IBJNews

Feds scrutinize nursing home buying spree

Back to TopCommentsE-mailPrintBookmark and Share

Indiana’s county-owned hospitals have rushed to acquire nursing homes in the past two years, opening a much-needed revenue stream for both the hospitals and the long-term-care facilities.

But there are signs the additional federal revenue that has driven these purchases and helped fix up the nursing homes could come under threat.

nursing-homes-factbox.gifIn March, the federal agency that oversees the Medicare and Medicaid programs sent out a letter saying it would give additional scrutiny to the programs county-owned hospitals have used to pull in extra nursing home revenue from the federal government.

That scrutiny now affects more and more hospitals around Indiana. Since 2011, Indiana’s county-owned hospitals have acquired the licenses of 205 nursing homes around the state—many of them far from the campuses of their new owners.

In Indianapolis, any changes to nursing home reimbursement could hit Wishard Health Services particularly hard. The county-owned hospital system’s 59 nursing homes generated cash flow of $104 million last year—money that is particularly helpful to Wishard as it pays for the $754 million replacement hospital it’s building downtown.

Wishard officials say they are not concerned about changes to the program. But they and other hospital executives are monitoring the situation.

Hospitals across the region, from Witham Memorial Hospital in Lebanon to Johnson Memorial Hospital in Franklin, say they launched the nursing-home buying spree to improve their quality and to gain greater control over the facilities where their patients often go after receiving treatment in a hospital.

And the nursing home operators say they gain expertise and resources from the hospitals to help them do a better job keeping patients healthy after they have been hospitalized.

Those explanations are true enough. But the nursing homes also allow the county-owned hospitals to bring in about 40 percent more revenue from the state-federal Medicaid program.

“This program allows critical-access hospitals and rural-independent hospitals, like Witham, to remain solvent in a very competitive marketplace—which benefits not only the patients in the nursing homes we serve, but also in our own back yard by remaining open to care for our residents,” wrote Ray Ingham, Witham’s CEO, in a written response to IBJ’s questions.

That extra revenue was first seized upon by Wishard in 2003, when the county-owned hospital was drowning in red ink. Since Wishard’s success with the strategy, 20 other county-owned hospitals in Indiana have followed suit, bringing in hundreds of millions of dollars in additional revenue to themselves and to their nursing-home partners.

Here is how the arrangements work: Medicaid rules allow governmental entities—which county-owned hospitals are—to pay their state Medicaid agencies extra fees that will trigger higher federal matching funds, up to a point that lets them receive the maximum federal payments. These extra payments, which are even greater than the extra fees, are known as “upper payment limit,” or UPL, payments.

Because the Indiana Medicaid program pays nursing homes at rates well below the maximum federal rate, the difference is substantial.

“The influx from the federal level can be significant,” said Larry Heydon, CEO of Johnson Memorial Hospital. He said his hospital receives an extra $65 per Medicaid patient per day—or an increase of about 39 percent—because of the “Upper Payment Limit” funds.

Johnson Memorial Hospital acquired 25 nursing homes in 2012 and 2013. Only one of them is in Johnson County and only nine of them are within 40 miles of the hospital’s campus.

Johnson Memorial obtained 20 of its nursing home licenses through sublease agreements with Miller’s Health Systems, a nursing home operator based in Warsaw. Johnson Memorial is working with Miller’s to obtain eight more nursing home licenses this year.

Heydon said he is worried that Congress or the Centers for Medicare & Medicaid Services—the federal agency that oversees those programs—will crimp the growth of those payments in the future.

“I’m concerned if there are any changes. And there may actually be some changes,” Heydon said. “If the state of Indiana had higher Medicaid [payment] levels, then these programs wouldn’t mean as much to us hospitals. But the fact that it’s a very, very low payment rate, makes these programs very important to us.”

Other hospital executives said they are not worried about the CMS agency cracking down on the UPL payments to nursing homes.

Brian Tabor, a lobbyist for the Indiana Hospital Association, said he thinks the program is safe—particularly in Indiana.

“There may be other states that have not made changes to their UPL programs for a number of years,” Tabor said. “But because we’ve made some recent changes here, I’m not really concerned in Indiana.”

Reeling in reimbursements

The fate of the UPL program is important because in recent years both hospitals and nursing homes have faced numerous cuts to their already-low reimbursement rates.

For hospitals, the 2010 Patient Protection and Affordable Care Act called for $155 billion in cuts to hospital reimbursement over a decade. Then the fiscal-cliff deal on Jan. 1 this year chopped out another $15 billion. And Congress’ budget sequester, which hit March 1, looks ready to sap another $10 billion.

