Westminster Village North, a nursing home and retirement community in Indianapolis, recently added 25 beds, as well as two kitchens to speed food delivery to its residents. It redesigned patients’ rooms to ease wheelchair use and added WiFi and flat-screen televisions. This fall, it’s opening a new assisted-living unit.
The nursing home can afford these multimillion-dollar improvements partly because it has, for the past five years, been collecting significantly higher reimbursement rates from Medicaid, the state-
federal health insurance program for the poor.
The changes began when Hancock Regional, a county-owned hospital 15 miles away, began leasing Westminster Village North. A wrinkle in Medicaid’s complex funding formula gives Indiana nursing homes owned or leased by city or county governments a funding boost of 30 percent per Medicaid resident. The money is sent to the hospitals, which negotiate with the nursing homes over how to divvy it up.
About half of Westminster’s residents are on Medicaid, so the new funding was substantial.
“We have seen amazing changes and created a more homelike environment for our residents,” said Shelley Rauch, executive director of the home.
Nearly 90 percent of Indiana’s 554 nursing homes have been leased or sold to county hospitals in the past 14 years, state records show, bringing in hundreds of millions in extra federal payments to the state.
Even though Indiana’s nursing home population has remained steady at about 39,000 people over the past five years, Medicaid spending for the homes has increased by $900 million, to $2.2 billion in 2016, according to state data.
Today, more than two-thirds of Indiana’s Medicaid long-term care dollars go to nursing homes. The U.S. average is 47 percent.
The funding enhancements were pioneered in Indiana, but hospitals in Pennsylvania and Michigan also have used the process. Advocates say it has been a key factor in helping to keep Indiana’s city and county hospitals economically vital at a time when many rural hospitals nationwide are facing serious financial difficulties.
But critics argue that the money flow has not significantly improved nursing home quality. Furthermore, they say, it has provided incentives to steer patients to nursing homes rather than lower-cost options, such as home health care or community-based day-care centers.
Joe Moser, who until May was Indiana’s Medicaid director, acknowledged while in office that more people were moving to nursing homes than staying in their homes, and he said it was due in part to the hospital-nursing home marriages. “It is a factor that has contributed to our imbalance” in care choices, he said.
Daniel Hatcher, a law professor at the University of Baltimore and author of “The Poverty Industry,” a book published last year, said this funding arrangement is a bad deal for the poor because it takes a large portion of Medicaid dollars targeted for services for low-
income nursing home residents and sends it instead to hospitals to use as they please.
That undercuts the purpose of the Medicaid program, he said.
“The state is using an illusory practice and taking away money from low-income elderly individuals who are living in poor-
performing nursing homes,” he said. He noted Indiana is ranked near the bottom of states for nursing home quality by several government and private reports. Among them is a score card from Families for Better Care and the AARP score card.
But proponents of the practice say that even when hospitals get most of the money, it is well spent.
Marion County Hospital and Health Corp., the large safety-net hospital system in Indianapolis, owns or leases 78 nursing homes across the state, more than any other county hospital.
Sheila Guenin, vice president of long-term care there, said the hospital keeps 75 percent of the additional Medicaid dollars and the nursing homes get the rest. Still, the additional money has improved care. The transfer of the license to the hospital has kept several nursing homes from closing and increased staffing rates at many others, she said.
About 40 percent of the county hospital’s nursing homes have five-star ratings from the federal government, up substantially from 10 years ago, Guenin said. Among the improvements at the nursing homes were the addition of electronic health records and of high-capacity emergency generators to provide power in a natural disaster.
Still, some patient advocates said the extra funding is flowing to hospitals and nursing homes with little public accounting. Ron Flickinger, a regional long-term-care ombudsman in Indiana, said, “A lot of extra money is being spent here, but I’m not sure patients have seen it benefit them.”
Medicaid, which typically covers about two-thirds of nursing home residents, is jointly financed by the federal and state governments. States pay no more than half the costs, although the federal match varies based on a state’s wealth. In Indiana, the federal government pays about 65 percent of the costs.
The enhanced nursing home payments began in 2003 when a county-owned Indianapolis hospital decided to take advantage of Medicaid rules to bolster its bottom line. In this case, the hospital purchased a nursing home, then provided the money for the state to increase what it spent on the home to the federally allowed maximum.
That increase, in turn, drew down more federal matching funds. Since the federal remittance was larger than the hospital’s contribution, the hospital got back its initial investment and divided the extra money with the nursing home.
Other county-owned hospitals in Indiana slowly followed suit.
Hatcher said Indiana government leaders embraced the funding arrangement because it let them avoid the politically difficult step of raising taxes to increase state funding to improve care at nursing homes. “It’s a revenue generator for the state and counties,” he said.
All the Medicaid funding for nursing homes should be going to those homes to care for the poor, not shared with hospitals to use as they choose, he said.
The strategy, promoted by consultants advising hospitals and nursing homes in Indiana, is used heavily there because of the plethora of county-owned hospitals. But the federal government is tightening the rules about such payments.
Texas has secured Medicaid approval for a similar strategy starting this month, but federal officials have made the extra funding dependent on nursing homes meeting quality measures such as reducing falls. Oklahoma is seeking to get federal approval, as well.
And in a rule released last year, the federal Centers for Medicare and Medicaid Services announced that it would gradually force states to shift to payment systems that tie such reimbursements to quality of care. Michael Grubbs, an Indiana health consultant, said that rule does not stop the Indiana hospital funding program, but it’s unclear that it will last.
Nursing home operators in Indiana say the financing arrangement has helped them keep up with rising costs and improve care for residents.
Zach Cattell, president of the Indiana Health Care Association, a nursing home trade group, noted that the number of nursing homes in the state earning Medicare’s top, five-star rating has increased nine percentage points since 2011. He said the percentage of high-risk residents with pressure ulcers and those who are physically restrained also dropped significantly.
Indiana’s small, county-run rural hospitals generally are not facing the financial threat that is more common elsewhere, in part because of the extra Medicaid funding gained from buying nursing homes, hospital officials say.
“The money has meant a great deal to us,” said Gregg Malot, director of business development at Pulaski Memorial Hospital in northern Indiana. “I don’t see this as a loophole but see it as an opportunity for small, rural community hospitals to improve our quality and access to care.”
His hospital is the only one in Pulaski County. The extra Medicaid revenue from acquiring 10 nursing homes statewide — about $2 million a year — has helped finance the purchase of the hospital’s first MRI machine, so doctors don’t have to rely on a mobile unit that used to come twice a week, he said.
The hospital also spent some of the money to add a computerized system to monitor patients’ vital signs.
Steve Long, chief executive of Hancock Regional Hospital in Greenfield, said his hospital recently built two fitness centers in the county with help from the extra Medicaid dollars that resulted from its acquisition of Westminster Village.
He rejects the notion that additional Medicaid money reduces the hospital’s incentive to add home- and community-based care in the community. He said new Medicare financing arrangements, such as accountable care organizations, give the hospital motivation to find the most efficient ways to care for patients after they leave the hospital.
But he acknowledged that the hospital benefits from seeing more patients go to nursing homes licensed under its name.
“Welcome to health care — it’s a complex and confusing environment where we have all different competing incentives,” Long said.
Kaiser Health News is a national health policy news service that is part of the nonpartisan Henry J. Kaiser Family Foundation.