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Hard Times for Nursing Homes May Get Harder

Nursing homes in California find themselves between a rock and several hard places, some of them potentially crushing.

The rock is the economic recession, a larger, harder-to-get-past obstacle than previous financial downturns. The hard places include reductions in federal and state funding for Medicare and Medicaid, a ratings downgrade for major national nursing home operators and the likelihood of even larger cutbacks if deficit-reducing politicians make more cuts to federal health programs.

“These are very hard times for nursing homes, perhaps the hardest we’ve seen,” Alan Rosenbloom, president of the Alliance for Quality Nursing Home Care, said. “There were some difficult times in 1998 following the passage of the Balanced Budget Act of 1997. Medicare cuts resulted in reduced capacity, staffing reductions, and as a result government citations went up almost 10%.

“The situation now is actually more precarious than it was in 1998 because of a much worse Medicaid outlook,” Rosenbloom said. “Medicaid tended to pay better than Medicare in those days, so some facilities could make up some of their losses through Medicaid. But not now,” Rosenbloom said.

“I don’t think there is any state where Medicaid payments pay what it actually costs to care for patients, and there’s a good possibility it’s going to get even worse,” Rosenbloom said.

California Budget Cuts Add Extra Problems

As of April, California’s Medicaid program, Medi-Cal, ranked 47th among the 50 states in reimbursement for medical care. Those payment rates dropped another notch this summer.

In June, Gov. Jerry Brown (D) signed a budget package calling for a 10% reduction in Medi-Cal payments for skilled-nursing facilities and other providers. The cutback, subject to CMS approval, is scheduled to begin early next year and be in effect for 14 months. The temporary Medi-Cal cut comes on top of an 11.1% reduction in Medicare payments. Beginning Oct. 1, California nursing facilities will see a $380 million cut in their annual Medicare payments under a new payment structure CMS announced earlier this year. Part of the new payment scenario includes more restrictive guidelines on payments for therapy.

After the Medicare cuts were announced, ratings agency Standard & Poor’s downgraded all six for-profit nursing home companies on its Credit Watch and labeled them with a “negative outlook.” The downgrade, attributed to the reduction in Medicare reimbursements, is expected to make it more difficult for all nursing homes to get bank loans and arrange financing. Although the downgrade directly affects only for-profit companies, the entire sector is expected to feel the repercussions.

The six companies are the holding company for Golden Living, Genoa Healthcare Group, HCR Healthcare, Kindred Healthcare, Skilled Healthcare and Sun Healthcare.

Skilled Healthcare and Sun Healthcare are the largest operators in California. Neither responded to requests for comment.

Jim Gomez, CEO and president of the California Association of Health Facilities, said, “The combination of federal and state cutbacks and the rating downgrade could have profound implications on the delivery of skilled-nursing care.”

“We’re nearing the tipping point where payments are not sufficient enough to enlist providers to make care and services available. The negative credit outlook will also mean higher borrowing costs for large and small providers,” Gomez said.

Nursing Homes Face ‘Negative Margin Status’

According to a national report released two weeks ago, nursing homes, the country’s second-largest employer, could be pushed into the red by cuts in federal programs.

The report — by Avalere Health, a health research firm — shows that Medicare payment reductions and changes in group therapy coverage will erase nursing homes’ slim 3.8% operating margin to zero next year. If there are more Medicare and Medicaid cuts as part of an effort to reduce the national deficit, nursing homes will move into “negative margin status” in coming years, according to Avalere.

The prospect of breaking even or losing money coupled with the Standard & Poor’s downgrade will make it hard for nursing homes to sustain — let alone increase — operations at a time when baby boomers, the largest demographic segment of the population, march toward old age and nursing homes.

“California has about 1,100 nursing homes,” Rosenbloom said, “and every one of them will be impacted, whether they’re for-profit or not-for-profit. The ratings downgrade for large, publicly traded companies has a ripple effect for everybody else. It will affect borrowing relationships throughout the sector.”

Lobbying Under Way To Spare Nursing Homes

The California Association of Health Facilities is urging Rep. Xavier Becerra (D-Los Angeles) to oppose additional federal cuts to skilled-nursing facilities that could be proposed by the newly formed Joint Select Committee on Deficit Reduction. Becerra is one of three House members House Minority Leader Nancy Pelosi (D-Calif.) named to the committee last month.

“Congressman Becerra has demonstrated a long-standing commitment to recipients of Medicaid and Medicare,” CAHF’s Gomez said in a prepared statement. “While we are confident that he will dedicate himself to finding bipartisan solutions to trim the deficit, we must emphasize the serious impact any additional cuts to skilled-nursing facilities would have on access to care.”

About two-thirds of the residents in California nursing facilities rely on Medi-Cal to pay for their care, according to CAHF. Cuts affecting dual eligibles — beneficiaries of both Medi-Cal and Medicare — are especially problematic for nursing homes.

CAHF and other California health care providers also have appealed directly to CMS regulators to block the state’s 10% Medi-Cal reduction, particularly in light of Medicare cutbacks and the potentially significant effect on access to care they might produce in California.

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