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"Who benefited most from higher Medi-Cal payments?" by The Union–Tribune

Report: Many nursing homes profited more than patients

By Keith Darcé

April 11, 2008

During the first full year of getting extra governmxent money to care for poor patients, nursing homes in California pocketed bigger profits and spent more on administrative functions, but they made little headway in expanding nursing staffs or improving patient services, researchers conclude in a new report.

The findings appear to contradict the intentions of the Medi–Cal Long–Term Care Reimbursement Act of 2004. The law raised the average amount paid to nursing homes for each Medi–Cal patient from $124 a day in 2004 to $152 a day in 2006.

Altogether, nursing homes in California received an additional $590 million in 2006 from Medi–Cal, which is funded by the state and federal governments.

"That’s a lot of money with not much to show for it," said Charlene Harrington, lead author of the report and a professor at the University of California San Francisco. The study was released this week.

Nursing home operators called the report unfair. They said its scope – covering data from 2001 to 2006 – didn’t accurately reflect trends in how the additional money is being spent because most of the payments didn’t start arriving until 2006.

State health care officials also said the study was premature.

"At this point, we need more time to assess and evaluate," said Toby Douglas, deputy director of the Department of Health Care Services. "The data is not sufficient to answer those questions."

Average profit margins at the nursing homes rose from 0.3 percent in 2004, before the law went into effect, to 2.54 percent in 2006, according to the report. The average annual net income increased from $74,573 to $248,047.

During the same period, the average hourly wage for nursing assistants climbed from $10.61 to $11.32, a nearly 7 percent jump, but the gain failed to keep up with inflation. Nursing assistants make up the bulk of nursing home staff members who care for patients.

Nurse staffing levels grew 3 percent during those years, while turnover rates rose 1.4 percent.

Nursing homes in San Diego County recorded similar financial results. Their average profit margin jumped from 0.91 percent in 2004 to 2.6 percent in 2006, and average net income rose from $126,698 to $273,447. County data for the other measures weren’t available.

Of the seven nursing homes in the county owned and operated by Kennon S. Shea & Associates, three were losing money but now operate in the black thanks to the higher Medi–Cal rates, said Robin Jensen, the company’s chief financial officer.

The company raised its average hourly wage for nursing assistants by as much as $1.50 – to $11.21. It also has begun providing a retirement investment match to employees and boosted overall nursing payroll by 22 percent compared with 2005 levels, Jensen said.

Many nursing home operators have been slow to spend the higher Medi–Cal payments on long–term expenses, such as new workers, because they fear a repeat of a situation several years ago when the Legislature failed to follow through on a promise for more staff funding, said Rick Mendlen, chief operating officer for Shea. "A lot of companies invested a lot of money and didn’t get reimbursed," he said.

State lawmakers approved the current payment system in the closing days of their 2004 session with support from the nursing home industry and the Service Employees International Union, which was pushing to expand its membership among health care workers. The act replaced a flat–rate system with one that pays varying rates based on each nursing home’s operating costs.

Critics of the old system said it punished higher–quality operators and did nothing to encourage bad nursing homes to improve patient care by spending more on staffing and facilities.

But the UC San Francisco study exposes problems that were predicted by some opponents of the 2004 law, mainly that the legislation doesn’t specify how nursing homes have to spend the additional money, said Pat McGinnis, executive director of the nonprofit group California Advocates for Nursing Home Reform.

"We believed that the nursing home industry would get billions of dollars in more money and they wouldn’t provide any better care or more staffing, and that’s exactly what happened," McGinnis said.

Harrington, the report’s lead author, said lawmakers should add spending requirements and penalties for missing them when the law comes up for renewal next year. "A blank check is not a good thing to give out," she said.

Douglas, with the Department of Health Care Services, said the administration supports extending the act beyond 2009 but only after lawmakers consider the issues raised by the new report. "Those ideas and concepts should be points discussed as part of the reauthorization," he said.