September 21, 2006

other Voices

Healthcare system in crisis

By Jeff Singleton, Pam Haislip, Robert Reed

The pressure to reduce spending for the Medicaid program in general, and nursing homes in particular, has been increasing for a number of years. The state of Ohio, unlike the federal government, must prepare a balanced budget each year. It was inevitable that Ohio would finally begin to “tighten its belt” and the only question was who would most feel the impact and to what degree. That day finally arrived and the nursing home industry certainly felt the wrath of the governor’s budget cuts. As such, Friends Extended Care Center has had to deal with a dramatic reduction in reimbursement that will continue into the foreseeable future.

What is a dramatic reduction? If the existing Medicaid reimbursement system had remained in place, Friends would have an additional $400,000 with which to work today. Given the cuts in Medicaid funding over the past several years, Friends is faced with a $45,000 reduction in Medicaid reimbursement for 2006–2007 alone.

Medicaid is the largest component of the state of Ohio budget at 37.8 percent of all expenditures. The Medicaid budget increased by $4 billion from 1999–2005. Nursing homes (32 percent), hospitals (20 percent), and prescription drugs (14 percent) comprised 66 percent of the Medicaid budget in fiscal year (FY) 2003. Of those three, prescription drugs has by far grown the fastest in recent years, almost doubling from just over $1 billion in FY 2002 to $2 billion in FY 2005.

Nursing home funding was one of the recipients of reduced funding in the FY 2004–2005 state budget. The calculated nursing home rates were reduced 4.14 percent in FY 2004 and 6.62 percent in FY 2005.

Again, the state faced a budget crisis for FY 2006–2007 (July 2006 through June 2007) due to the expiration of the 1 percent increase in sales tax, although not quite of the dimensions as FY 2004–2005. Fortunately, revenue collections picked up at the end of FY 2005, leaving the state with a small surplus and the expectation that the revenues would increase for FY 2006–2007. Making a permanent increase in sales tax from the original 5 percent to 5.5 percent and limiting budget expense growth to 1.9 percent in FY 2006 and 2.6 percent in 2007, the lowest increases in 40 years, filled the budget gap.

Once again, nursing homes were asked to give more than their “fair share.” Nursing home rates were frozen for FY 2006 with a maximum increase of 2 percent for FY 2007. The nursing home reimbursement system is undergoing a profound change from a cost-based system to a “pricing” system.

The cost-based system reimbursed each nursing home based upon the costs each home expended in caring for residents. The “pricing” system divides nursing homes into “peer groups” based on size and geographic locations, and all nursing homes within each peer group will receive the same base rate, adjusted to compensate for differences in patient acuity. Under the “pricing” system, future rate increases will be made at the direction of the Ohio legislature by adjusting the base rate established effective July 1, 2006, and will no longer be adjusted based upon costs incurred by individual nursing homes. Those adjustments could be related to rates of inflation, but will more likely be based upon what the state budget can afford.

Governor Bob Taft has railed against what he calls the “Medicaid monster” and how it needs to be “reined in.” But Medicaid and Medicare patients comprise approximately 67 percent and 10 percent (Friends 2006 budget — 58 percent and 8 percent) respectively, of an average nursing facility’s residents, and as such, have a profound effect on a facility’s ability to provide quality services to its residents.

So, how does all this directly impact Friends Extended Care Center? As mentioned above, approximately 60 percent of our residents are Medicaid recipients. Forty percent of Friends Care Community’s $5.9 million operating revenue comes from Medicaid funding. The Medicaid cuts for 2006 alone meant a 10.7 percent reduction in reimbursement to Friends and an additional 1.6 percent reduction takes place in 2007.

In the meantime, our resident population has not decreased. Our level of service has not lessened. Our work force (130 employees) has not been reduced. Given that the outlook in Medicaid funding remains bleak for the foreseeable future, what do we do? We work harder, we work smarter. We reduce costs without compromising our mission. We seek other revenue sources. As such, Friends is working towards providing senior apartments to our community. We are exploring offering outpatient therapy as an added service. Our fundraising efforts will increase. An endowment fund has been established.

The cuts in the State’s Medicaid budget are a huge obstacle to overcome. A dedicated staff, a committed board of trustees and a supportive community will ensure that our standard of excellence remains unchanged. Our promise to the greater Yellow Springs community is that Friends will remain Friends.

• Jeff Singleton is the administrator at Friends Care Community; Pam Haislip is the director of financial services at Friends Care Community; and Robert Reed is a certified public account and auditor for Friends Care Community.