Report: Many nursing homes teeter on brink

03/27/2005

Monday, March 21, 2005
By Warren Wolfe - Star Tribune

Originally Published 3/21/05

One in four of Minnesota’s 402 nursing homes is at risk of closing because of financial losses, a leading accounting firm for the industry has warned in a new report.

“With rising costs and cuts in state and federal funding, the financial stability of nursing homes has continued to deteriorate for the last three years,” said John Racek of Larson, Weishair and Co., a Minneapolis firm that does the accounting for half of the state’s nursing homes. “It probably will not improve this year.”

Nine Minnesota nursing homes closed last year. Most faced a combination of financial problems, outdated buildings and falling demand as more frail, aging Minnesotans choose assisted living apartments or home health care. More than 30 nursing homes have closed in the past 10 years.

The report, based on a survey of 275 homes, did not predict how many will close this year, but it said about 100 homes are at risk of closing because their losses exceed 5 percent of revenues. The homes were not identified. The problem is worst in northwestern Minnesota, where 44 percent of the homes are at risk, the report said.

“We can’t say how many nursing homes will go out of business. Some,” said Racek, who presented the report for two nursing home associations. “At some point, your board, your investors or the churches that own you say it’s time to stop the pain.”

Statewide, the median nursing home operating margin—the percentage of revenue left after expenses—was less than one-half of 1 percent for the second year in a row. In the metropolitan area, the report said, median nursing home operating margins have been in negative territory for the past five years.

“We’ve been struggling for a few years, but last year was the worst for us,” said Jeff Heinecke, administrator of Roseville Good Samaritan Center. “We lost over $400,000, roughly 6 percent of our operating budget.”

Like other home operators coping with rising insurance, fuel and other costs, Heinecke has frozen staff wages for two years, cut some worker hours and left some vacant positions unfilled. To bolster income, he eliminated 14 beds last year and opened a small short-term care unit for intensive rehabilitation after hospital stays.

Those stays, requiring far more care than usual, are paid for mainly by Medicare at a state average of about $324 a day. That’s more than twice the $135 rate paid by last year by the state-federal Medicaid program for the poor.

Still, this year Heinecke will have to lay off some workers—“something that will hurt staff morale, which residents surely will pick up on.”

State control

The state sets most nursing home rates for all non-Medicare residents. It has that power because it spends about $1 billion a year through Medicaid for care of two-thirds of the state’s 38,000 nursing home residents.

Another state law says nursing homes may charge private-pay patients no more than the Medicaid rates.

The Legislature froze the rates two years ago because of a massive budget deficit. In addition, it trimmed about $32 million from other nursing payments.

In 2001, homes were given a 3 percent increase but were required to spend most of it for wages and benefits.

“In that environment with tight government controls, the most successful homes are those are managed exceedingly well, attract the most Medicare-covered short-term patients, and develop a nursing home campus with senior apartments, where rates are not set by the state,” said Racek, of the accounting firm.

Nursing home operators are “pretty nervous, and we’re watching the Legislature even more closely than we usually do,” said John Korzendorfer, a regional director for eight nursing homes in northern Minnesota owned by Lutheran-affiliated Ecumen. The governor has proposed raising rates by 2 percent. Other bills offer 3 percent.

But even a 3 percent increase “won’t be enough to save homes that are teetering on the edge of solvency,” said Jon Lundberg, administrator of Walker Methodist Care Center in Minneapolis. His firm closed two Minneapolis homes in the past two years, each losing about $500,000 a year.

Too many beds

Minnesota has had far more nursing home beds in some areas than are needed, and the state has offered financial incentives for homes to eliminate beds or to close entirely. Since 1987, the number of beds has dropped from 48,300 to about 38,000.

The state has encouraged the industry to build more community services such as home care, adult day care and assisted living facilities—services older Minnesotans say they prefer.

“The problem is that we don’t have the money to update aging facilities or retool our industry,” Lundberg said. “With our cash flow, most homes can’t even borrow the money because our bankers know we can’t service the debt.”

The two trade associations have proposed that the state create a $90 million “transition fund” to help nursing homes revamp facilities, reduce beds and build new community services. It would be financed by $90 million in state bonds repaid largely through savings to the state from eliminating empty beds.

The state Department of Human Services has begun looking at that and other proposals to help the industry, Assistant Commissioner Loren Coleman said.

“There are some interesting ideas there. ...But are these the right approaches? We really need to examine that pretty closely.”

In the meantime, nursing home officials are reexamining their costs and income.

“One of our air conditioners went out last fall, and pretty soon I have to buy a new one,” said Heinecke, the administrator in Roseville. “Maybe $1,000 doesn’t sound like much, but these days, you look at every dollar.”