Public Hearing Testimony 

Senate Health and Insurance Committees 

Health Care Reform Act (HCRA) Reauthorization 

January 11, 2005

INTRODUCTION

            Good day.  My name is Robert Murphy and I am the Executive Vice-President of Governmental Affairs for the New York State Health Facilities Association (NYSHFA).  I am pleased to be making a co-presentation to you today with my colleague and friend Carl Young, who represents the New York Association of Homes and Services for the Aging (NYAHSA).

The New York State Health Facilities Association represents approximately 260 skilled nursing facilities in the State serving over 45,000 patients.  Our homes are primarily of proprietary sponsorship but we also represent voluntary and governmental facilities as part of our membership.  In addition to providing skilled nursing services a number of our members also offer assisted living, adult home, home health care and adult day services to consumers. 

My name is Carl Young, and I am President of the New York Association of Homes and Services for the Aging.  NYAHSA represents the entire continuum of not-for-profit continuing care services including nursing homes, senior housing, adult care facilities, continuing care retirement communities, assisted living and community services providers.  NYAHSA’s nearly 650 members serve an estimated 500,000 New Yorkers of all ages each year. 

            We wish to thank Senators Bruno, Hannon and Seward for inviting us to provide our views on the reauthorization of the Health Care Reform Act (HCRA).  Our comments today will be brief, but we will be providing more detailed comments with significant background data to you and your colleagues in the coming days and weeks. We will direct our comments to HCRA specifically, but will also spend some time discussing a vitally important related issue—the collective work of the Associations on the difficult but crucial task of revamping the Medicaid nursing home reimbursement system in New York State. 

OVERVIEW

            While generally perceived as a hospital and insurance law, HCRA includes some significant provisions affecting Medicaid reimbursement for nursing homes and other long-term care providers.  Although the HCRA nursing home provisions are significant in their own right, they represent only a portion of the overall nursing home Medicaid reimbursement system which is, unlike the hospital system, primarily a regulatory system.  Recent state budget policy has also shaped nursing home reimbursement.  For example, the 2004-05 state budget authorized two additional funding streams to provide nursing homes with much needed short-term financial relief.

We will spend some time later in this presentation discussing the deteriorating fiscal condition of nursing homes in New York State today, due in large part to the inability of our system, founded on a 1983 base year (the oldest in the country), to accurately and appropriately recognize current costs.  The reason we bring this up during our HCRA discussion is to emphasize the need to capture all costs as well as revenues which are part of the existing system, before beginning any new discussion on how to revamp our system.  Indeed, there are important elements in both HCRA and the 2004-05 state budget which we believe must be maintained while we go about the important work of an equitable and long overdue restructuring of Medicaid payments to nursing homes.  We also believe that when discussing HCRA it is important that we, either immediately or in the near future, consider it in the context of the entire system.

            We will also discuss some of the serious financial and workforce challenges facing home care providers, and the resulting need to address these issues in the context of HCRA renewal.

            Our comments today on HCRA will be confined to those elements which relate to nursing homes and home care agencies.   Major areas we will be commenting on today relative to HCRA renewal are workforce and quality improvement funding programs, funding for financially disadvantaged nursing homes and the nursing home wage equalization factor (WEF) update, and the need for capital funding for upgrading/renovating health care facilities and acquiring technology.

HCRA Nursing Home Workforce and Quality Improvement Programs

            The 2002 HCRA recruitment and retention legislation authorized $354 million in nursing home recruitment and retention add-ons for the years 2002-04 and the first six months of 2005. This funding, which was specifically earmarked for employee related purposes, has allowed facilities to enhance wages and benefits for thousands of dedicated professional and paraprofessional caregivers in this very difficult job market. Since over seventy percent of the typical nursing home’s costs are attributable to employee wages and benefits, this add-on has been crucial to providers being able to recruit and retain quality staff to meet the needs of residents. 

