SADOW: How Much Longer Does Louisiana’s Nursing Home Gravy Train Continue?

While the just-concluded 2014 regular session of the Louisiana Legislature did nothing to create a less-favorable policy environment for long term health care for the disabled and indigent, a report by the Louisiana Legislative Auditor emphasized the problems that remain in having the state pay too much for too little service.

Historically, Louisiana tilted it resources in this regard towards institutionalized care in nursing homes, where the state paid a much higher proportion of total dollars going to this care to them relative to other states. Operators became dependent on these payments, on average 85 percent of their total revenue, comprising by fiscal year 2013 $840 million that represents nearly a quarter of all state Medicaid money spent. Because of legal changes and court rulings, however, the state has been forced to spend more on home- and community-based delivery even as payments to nursing homes continued to escalate.

Unfortunately, in the past 20 years collectively nursing home operators bet on more business, because of a less-healthy and more elderly population comparatively, disregarding the changing fiscal climate courtesy of the mandate to move less acute clients out of institutions, and overbuilt. As a result, Louisiana has among the lowest occupancy rates of the states, which even as this edges downwards faces a continuing decline in the overall number of clients in institutions. The hope among these operators is that they can ride this out until demographics of an aging national population catch up. Yet the continued growth of non-institutionalized options, which on average save the state tens of thousands of dollars a year per client with the benefit of less restricted living for each, portends that the overbuilt condition will not go away any time soon, if ever.

So, the nursing home industry has adopted several strategies to stave off the simple fact that some operators are surplus and need to go out of business. For one, the average age and acuteness of their clients have declined in the 21st century – exactly the population that should be served by non-institutionalized services, largely potential recipients of Medicaid waiver services, instead is getting served by these institutions at a higher cost to taxpayers. Nursing homes helped engineer this by getting a case mix reimbursement methodology put into law in 2006 that rewards them for empty beds – Louisiana at 75 percent on average having one of the lowest occupancy rates in the country – to the tune of $15.6 million last fiscal year. This not only takes away money that could have gone to waiver services, but also gives the state every incentive to fail to discourage institutionalization as a response, because the subsidization of empty beds works at cross purposes by encouraging placement in nursing homes to avoid the empty bed bonus payments.

Another strategy contained in the legal set-in-stone Medicaid reimbursement rate is to have the component of it based on acuity – sicker clients draw more money – on the total patient census and not just those on Medicaid. As private- and insurance-pay (including Medicare) clients tend to be sicker, this boosts unnecessarily the rate – a calculus few states use in computing their rates.

Worst of all, a constitutional amendment backed by the industry won legislative approval last year and will face a popular vote this fall that would lock in these rates with an automatic annual escalator that only can be undone each year of budget deficit with a legislative supermajority. This will lock in the formula biased towards higher nursing home spending, provides no incentive for cost control, and makes it more difficult to increase funding for non-institutionalized service delivery, if not actually would lead to rate cuts for those that could reduce the number of people served – where backsliding in this regard opens the state up to court-ordered remedies that would be more expensive still.

To add insult to injury, Louisiana nursing homes produce on average among the poorest outcomes for their clients. While operators may claim that the lower-than-average reimbursement rate nationally causes this, when adjusting rates by the cost-of-living Louisiana does not come as so relatively low and the fact remains that money going towards paying off and maintaining excess capacity could be used to improve the quality of delivery at the same rate.

Since last year the state has worked on a transitional plan regarding long-term care designed to reduce per client costs, which emphasizes a managed care approach. But its effectiveness will be hampered by the current locked-in rate computation and would become further constricted by the amendment passage later this year, even as the Department of Health and Hospitals continues two specific programs to reduce excess capacity that have drawn little interest from institutions. At the very least, the amendment needs defeating and the law changed to base the rate on Medicaid patients only. Better would be ditching the empty bed subsidy to save money and to reduce incentives to send clients more appropriately served in the community to them.

This might force some operators out of business, especially those that have a higher fixed cost overhang. But the state shouldn’t be in the business of subsidizing poor business choices. DHH could issue rules, or have laws passed, that allow for emergency state intervention in situations where closures would create a critical shortage of beds that allow for continuity of care, but for where a closure does not threaten this, create a structure by which residents living in facilities that cannot make it in the market will be transferred to other area homes with excess capacity or transitioned into the community. Not only will this save money, but existing operators will become strengthened.

Naturally, the industry will fight tooth-and-nail against any of this in order to preserve its weaker members surviving only on the excess taxpayer dollar. And legislators as a whole have been notoriously gutless when it comes to bucking an industry that fills up their campaign coffers. But in a state where health care state-generated spending rivals that on education for highest of any function and continues to rise well above the rate of inflation (reimbursement rates are up 38 percent over the past three years), it’s not enough for policy-makers to not make things worse with unwise laws or amendments, as this does nothing to stem the hemorrhaging taxpayer resources that threatens to leave unfulfilled other state priorities and/or take more from the people. More intense and politically difficult intervention is necessary, and policy-makers cannot shy away from making these hard choices.

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