Nursing homes facing huge cuts under Dayton's plan

For years, Minnesota's $2.3 billion nursing home industry received a sympathetic ear at the Legislature and avoided Draconian budget cuts, even in the leanest times.

After all, there is a nursing home in almost every legislator's district -- roughly 400 facilities statewide -- and few lawmakers wanted to hurt a major employer or risk substandard care for the state's frail elderly.

That hands-off tradition could change this year. The heavily regulated industry would take its deepest payment cuts in history under the budget that Gov. Mark Dayton unveiled last week. Some facilities "almost certainly will close" if it is approved, said Gayle Kvenvold, CEO of Aging Services of Minnesota, which represents largely nonprofit homes.

Industry leaders, who have fought off at least three budget-conscious governors in the past two decades, expressed surprise last week.

"We're shocked," Kvenvold said. "Candidate Dayton talked about protecting elderly Minnesotans, but Governor Dayton's budget does not reflect that."

When Dayton chose to protect K-12 education and state aid to local governments -- two of the "big three" slices in Minnesota's budget pie -- it set him up to have to turn to the third slice: health care and human services.

Those services make up 32 percent of the state's general fund budget and will provide something like half of the overall budget savings Dayton proposed.

"But where would they go?" asked Randy Hagemeyer, Birchwood's owner and administrator for 23 years. Residents are screened by the county to verify their need for care. "If they were appropriate for community placement, they'd be there," Hagemeyer said. "We get paid about $116 a day to care for them. Where else can you get room, board and care for $116 a day?"

Already about 75 Minnesota nursing homes are operating at losses of 5 percent or greater, according to year-end accounting data, Kvenvold said.

At Mount Olivet Home in Minneapolis, the board and care operation would not be closed, said administrator Tim Hokanson. "I don't think [the sponsoring] Mount Olivet Church would let us. We'd subsidize the $265,000 loss through our nursing home -- although off the top of my head I'm not sure how. The nursing home would get a pretty substantial cut in rates, too."

Ripe target for cuts

Because the state-federal Medicaid program pays a big share of long-term care costs for elderly residents when their income drops to a certain point, the state sets the rates that nursing homes can charge for care through the program. State law also bars homes from charging private-pay residents more than the Medicaid rate.

Of the net spending cuts, $87 million would come from Medicaid payments for long-term care -- $50 million, or 6.4 percent, from nursing homes, and $37 million or 11 percent, from the Elderly Waiver program, which aims to keep people out of nursing homes.

Using the nursing home surcharge is a way to capture federal Medicaid matching money. Dayton would increase the surcharge per bed from about $2,800 a year to $3,800. The state would collect the federal match for residents whose care is financed largely by Medicaid, and the home would get back most of its surcharge payment for that resident. A Coon Rapids nursing home, for instance, calculates that it would pay the state $375,000 and get back all but $75,000.

But the state surcharge also would collect about $8 million from 8,000 nursing home residents who pay for their own care, then double it from the federal match. The private-pay residents would pony up an additional $1,000 and get nothing back.

Deciding on the budget cuts "was very difficult for all of us," Human Services Commissioner Lucinda Jesson told legislators Wednesday, and the cuts were designed to preserve care for the most vulnerable Minnesotans. Another Dayton proposal that caught some advocates by surprise would eliminate health coverage for 7,200 low-income adults in the state's MinnesotaCare health insurance plan.

Republicans could cut deeper

Overall cuts may be far deeper because Republicans have vowed to erase the state's projected $6.2 billion budget deficit entirely with cuts, instead of the Dayton formula of cuts and tax increases. Some Republicans have suggested health and human service cuts of $1 billion to $2 billion. But key GOP and DFL legislators this week indicated some discomfort with Dayton's targeting of nursing homes.

"The governor made a good-faith effort. I honor that," said Rep. Jim Abeler, R-Anoka, after a hearing Wednesday at the House Health and Human Service Finance Committee he chairs. "My proposal is going to be different. I think we can avoid some of the direct damage to vulnerable people" he sees in the Dayton proposal.