Given that the resulting wage and benefit enhancements are now built into facilities’ labor cost structures and that ongoing labor cost increases are expected to exceed increases in the Medicaid inflation factors, this funding source should be reauthorized and further increased in HCRA.  Furthermore, this much needed recruitment and retention add-on funding should become a part of the base for any new Medicaid nursing home reimbursement system.

A total of $218.7 million was included in HCRA and the 2003-04 budget for Nursing Home Quality Improvement Demonstration grants to individual facilities and groups of facilities, with another $62 million added in the 2004-05 state budget for a Supplemental Nursing Home Quality Improvement Demonstration grant program.  The intention of this grant money was indeed laudable and has been supporting nursing homes’ efforts to improve working conditions, thereby enhancing quality of care and quality of life for their residents. 

However, the grant application and award processes for these programs were time consuming and extremely cumbersome.  Furthermore, the $31.2 million allocated for the Nursing Home Quality Improvement Demonstration program for the first six months of 2005 was never provided to facilities.  We suggest the funding for these programs be continued in HCRA and in the base of any new reimbursement system, but feel strongly that we must find a better way to expeditiously distribute funding for hese quality initiatives.

            Competitive grant programs were made available under HCRA and the state budget for individual facilities and groups of providers to enhance workplace environments, support re-training of displaced workers, and encourage innovative approaches in the delivery of nursing home care.  The Workforce Retraining and TANF grant programs should be continued and made available to nursing homes and their workers as a part of HCRA.

The Need to Address Home Care Workforce Funding

The State and federal governments have made significant cuts to home care.  Over the last ten years, New York has cut Medicaid home care funding annually.    As a result, Medicaid payments do not cover current costs of care.  Making a bad situation worse, Medicare cut funding to New York’s home care providers by nearly $400 million over this period.  These cuts—which total $1 billion (across both payors) over the last decade—have had a significant impact on home care’s ability to remain competitive in the rates it can pay to all staff. 

Although the HCRA 2002 legislation provided substantial funding to support personal care workers, principally in the downstate area, significantly less funding was made available to support recruitment and retention of skilled professionals and direct care workers in certified home health agencies (CHHAs) and long term home health care programs (LTHHCPs).   Although lawmakers did provide for a one-time increase of 3 percent or about $50 million for the skilled home care workforce in the next State budget, this still left agencies with relatively less funding to compete for nurses and aides.    

            The renewal of HCRA provides a much needed opportunity to revisit the need for workforce funding to support recruitment and retention of professional and paraprofessional home care workers throughout the state.

Upgrading/Renovating Health Care Facilities and Acquiring Technology

Though not addressed in previously enacted HCRA legislation, the need to upgrade and renovate health care facilities to meet the needs of patients has been widely discussed for the better part of a year.  The aging out of provider physical plants, as well as the inability of the current Medicaid reimbursement system to fully recognize increased costs for these and technology expenses is a crucial issue for nursing homes.  In light of the fact that New York’s current inventory of nursing homes includes a large number of facilities built in the 1960s and 1970s, the need for upgrades and renovations is obvious. 

Home care agencies need capital for technology improvements.  Although it is important for home health care agencies to be able to purchase technology to increase the productivity of the workforce, neither Medicare nor New York’s Medicaid program currently pays for telehealth technology that can double the number of cases a nurse can manage in a day.  Like nursing homes and hospitals, home care agencies also need to upgrade computer hardware and software in order to efficiently operate, but as non-facility providers they face unique challenges in accessing capital loans to purchase equipment and software.  

We support creation of a grant program or other funding stream as part of HCRA and beyond to deal with this issue and allow these needed improvements to be made, including acquisition of technology that can enhance patient care and provider efficiency.  While acute care hospitals face these same challenges, funding from any such program should be made available on an equitable basis to continuing care providers—nursing homes and home care agencies—in a way that ensures opportunities for providers throughout the state regardless of location and sponsorship. 

