Medicaid cut hasn't caused chaos for nursing homes

January 31, 2010
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Although state lawmakers reduced Medicaid funding by 8 percent last October for the current fiscal year, nursing homes apparently haven’t suffered as much from the budget cut as some predicted — at least not through the first four months of the fiscal year.

“I’ve seen some stories put out by the nursing home industry of catastrophic events that would have happened because of the cut, but actually we have not had a rash of closures or the things that had been predicted,” said Sarah Slocum, a long-term care omnibudsman with the state of Michigan.

Slocum said one major reason for that is that the blow was softened by higher tax returns from the state to facilities that accept Medicaid.

In Michigan — and in 43 other states — nursing homes that accept Medicaid pay the state what is often called a “provider tax,” although some prefer to call it a fee. When the state receives that assessment from providers, it qualifies for additional Medicaid money from the federal government.

“Right now, the matching rate is 70 percent federal and 30 percent state. So that means for every 30 cents (the state receives), they can collect 70 cents in federal money. Then part of the money they collect goes back to the providers,” said Slocum.

“So, providers who have a high Medicaid census — a high percentage of people in their building using Medicaid — will get a bigger amount of money back, on top of what they paid in. In homes that do just a little bit of Medicaid service, they will not get that much back,” she added.

The state uses the return as a way to give providers an incentive to accept Medicaid as a payment method to care for seniors. It’s also a way to get additional funding into those facilities and have most of that money come from the federal government and not the state.

“As I understand it, that’s how it has worked for this year. It’s essentially a wash,” said Slocum of the tax return and the budget cut.

According to the National Conference of State Legislatures, federal law says the state can’t charge providers more than 25 percent of a state’s share of Medicaid expenditures. At the same time, the law restricts a state from guaranteeing nursing home officials that the tax dollars will be returned to them.

Even though the assessment did come back to providers this year, that doesn’t mean that everything is fine financially with the homes, because canceling out the budget reduction isn’t the same as getting more revenue from the Medicaid program.

“Anytime a provider doesn’t get an increase, that creates a difficult year, because inflation keeps going up and everything they have to purchase goes up. The cost of labor goes up. So that does put a squeeze on, even if it’s flat funding,” said Slocum.

“I don’t want to downplay the effect of cuts. But it hasn’t been as catastrophic this year as what was predicted.”

The next fiscal year, though, could present a different outcome for providers. Federal stimulus dollars are expected to dry up this year and state lawmakers may chop an even larger chunk from Medicaid by October, when the 2011 budget is due.

“What that means for nursing homes is they’ll have less money to hire staff, less money to buy food … less money to pay for linens and for all the monthly operating essentials that they have to have just to take care of people,” said Slocum.

The early rumor is that state spending for Medicaid will drop by 20 percent.

“I’ve heard the 20 percent as a proposal. I don’t know how far it’s going to get. I have also heard a proposal for eliminating some additional Medicaid optional services,” said Slocum.

“The categorization of optional services is kind of misleading because these are really pretty basic services. … That always worries me when they talk about ‘optional’ services because there really is no fluff left in Medicaid, and they will be cutting basic services if they go through with that.”

Medicaid coverage for dental, podiatric and chiropractic care was eliminated last year. But the state allows nursing home residents to pay for those services from the monthly patient-pay fees the facilities charge them. Then the state reimburses the homes for the loss in fees.

Slocum said it has been difficult for some seniors to find a Medicaid bed in portions of the state. In Grand Rapids, though, she said beds are available but possibly not in the particular home a senior wants. According to the state, there are 26 facilities in Kent County that accept residents who are approved for Medicaid.

Funding for the state’s share of Medicaid comes from the general fund, and revenue to the general fund largely comes from income tax, use tax and sales taxes.

“As I pointed out, if they can come up with $30,000 in the general fund to use in Medicaid, they can get an additional $70,000 from the Feds to use in Medicaid. So it’s really not wise to cut the general fund to Medicaid because it actually generates more federal money coming in to support our state,” said Slocum.

“It’s not the type of program that, if we cut it, it’s just a loss of that service and we save some state dollars. It multiplies when you cut Medicaid dollars because of this huge loss — more than two times the amount in lost federal funds.”

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