The federal Medicare program cut reimbursement to nursing homes 11 percent last year, and rates will decline another 2 percent this year because of sequestration cuts. Payments from the state of Indiana for the Medicaid program also were cut 5 percent in 2012.

Those two programs account for more than 90 percent of revenue at most nursing homes in Indiana.

As a result, nursing homes in general have delayed needed improvements to their facilities, said Patrick Boyle, CEO of Miller’s Health Systems.

Because Miller’s subleased 20 of its nursing homes to Johnson Memorial Hospital, the hospital now records the revenue from those facilities on its books.

In addition to making lease payments, Johnson Memorial also pays Miller’s a management fee to run the facilities. Neither organization would disclose the amounts of those payments.

Other hospitals actually have acquired the nursing homes from their former owners and then paid them a management fee.

Riverview Hospital in Noblesville did a bit of both. It got into the nursing home business in 2011 by acquiring nine homes from Bloomington-based CarDon & Associates and paying to rent the facilities.

In 2011, Riverview paid CarDon a total of $13 million, or nearly 27 percent of the $49 million in net patient service revenue the nursing homes generated that year.

The nine nursing homes brought Riverview $1.2 million in additional operating income—a 28-percent increase to Riverview’s operating income from the previous year.

Riverview now has acquired the licenses to 27 nursing homes since 2011—with only 11 of them within a reasonable driving distance of its hospital campus.

Riverview’s recent activity has been exceeded only by Witham, which has acquired 29 nursing homes since 2011.

The nursing homes boosted Witham’s net patient service revenue by nearly $37 million in 2011. Witham CEO Ingham said the rules of the program have so far prevented any of that revenue from flowing to Witham, although he expects the money to benefit Witham in the future.

Because of President Obama’s 2010 health reform law, nursing homes and hospitals are under increasing pressure to make sure patients that have to go to a hospital do not have to go back for the same issue. The federal Medicare program is starting to dock hospitals’ pay if they have abnormally high rates of patient readmissions for the same issues within 30 days.

“Everyone has an interest in that discharge process,” Boyle, CEO of Miller’s Health Systems, said. “They’ve always had that, but the way the new law is written, there’s even more.”•

ADVERTISEMENT

  • Over Sight Required
    If this article stated that doctors were buying nursing homes, the screams from state and federal authorities would be deafening.

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. Yes sir keep cashing those 300K a year checks direct to IMS, while millions disappear from the teams like Rahal's. Guess there wasn't enough ka- ching going around to keep Sarah Fisher in business without their "merger". LOL._____.Meanwhile back in Realville the series with the "best racing in the world" drew what appeared to be about 5000 live spectators ( and probably 1500 of those Target "freebies", and was beaten in the ratings by a series that reportedly consists of "parades" and aired while most people are still sleeping. That will generate those big ka-chings for sure. :-). But, hey, as long as the Speedway gets the cash who gives a damn about the teams?

  2. Welcome to PETERSON LOAN AGENCY Company (A Personalized Service for All Your Financial Needs) We, Liberal Investment Company Providers offers loan at a very low interest rate of 2%, we offer Personal loans, Debt Consolidation Loan, Venture Capital, Business Loan, Educational Loan, Home Loan, and Loan for any reason and urgent needs!. with a maximum duration of 30 years. Have you been turned down by your bank? Do you have bad credit? Do you have unpaid bills? Are you in debt? Do you need to set up a business? Worry no more as we are here to offer you a low interest loan. Our loan ranges from $5,000-USD (Five Thousand US dollars) to $50, 000,000.00.(Fifty Million US dollars). We also lend in USA DOLLARS EURO and POUNDS ! Fill in this form and forward it to our email: PETERSONLOANAGENCY@GMAIL.COM 1. Your Full names:_______ 2. Contact address:_______ 3. Country Of Residence:______ 4. Loan Amount Required:________ 5. Duration:_____ 6. Gender:_____ 7. Occupation:________ 8. Monthly Income:_______ 9. Date Of Birth:________ 10.Telephone Number:________ 11. Purpose of loan:_________ Yours In Service, MR PERRY, PETERSONLOANAGENCY@GMAIL.COM

  3. If I could actually get the prices...I would do this on my own. We need laws that force provides to publish the costs they will charge. Everyone else gives you the price in advance...except hospitals.

  4. I was under the impression that fencing is not allowed on a front yard and that on a corner, both sides are considered "front" yards, therefore can't be fenced without a variance. Also impedes the visibility for drivers at the intersection. Am I understanding this correctly? Might be why a fence was not included in the plans and a request for a variance will have to be made?.

  5. I was a big fan of Cowards and Carrots, which I got a chance to see at the show. It's currently on Kickstarter, but the designer also put out What's He Building in There last year, which got a fair amount of buzz.

ADVERTISEMENT