Funding for Financially Disadvantaged Nursing Homes and WEF Update

We applaud state lawmakers for taking decisive steps in the 2004-05 state budget to stabilize nursing home finances in the short-term to protect access to services and buy time for more fundamental reforms.  These short-term fixes included: (1) establishing a formula-based Medicaid rate adjustment for financially disadvantaged facilities; and (2) updating the nursing home wage equalization factor (WEF) to reflect 2001 wage and benefit costs. 

The financially disadvantaged facility rate adjustment will provide $30 million in desperately needed funding in each of the 2004 and 2005 calendar years to provide immediate relief to those facilities which have been most disadvantaged by the outdated Medicaid reimbursement methodology.  These formula-driven Medicaid rate adjustments are directed to facilities with the most significant operating losses, and were funded by the financially disadvantaged nursing home grant program originally established in the HCRA 2002 legislation. 

The WEF is used in New York’s Medicaid reimbursement methodology for nursing homes to adjust for regional differences in employee wages and fringe benefits.  Prior to the 2001 update authorized in the 2004-05 state budget, the WEF had not been updated since 1993, in spite of the well-documented labor shortages that facilities have faced in recent years.   The WEF update will assist an estimated 250 nursing homes in the state, and most tend to help facilities and regions of the state that have seen the largest relative increases in nurse and nurse aide compensation from 1993 to 2001. 

Continued support of the WEF update in a budget context is vitally necessary.  However, since the WEF is a relative measure of employee compensation, it does not address the actual year-to-year increases in compensation costs that the HCRA workforce programs have helped to support.

The financially disadvantaged facility and WEF adjustments provide desperately needed short-term assistance to nursing homes.  This short-term assistance is intended to provide a bridge to a new Medicaid payment methodology for nursing homes, which will be described more fully in our remaining comments.  

HCRA:  AN OPPORTUNITY TO REFORM THE MEDICAID REIMBURSEMENT SYSTEM FOR NURSING HOMES

Background on the Problem

New Yorkers’ access to long-term care is in serious jeopardy.  Years of Medicaid reimbursement shortfalls are threatening the availability of services vital to the nearly 300,000 New Yorkers of all ages who need nursing home care each year.  Since just January 2003, Medicaid under-payments have precipitated the closure of 13 nursing homes with 1,123 beds in New York, and many others have had to severely cut back services. All face an uncertain future.  Statewide, over 70 percent of all nursing homes received payments below the actual cost for providing Medicaid services in 2000, and studies show the shortfall getting bigger every year. 

This widespread failure to ensure that payments will cover the true costs of providing health care services has weakened the financial viability of the state’s nursing homes. As the demand for long-term care increases, the problem will only worsen.   This issue affects people with diverse needs—frail senior citizens, individuals needing complex medical care, AIDS patients, and patients who need short-term rehabilitation.  In 2002 alone, 38 percent of all nursing home discharges were to patients’ homes.

Medicaid reimbursement for nursing home care in New York is fundamentally flawed—it is based on 1983 costs, the oldest such “base year” in the country.  Furthermore, the ensuing inflation adjustments are woefully inadequate to the actual impacts of cost inflation in the health services sector.  Since Medicaid supports approximately 80 percent of New York’s nursing home patients, this approach has led to annual shortfalls between costs and reimbursements for mandated long-term health care services.

Among the ten most populous states, New York’s nursing homes suffer the second-largest loss per patient, per day in Medicaid reimbursements, according to an independent analysis of the nation’s Medicaid program by the national accounting firm BDO Seidman LLP.  This gap has been attributed to a number of factors, including:

• An extreme labor shortage requiring salary and benefit increases beyond normal price inflation as well as increased use of more expensive temporary nursing agency/per diem help;
• Skyrocketing costs in certain non-labor areas such as liability insurance and utility costs; and
• Dramatically rising pharmacy costs due to new and more effective drugs which may reduce acute hospital stays but increase nursing homes’ pharmacy costs.

