Healthcare Revenue Cycle Management, ICD-10, Claims Reimbursement, Medicare, Medicaid

Policy & Regulation News

How Too Much Choice is Increasing Nursing Home Costs

By Ryan Mcaskill

A nursing facility building boom in Indiana will cost the state $24 million in additional Medicaid program payments.

- It is hard to imagine that building more nursing homes in a specific state could have any drawbacks. Unfortunately, because of Medicaid and Medicare regulations, an influx of nursing homes that are not filled to a certain capacity can have a negative impact by inflating payments.

A recent article from the Indiana Business Journal covered a growing problem in the state. It revolves around a boom in nursing home building that started after a ban on such practices was lifted in 2008. Since then, more than 5,000 new beds for patients have been or are being added at nursing homes. In 2010, there were 49 nursing homes with licenses owned by a county-owned hospital. That number has ballooned to 329 in 2014.

In 2011, Indiana had 49,732 nursing home beds – 763 for every 100,000 residents. That is 45 percent more than the national average. On top of that, the number of facilities is 58 percent higher than the national average.

The reason this is bad comes down, not surprisingly, to money. According to a study commissioned by the Indiana Family and Social Services Administration, each of these buildings costs the state money beyond just construction. In 2014, 24 nursing homes opened and 10 more are planned for 2015, which will cost the state $24 million in additional Medicaid program payments.

Residents in the state spend an estimated $1.1 billion more every year on long-term care than those in other states and $422 million less on home healthcare than the national average. In 2011, United Senior Advocate reported that the annual cost of home care is $7,100 per patient per year. Facility-based care costs $55,000.

All of this has sparked up another debate, and potential legislation, to create another ban on nursing home building.

The nursing home industry is almost unanimously in favor of the ban. The belief is that it will help stabilize declining occupancy rates. It will also spread out funding other types of care including home and community-based care. In 2012, the state spent 68 percent of its long-term care funding on facility and nursing home care, instead of home and community. That is the fourth highest in the country when it comes to Medicaid spending for long-term care. The national average is 55 percent.

The other side of the argument points to government intervention and the fear of the moratorium itself as one of the leading causes for the building ban.

While the Indiana Family and Social Service Administration has remained mum on the topic of a new moratorium, it did discuss several major trends that can be concerning. The number of Medicare recipients staying at facilities is either flat or declining which is partly because 30 percent of Medicare beneficiaries reside in private facilities run by Medicare Advantage plans. Also accountable care organizations are rewarding healthcare providers that reduce overall cost.

The Indiana General Assembly will convene on January 6 to start hearing both sides before making a decision.

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