Nursing homes in Indiana have more money than ever

Correction: An earlier version of this post incorrectly stated the average daily Medicaid payments to nursing homes that are owned by county hospitals. Those nursing homes actually receive about $225 per Medicaid patient per day, which is roughly equal to the average daily costs of caring for Medicaid patients. The post has been corrected below.

Nursing homes in Indiana have more money than ever.

Through partnerships with county-owned hospitals around the state (which I’ve described here, here, here and here) nursing homes pulled in about $260 million last year in extra federal funds, according to the latest figures compiled by Myers & Stauffer PC.

That money was doled out to 351 long-term care facilities—or two-thirds of all facilities in the state. And those facilities account for about 85 percent of the $3.1 billion in patient revenue among Indiana’s nursing homes—or about $2.6 billion per year.

That means the extra federal funds gave the participating nursing homes a 10 percent bonus check last year.

The effects of that extra money could be important as the Indiana General Assembly mulls a 3-year construction ban on skilled nursing beds (as opposed to assisted living or home-based care for seniors).

To date, the debate over Senate Bill 460 has focused more on how a recent nursing home building boom has affected occupancy and, by extension, the state’s finances. The bill was passed Monday by the House Public Health Committee, by a vote of 8-2, and will now go before the House Ways and Means Committee.

But the extra federal money has transformed the economics of nursing homes.

Most nursing home operators say they are not baking the new money into their general operating budgets—in part out of fear that Congress will end the program in the future.

Pat Boyle, CEO of Warsaw-based Miller’s Health Systems, said his company’s partnership with Johnson Memorial Hopsital in Franklin, Indiana, has generated money it is now spending via capital projects at all of its facilities statewide. It is also spending money on electronic medical record systems and training programs for its staff, which Johnson Memorial has helped to build.

“The independent owner just can’t be out there on their own any more,” Boyle said. “Those affiliations and those partnerships are very beneficial as it relates to making sure that the cornerstone of those communities is available to serve all patients that are there.”

However, if nursing homes applied that money to their operations, it would make all of their Medicaid patients break even or profitable—a complete reversal after years of Medicaid paying less than nursing homes spent to provide care.

Whereas the average daily rate for Medicaid patients in 2014 was about $180, the extra federal money gives nursing homes about $225 per day for every Medicaid patient. It costs nursing homes between $215 and $225 per day to care for a Medicaid patient, according to figures from Myers & Stauffer and the Indiana Health Care Association.

Nursing homes do have to give up their profits, as part of their partnerships with county-owned hospitals. The nursing homes actually become part of the profit-and-loss statements of the hospitals.

How big are those profits? Trade groups peg them at 2 percent or less. But North Carolina-based financial information firm SageWorks, which calculates profit margins for all industries, pegged nursing homes's profits at 6.8 percent back in 2012.

Whatever it is, nursing homes clearly get more out of their 10 percent bump in revenue than they lose in profits.

The number of nursing homes participating in these partnerships has grown 735 percent in less than five years, from 49 in 2010 to 409 now, according to the Indiana State Department of Health.

Here is how those programs work:

-    The county-owned hospital becomes the owner of the nursing homes.

-    The hospitals then pay extra money to the state Medicaid program to cover the state’s costs of raising its payments rates for Medicaid patients as high as it can go—which is a level equal to what the federal Medicare program would pay for the same nursing care.

-    Those extra payments by the state government draw down payments that are twice as large from the federal government. That’s because Medicaid in Indiana is funded one-third by the state and two-thirds by the federal government.

Those extra federal dollars totaled $520 million in 2014, according to Myers & Stauffer. And according to multiple sources at county-owned hospitals and at nursing home operators participating in these partnerships, those funds are being split roughly 50-50 between the two sides.

That would mean nursing homes get $260 million of that $520 million in extra payments.

It is not possible to verify exactly how much county hospitals are paying their nursing home partners. That’s because the contracts the two sides sign do not spell out exactly how much money the hospital will transfer to the nursing home.

Instead, hospitals transfer money to the nursing home operators via three mechanisms: management fees, royalties and rent payments.

Those management fees range from 4 percent to 6.5 percent of revenue. But since the partnerships boost revenue by about 10 percent via the extra federal funds, the management fees grow substantially. Some contracts even include quality and profit-based bonuses.

Each contract includes monthly royalty payments for the “intangible property” of the nursing homes. Those are just gravy that the nursing home operators weren’t receiving before the hospital partnerships.