– The second story of Parker Oaks Communities, on the edge of town, still looks like the nursing home that it will soon stop being. Fluorescent lights. Hospital beds. White walls. But downstairs, a radio blared as workers painted the rooms in warm hues.

Parker Oaks can't afford to keep operating as a nursing home, losing $20,000 to $30,000 a month, said owner Jim Birchem. So by March, it will switch to assisted living.

Nursing homes in small cities across the state are on the brink, their owners say, because they're not getting enough money from the state. Their perennial plea this year comes with a new proposal: They're lobbying the Legislature to overhaul the way they are reimbursed — a plan that would tie the Medicaid rates the state sets to cost and quality and, they say, allow homes to pay their workers better wages. Over two years, that plan would cost the state $200 ­million, according to the industry.

The changes could boost nursing homes in rural areas where Republicans, who now control the state House, campaigned on the issue. Those rural facilities, often among the largest employers in town, are faring worse than their metro counterparts, state data show. In 2013, the group of 84 facilities classified as "rural" (as opposed to "semirural" and "metro") posted a net loss of $6.1 million.

"If this legislation would have passed a year ago, I think we would have saved Winnebago," said Birchem, co-owner of Eldercare of ­Minnesota, which has eight nursing homes and a dozen assisted-living facilities scattered across the state. "We probably could have saved Red Lake Falls, too."

Since 2000, at least 69 nursing homes have closed in Minnesota. But the yearly figure has been declining, state data show. Just three nursing homes closed in 2014, including Hillcrest Senior Living in Red Lake Falls, down from 13 in 2000.

Some question whether taxpayers should better fund an industry that's housing fewer seniors as care shifts to homes and assisted ­living. Gov. Mark Dayton did not include new money for nursing homes in his budget, noting that they got a 5 percent increase, on average, last year and are set to receive another 3 percent in October.

''From a policy perspective, I like the holistic, fresh look at nursing facilities' needs as opposed to an across-the-board, cookie-cutter approach," said Lucinda Jesson, commissioner of the Department of Human ­Services. The proposed legislation builds on the department's work, she said, linking some funding to quality scores the state already puts together.

It also would calculate nursing homes' rates using the cost reports filed by facilities each year, with limits. The rates the state sets for Medicaid, which accounts for more than half of nursing homes' income, also applies to people paying out-of-pocket, under state law.

Nursing facilities would see an average rate increase of 25 percent, with the bump slightly bigger for those in rural areas, according to the Long-Term Care Imperative, the lobbying arm of the state's two long-term provider associations: Care Providers of Minnesota and LeadingAge Minnesota.

The Department of Human Services has not yet released its analysis of the bill and how much it could cost the state.

Turnover rising

Good Shepherd Community in Sauk Rapids is competing with Dairy Queen and Aldi for workers — and losing.

Turnover has soared as nurses have left for hospital positions that pay more than $30,000 more, and aides have opted for jobs that pay more and demand less, said Bruce Glanzer, Good Shepherd president and CEO. In 2014, the nonprofit saw 64 percent turnover in registered nurses, up from 40 percent in 2012. Turnover for aides reached 106 percent in 2012.

The Aldi in nearby St. Cloud advertises a starting wage of $15 an hour for cashiers, Glanzer noted. "Tell me which you would rather do if you were an entry-level employee: Would you rather sit on your duff, swiping credit cards? Or make $10.50 an hour having to change people's underwear, having to lift and break your back …"

Unlike other businesses that can respond to turnover by bumping up wages, nursing homes are hamstrung by the rates set by the state, he said. Those rates are ­unrelated to the cost of providing care, he added, which has risen along with energy, health care and food prices. "Let me run my business like a business," Glanzer said.

Nursing home administrators said they've had to cut back on the patients they can admit because they can't find the staff to care for them. The problem is most acute in counties where the elderly make up a bigger share of the population, said Patti Cullen, president of Care Providers of Minnesota.

The nursing home industry is counter-cyclical, said Robert Held, director of the Department of Human Services' nursing facility rates and policy division. When the economy is poor, homes can find workers. When unemployment is low, workers become scarce.

"We feel that workforce is a huge issue, more so now with the economy doing better," Held told the House Aging and Long-Term Care Policy ­Committee.

Last week, that committee passed a bill to replace the current funding system, created in the 1990s, with one that considers facilities' median costs. Before voting for the bill, DFL representatives tried to amend it to require increases to be spent on employee wages. But Republicans shot down those amendments.

"We want to make sure that those increases go to the workers … and not to the administrators or to the profits or to other parts of the health care system," said Rep. Tina Liebling, DFL-Rochester. "If they're honest about why they need the money, then this should address the problem."

'No place for them'

In October, almost a year after it closed, the low brick building that once housed the Good Samaritan Center in Hoffman was torn down. "It's just bare land now," said Muriel Krusemark, the city's economic development coordinator. The western Minnesota city, population 680, still feels the loss of those 33 beds and 52 jobs.

When residents leave the hospital, "there's no place for them. They have to go to Fergus Falls," Krusemark said, about 45 minutes away. "That's a long ways for families to travel."

The nursing home had been losing between $200,000 and $400,000 a year for several years before its closure, said Bill Brewer, its administrator at the time. "How many businesses could do that for very long?"

Though at the time, some employees suspected mismanagement, Brewer pins the losses on the state's reimbursement system, which during years of freezes, necessitated five years without raises. By categorizing the facility as rural, which led to lower rates, it didn't recognize that the cost of attracting and retaining workers in the small town could actually be higher than in bigger cities, he said.

Brewer also ran the Good Samaritan nursing home in nearby Glenwood and reduced administrative costs by sharing six department heads between the two facilities, he said. They cut down on extras. They relied on donations from the communities. Not long after Brewer retired in 2014, the Glenwood nursing home, too, closed.

"It wasn't for lack of trying," he said.

Much of the steep decline in nursing home beds in Minnesota was intentional, Held said. In the mid-1980s, the state was "one of the four or five most heavily bedded states in the country," he said. But by 2011, Minnesota's beds per 1,000 residents came in line with the national average, state data show.

A new owner

On a recent morning, Norvina DeNeui peeked at the work going on the first floor of Parker Oaks. She's one of 11 residents able to transition from the nursing home, attached to an assisted-living hall, to the revamped facility, which will be all assisted living. Four residents already have moved out to other homes. One will go home.

"I'm anxious for them to hurry up and get done so I can move down there," said DeNeui, 91, who goes by "Vi" here. "It's going to be nice."

The remodeling also will turn a row of offices into a dining and community area. Under the assisted living model, they'll need fewer administrators, Birchem said. No need for a licensed nursing home administrator. No licensed social worker or business office manager. The certified dietary manager can be shared with other facilities.

The revenue is better, too: With assisted living, homes can charge private payers more than the Medicaid rate, something that's not allowed in nursing homes.

Some residents in this southern Minnesota city need convincing, though, that the assisted living facility will be able to handle residents who need greater care. But many are just happy to keep some kind of senior facility in town.

"When you're 75 or 80 years old and not feeling well, it's not the time to move to another city and make new friends," said Bill Erickson, president of First Financial Bank in Winnebago. Erickson is leading a board of community members that has formed a nonprofit to purchase Parker Oaks — and perhaps two other facilities in nearby towns — to ensure they stick around.

"Unless people see that it's important to put the effort into keeping these places viable," he said, "then when we all have those needs, we're not going to have them available locally."