Spokane Countys 25 nursing homes, which collectively care for thousands of elderly and disabled residents, have begun feeling the squeeze of federally reduced Medicare reimbursement rates.


The Medicare reimbursement changes, though only months old and being phased in gradually in most cases, already have caused:


Holy Family Hospital to scrap efforts to open a $1.2 million, 25-bed transitional care facility.


Waterford on South Hill, a privately owned continuing-care retirement center, to stop accepting Medicare patients at its skilled-nursing facility, other than residents who already live on its campus.


Hospitals here to struggle to find nursing homes that will accept patients with costlier health-care needs, such as those who are on expensive medications or are being treated intravenously.


Industry representatives say the Medicare changes, which are to be implemented fully over the next several years, likely will have the most noticeable effect on for-profit nursing homes here, some of which even are rumored to be considering shutting down.


The stocks of three large publicly traded companies that operate Spokane-area nursing homesExtendicare Inc., HCR Manor Care Inc., and Beverly Enterprises Inc.each have lost about half to three-quarters of their value over the last year, due largely to Medicare-related, industrywide financial fallout.


Prospective payment system


Under the new Medicare plan, called the prospective payment system, which the federal government began phasing in Jan. 1, nursing homes that once were reimbursed based on costs they submitted now are paid fixed rates of between about $150 and $400 a day for their services. The rate for a patient depends on which of 44 categories, called resident utilization groups, or RUGS, the patient falls into.


Nursing home administrators here argue that those rates, intended to cover everything from basic boarding costs to pharmaceutical, therapy, laboratory, and special medical equipment expenses, are unrealistically low and are causing them to lose money, particularly on patients with complex medical problems. They also contend that heavy documentation required to keep patients properly categorized under the new system is creating a new layer of overhead and is turning registered nurses, who should be caring for patients, into interviewers and data collectors.


Were moving into a real (industry) crisis, warns Alice Anderson, administrator at nonprofit St. Joseph Care Center, which is owned by Sacred Heart Medical Center. St. Joseph plans later this year to vacate one of two buildings it occupies and to reduce its patient population to about 140, or slightly more than half its current licensed capacity. Anderson says hospital officials have been discussing the downsizing for a couple of years, and it isnt due to the new Medicare reimbursement system. (See related story page B1.)


Nevertheless, St. Joseph already is seeing examples of the systems perceived inadequacies, such as a reimbursement rate of $300 a day for a man whose medication expenses alone for a severely ulcerative, amputation-threatened leg amounted to nearly that much, she says.


It comes down, for us, to (a realization that) nobody else will take them, she says of some of the patients with more expensive needs. However, she adds, It certainly doesnt help the bottom line.


Abuses within the long-term care industry are partly to blame for the congressional crackdown on soaring Medicare costs, but the changes now being implemented go too far and will cause major upheaval in the industry unless theyre modified, Anderson asserts.


Like Anderson, Kathleen Magonigle, administrator for the nonprofit St. Lukes Extended Care Center, at 222 E. Fifth, which has 55 Medicare beds, says, The patients that were getting are sicker. A lot of the facilities are uncomfortable taking them, but we do feel like we need to serve the community.


She adds, though, that she thinks its going to be a challenge for any facility to continue operating unless the prospective payment system is improved, including by eliminating some of the paperwork, which must be done by RNs and is taking some of the care away from the bedside.


Mark Blazer, general manager of Waterford on South Hill, at 2999 S. Waterford Drive, says he believes that facility probably has been hit harder by the Medicare changes so far than any of the other skilled-nursing facility operators here. Waterford had to go to the new federal reimbursement rate fully at the beginning of the year, rather than being phased in, because it opened its skilled-nursing facility only two years ago and phase-in rates were based on data collected in 1995.


Were losing $100 a day up to $250 a day or more on each Medicare patient we currently take care of, he says.


For that reason, Waterford, which offers five levels of care, decided to decertify 20 of 22 Medicare beds it formerly operated. It keeps the remaining two Medicare beds available just for its own residents, where in the past we were openly soliciting Medicare patients out of the hospitals and about 99 percent of the Medicare patient admissions to its skilled-nursing unit were from outside the Waterford campus, he says.


A more intellectual game


Theres going to have to be some massive Medicare reform over the next two years, Blazer says. He believes the problems could be solved by keeping the current reimbursement structure for most of the nursing home services, but pulling out pharmaceutical costs so they could be reimbursed separately.


Until the system is revised somehow, he contends, skilled-nursing facility operators will be forced to play a much more intellectual game, adjusting their patient mixes with a keener eye toward minimizing losses. Unlike in the past, when occupancy was a nursing-home operators key concern, Now you might be better off half full and to adjust your costs, because you could be full and go broke, he says.


That money-losing prospect, in essence, is what caused Holy Family Hospital to cease efforts to open a proposed 25-bed, transitional-care facility, which would have been the first hospital-based unit of its kind here.


In transitional care, a short-term, rehabilitative environment is provided for patients, often elderly, who arent sick enough to require standard hospital acute care, but who need a high level of skilled-nursing care and ready access to diagnostic tests and treatments.


Holy Family had appealed an April 1998 ruling by the state Department of Health denying a certificate of need application for the facility, and a hearing on that appeal was scheduled for later this spring. Holy Family decided recently, though, to drop the appeal after learning that the facility would fall under the new Medicare reimbursement system, says Cathy Simchuk, the hospitals interim CEO.


It was quite a heavy blow, Simchuk says. Because of the high costs of some newer drugs and therapies, the Medicare reimbursement rates werent going to be enough even to cover basic operating expenses, let alone the cost of remodeling space at the hospital to set up the transitional-care unit, she says.


Holy Family is exploring options for providing transitional care in something other than a hospital setting and also will be looking at strengthening its referral relationships with other local transitional-care providers, she says.


Dr. Bruce Dentler, a Spokane physician who works solely with nursing-home residents and currently cares for about 400 patients at 10 nursing homes here, says he believes the Medicare per-diem reimbursement program has major flaws, including a failure to acknowledge the cost of caring for patients with cognitive impairment.


For that reason and others, he says, I think the (nursing home) chains will find that the profit margin is squeezed extremely tight, particularly in states such as Washington, where nursing-home standards are high.


If its so tight that they cant succeed, then Medicare is going to be unsuccessful in what they were hoping to do, Dentler says, adding, I would hate to see it be disastrous for everybody across the board.


An even larger issue than Medicare reimbursement for many of the nursing homes here is the somewhat similar changes initiated last year in the way the state reimburses them for Medicaid patients.


Nursing home operators recently have been appealing to the state Legislature to reject significant proposed funding reductions that they contend would go against commitments made last year and leave them in even greater financial jeopardy.