Since the last nursing home building ban ended in 2008, more than 5,000 new beds for patients needing skilled-nursing services have been added (or are being added) at nursing homes around the state.
All that building is costing the state money, according to an analysis by accounting firm Myers & Stauffer, which was issued in December by the Indiana Family and Social Services Administration.
How much exactly? Well, the 27 new nursing homes that opened or began construction in 2014, plus another 10 expected in the next year or so, will cost the state $24 million in additional payments from the Medicaid program, according to Myers & Stauffer’s analysis.
Expect to hear that number repeatedly, starting Jan. 6, as the Indiana General Assembly reconvenes for its 2015 session.
The nursing home industry will once again be pushing for a moratorium on construction of new skilled-nursing facilities. Opposing them will be the construction industry and the rebels of the nursing home industry: Carmel-based Mainstreet, Louisville-based Trilogy Health Services, and Des Moines-based Life Care Services.
During last year’s debate, advocates of the moratorium argued that the recent building boom was costing the state money. But they couldn’t quote a precise figure.
Having one will be important, said Sen. Pat Miller, R-Indianapolis, who will propose a three-year moratorium on nursing home construction. That’s because every extra dollar spent on nursing home facilities is a dollar the state cannot spend on home and community-based care for the elderly, she said.
Nearly everyone prefers to remain at home, rather than a nursing home, as long as they possibly can. But Indiana lags most other states in the proportion of Medicaid spending that actually goes to community- and home-based care.
In 2012, Indiana spent 68 percent of its long-term-care dollars on facility-based care, rather than home- or community-based care. That tied for fourth highest nationally.
“Some of the money that is going into nursing homes could go into home- and community-based services,” Miller said.
But skeptics of the moratorium wanted to know exactly how much the state could save via a moratorium. Rep. Todd Huston, R-Fishers, was especially focused on this point during the 2014 moratorium debate.
“The problem for me all along was, no one could give me a definitive number as far as costs to the state,” Huston said. “And yet it was clear to me that the economic development impacts [of halting nursing home construction] were real.”
Huston said he’ll take a look at the new information from Myers & Staufffer with an open mind, but it still might not change his mind. He understands that the nursing home industry—which is heavily regulated and derives 80 percent of its revenue from government programs—is long past being a free market.
But even so, he said, a ban on construction is such an extreme form of government intervention that he needs to hear a very strong case from proponents before he’ll agree to it.
“You have to recognize that this is a managed marketplace, to begin with,” Huston said. “But for a moratorium, which is a fairly severe thing, you have to have a strong justification.”
Others may quibble with the $24 million figure.
Zeke Turner, CEO of Mainstreet, said the boom in nursing home construction that occurred in 2014 was driven in no small part by the threat of the moratorium, as nursing home companies raced to get projects started before the Legislature quashed them. Companies starting construction in 2014 included Mainstreet and Trilogy—which oppose the moratorium—but also Magnolia, TLC Management and Kindred Healthcare—which support the moratorium.
“It’s interesting that that’s being used as an argument for the moratorium, when it’s actually being caused by the moratorium,” Turner said. Besides, he added, “The percentage increase in supply is actually very, very mild compared with most other industries.”
The roughly 2,200 skilled-nursing beds either opened or started in 2014 represent 4.3 percent of the 50,000 existing skilled-nursing beds in the state. Assisted-living beds, which are also part of nursing homes, are not counted in this total because they do not require nursing staff and do not qualify for Medicaid payments.
But the Indiana Family and Social Services Administration, which has taken no position on the moratorium, documented several troubling trends that are contributing to a decline in occupancy at Indiana’s existing nursing homes.
The number of Medicare recipients staying at nursing homes has been flat or declining. That’s partly due to the fact that 30 percent of Medicare beneficiaries are in privately run Medicare Advantage plans, which earn higher profits if they reduce the overall cost of care. Also, Medicare has signed accountable care contracts with teams of health care providers, also rewarding them if they reduce the overall cost of care for specific groups of Medicare patients.
Given those larger trends, adding more nursing home beds will almost certainly decrease the occupancy level further at Indiana’s nursing homes. Average occupancy statewide now stands at 76 percent, according to the report published by the Indiana Family and Social Services Administration. That's actually up 2 percentage points since late 2013, but is still down from 80 percent in early 2011.
Nationwide, nursing homes are 83-percent occupied, on average.
Low occupancy is problematic, the state argues, because it will stretch staffing capacity across the industry. And staffing levels are a key indicator of the quality of care residents receive.
Also, lower occupancy actually costs the state Medicaid program money, due to the convoluted way it pays for nursing home care. The Medicaid program sets its payments based on cost data from each nursing home, including costs of care, of administration and of capital.
But the state assumes nursing homes are at least 90-percent occupied. When they are not, nursing homes stretch their fixed costs over fewer patients, which raises the per-patient cost data on which the state bases its payments.
“We know that the impact of excess nursing facility bed capacity results in an increase in fixed costs per resident, and specifically when occupancy declines, per resident day costs increase,” states the Dec. 1 report from the Indiana Family and Social Services Administration. “Low occupancy rates produce a challenge for the entire facility and its operations.”