” Dr. Shapiro said.

Dr. Shapiro commended Gov. Tom Corbett and the General Assembly for making elder care a priority in previous budgets, but warned that rising costs, continued shortfalls and Pennsylvania’s rapidly aging population have created a perfect storm that threatens to sink the long-term care safety net serving the frail elderly. And it will only get worse: One in five Pennsylvanians is age 60 or older; by 2020 it will rise to one in four.

To access both full analyses, visit www.phca.org.

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