Rebekah Allen’s latest article on the nursing home industry, based on the new Legislative Auditor report on its rates, again shows the favored treatment given this special interest at the expense of seniors and taxpayers. The report notes that Louisiana’s rate methodology is far more generous than other states and millions could be saved by changing it. The industry offers its standard response: “We have the fourth (or whatever it is at the time) lowest rate in the country, so how can we be getting paid too much? “ Simple answer: There is a big difference between what the rate is and how much profit one makes.
The fact is, the rate may be low, but it must be what the industry wants. It wrote the methodology, it had the Legislature put it into law, and it fought any outside efforts to change it. The rate generates enough profits to allow nursing home owners to be among, if not the, largest political contributors in the state. Those profits and contributions are ultimately paid by taxpayers, as most of the industry’s income is from Medicaid and Medicare.
So how can low rates yield high profits? Even a low rate can be highly profitable if costs are low. It works like this. Louisiana Department of Health sorts the costs reported by nursing homes into five groups: direct care (e.g., salaries of nurses, nurse aides, etc.), care-related (e.g., supplies, food, etc.), administrative, capital and pass through. For direct care, care-related and administrative costs, officials next determine the median cost in each group. So half the homes have higher costs and half have lower costs.
They then multiply each group by a factor written into law. These range from 107.5 percent for administrative to 112.4 percent for direct care and care-related. Here’s how the “low” rate is misleading. Direct care and care-related are the largest costs, and of that 112.4 percent multiplier built into the rate, facilities only have to spend 94 percent. That leaves a potential profit of 18.4 percent. Pretty sweet.
Louisiana has some of the lowest staffing requirements for nursing homes in the U.S. So it is possible that a facility can comply with the requirements while spending near the 94 percent. In fact, as the audit notes, some facilities don’t spend even that much and have to pay money back to LDH.
Experienced operators know how to staff and operate a facility to keep their costs near or below the median and maximize their profits. So how low the rate is compared to other states is irrelevant. It’s the rate compared to the cost that matters.
Contrary to the industry’s comments, the rate method by no means provides an incentive for quality care. Quite the opposite, since the financial incentive is to keep your direct care costs near the 94 percent, not the 112.4 percent. It’s not surprising that Louisiana has more one- and two-star facilities than any other state.
This is not to suggest that every nursing home makes huge profits. Clearly some facilities have higher costs and some do devote more staff and resources to efforts to provide quality care. A better methodology would reward facilities that do achieve higher quality. No one questions the need for nursing homes or their right to be fairly paid, but our elected officials have given regular rate increases and a favorable methodology, while getting no meaningful increase in services or quality in return.
This is the third legislative audit to raise this issue, yet it remains. Faced with hard choices about the state budget, will our elected officials finally do something? Repealing the methodology statute would be a good place to start.