New Medicaid Study: Underfunding of Seniors’ Long Term Care Spikes 45% From 1999-2007

A new independent analysis of the nation’s Medicaid program by the accounting firms BDO Seidman/Eljay,LLC estimates states are underfunding the actual cost of providing seniors’ critical nursing home care by at least $4.4 billion annually, or, $13.15 per patient day – representing a dramatic 45% increase from 1999 ($9.05) through 2007. The new study also found that the states with the greatest disparity between the actual cost of providing quality care and Medicaid reimbursements are, in order of severity, Illinois, New Jersey, Wisconsin, Minnesota, Vermont, New Hampshire, Missouri, Delaware, Washington and Massachusetts.

“Beyond the obvious significance of the ongoing Medicaid underfunding of life-saving and life-enhancing nursing facility care provided to America’s most vulnerable seniors and persons with disabilities, the program’s structural weakness has an enormous negative impact on Medicare, which is increasingly forced to prop-up Medicaid,” stated Bruce Yarwood, President and CEO of AHCA. “The chronic underfunding of Medicaid undermines the financial integrity of Medicare to the detriment of our profession’s ongoing quality improvement efforts and our capacity to meet the increasing complex care needs of a rapidly aging population.”

In releasing the new report at a Capitol Hill briefing on pending FY 2008 health and budget issues, Yarwood said it is essential for policymakers, key legislative staff and all long term care stakeholders to understand the growing inter-dependence between Medicaid and Medicare – and how according to the study’s findings, the long term care sector operates at a 2.5% negative margin when factoring both Medicare and Medicaid funding into the overall long term care financing equation.   “As federal and state lawmakers consider cuts or freezes in either Medicare or Medicaid the significance of the overall negative operating margin cannot be discounted,” The AHCA President and CEO said. “These findings are further evidence that policymakers and the Medicare Payment Advisory Commission should take into account the symbiotic nature of Medicaid and Medicare financing as key healthcare funding decisions are made.”

“The federal government has a moral responsibility to cover at least the overhead costs of caring for those who are most in need.  The federal government’s practice of passing the buck must come to an end – right here and right now.  At stake is the continued existence of high quality care for our senior citizens and disabled American citizens,” stated U.S. Representative Steve Kagen (D-WI-8). 

The largest payer for long term care in the nation, nearly two-thirds of skilled nursing facility patients rely on Medicaid to pay for their care and services. Each state sets a daily care reimbursement rate ostensibly tied to the “allowable costs” of providing care in that state – costs such as 24-hour nursing care; three meals per day with important dietary supplements; critical medical services; assistance with activities of daily living including eating, bathing and dressing; essential medical equipment such as beds and wheelchairs; social activities, and more in a number of states.

According to the BDO Seidman/Eljay analysis, seniors’ Medicaid-financed long term care needs suffer the highest cost/reimbursement rate disparities in the following states:

In further explaining the role of Medicare in subsidizing Medicaid shortfalls, Joseph Lubarsky, the study author said, “Medicare continues to play an important role in the cross-subsidization of Medicaid deficits… un-reimbursed Medicaid allowable costs are projected to exceed $4.4 billion, and providers must continue to substantially rely on Medicare prospective payment in an attempt to break even from government funded programs. Any major slowdown in state economies or changes in federal policies or interpretations regarding federal revenue enhancement programs could easily reverse the positive trends of the past few years.”

The study also notes: According to the Medicare Payment Advisory Commission, the average margin on Medicare payment to nursing homes in 2005 is 13 percent, while the BDO Seidman/Eljay analysis indicates a 9.2 percent shortfall on Medicaid payment for that year. The weighted average 2005 margin from the two government funded programs combined is a negative 2.5%.

Methodology

Overall, data were obtained from 39 states and the District of Columbia and represented over 87% of the Medicaid patient days in the country. The data from 85% of the states reporting were based upon audited or desk-reviewed cost reports from 2005, the latest year for which these reports were available. As-filed Medicaid cost reports or Medicare cost reports were used for the remaining states. To project a 2007 Medicaid shortfall, the 2005 cost data were trended forward to the current year and compared to current Medicaid rates.

The American Health Care Association represents nearly 11,000 non-profit and proprietary facilities dedicated to continuous improvement in the delivery of professional and compassionate care provided daily by millions of caring employees to 1.5 million of our nation's frail, elderly and disabled citizens who live in nursing facilities, assisted living residences, subacute centers and homes for persons with mental retardation and developmental disabilities.  For more information, please visit www.ahca.org.