In addition, New York nursing homes have higher costs than facilities in other states because many—at the state’s request—care for more disabled residents and cover a higher percentage of low-income seniors, adults and children.  In effect, New York’s nursing homes are penalized for caring for some of the state’s most vulnerable residents.

Since 1997, NYAHSA has tracked an uninterrupted downward trend in nursing home financial performance.  In reviewing cost reports for 2000-2002, NYAHSA has found that: (1) a majority of New York’s nursing homes suffered operating deficits in 2002; and (2) 2002 marked the first year that nursing homes collectively suffered operating and bottom line losses.  NYAHSA’s preliminary review of 2003 financial information reveals that: (1) operating margins fell further in 2003, with declines in all sponsorship groups; (2) a growing majority of facilities experienced operating losses in 2003; and (3) collectively, facility bottom lines were worse in 2003 than 2002.

Finding a Solution

Nearly everyone agrees that New York’s Medicaid reimbursement system, based on over 20-year-old costs and outdated formulas, must be reformed. Adjusting for inflation alone will not solve the problem, since New York’s Medicaid inflation factor as calculated today has not, does not and will not ever adequately compensate for the major root causes of rising costs—labor, insurance and prescription drugs. In addition, more than a decade of arbitrary cuts to New York’s Medicaid system—based on state budget problems that have nothing to do with nursing homes—have further weakened the system’s viability.

Until policy makers, advocates, payors and health care providers take a hard look at fundamental changes, New Yorkers and their families who need and deserve good care will continue to face the prospects of rising costs and dwindling options for long-term health care.  They deserve better.

NYAHSA, NYSHFA and the Healthcare Association of New York State—collectively representing more than 85 percent of the state’s nearly 700 nursing homes and the only three statewide associations—are committed to making sure New Yorkers continue to have access to quality long-term care now and in the future.  In a demonstration of that commitment, the groups formed the Joint Association Task Force on Nursing Home Reimbursement in February 2004.  Its mission is to evaluate the current Medicaid reimbursement methodology, establish principles for comprehensive reform, consider available alternatives and develop comprehensive recommendations for a new methodology. The Task Force consists of a 12-member Policy Workgroup and a 21-member Technical Advisory Group made up of leading nursing home policy, administrative and reimbursement experts from throughout New York State.

The Task Force has spent many months identifying key issues, evaluating other states’ reimbursement approaches, gathering data and developing a sophisticated financial model of the system. Clinical experts from the three associations are evaluatingthe relationship of Medicaid reimbursement to quality of care. Task Force organizers also held three open meetings with nursing homes across the state last summer to gather their input, drawing more than 200 participants in all.

Based on this work, the three associations are developing a set of specific recommendations to serve as a foundation for an equitable reimbursement system. This plan will be made public early this year as you and other state lawmakers look at overall health care policy and funding through HCRA and the 2005-06 state budget.  Association members have agreed that a sustainable long-term solution must:

• ensure that payments cover the cost of services rendered;
• promote desired outcomes, such as high quality of care, efficiency and innovation;
• foster consistency, predictability, administrative simplicity and timely payments; and
• include periodic payment updates to ensure a current, relevant system.

Only then can New Yorkers be sure that access to quality nursing home care will be available for themselves and their loved ones when they need it most.

CONCLUSION

Thank you again for the opportunity to speak with you today about the Health Care Reform Act, which has become increasingly important to the ongoing survival of long-term care providers.  NYAHSA and NYSHFA stand ready to assist in any way necessary as you work through the renewal of HCRA and the 2005-06 state budget process.  We also look forward to partnering with you and other stakeholders as together we tackle the crucially important and challenging work of reforming New York’s Medicaid reimbursement system for nursing homes and other aspects of long-term care financing and delivery.

We are happy to address any questions you may have.