Draining nursing home fund money its best use for now

It should not have been unexpected that Louisiana would intensify its draining of the Medicaid Trust Fund for the Elderly after voters unwisely further cordoned off funds on behalf of a special interest. That response assuredly was the correct one.

At the turn of the millennium, the Fund was created by the state at the prodding of the federal government to deposit $500 million of federal Medicaid money as part of an agreement closing out a loophole a number of states had enjoyed that multiplied their receipts, but Louisiana more than any other by routing so much Medicaid bucks through the charity hospital system. Although backers claimed the principal should not be touched, the law clearly allows that any of it can be used to support funding paid to nursing homes, while the interest earnings from the principal essentially could be used for any purpose.

Last year, that latter possibility got removed through a constitution amendment, making this an even sweeter deal for nursing homes, which long have been favored by state policy despite their increasing inefficiency in care relative to home- and community-based solutions. Until the time the fund was created, policy deliberately favored them that created a situation where the typical nursing home in the state received over 80 percent of its revenue for Medicaid and among all of them the state had the nation’s highest per capita state payments to nursing homes with the lowest rate of bed occupancy.

But as a result of a court decision not long after all of this, the state was forced to withdraw from its warehousing strategy, especially concerning the developmentally disabled, as it was judicially remanded to place all those it could practically into home or community settings where aggregate expenditures would be lower. Nursing home operators incorrectly had bet the gravy train would continue to roll for them and built accordingly. Consequently, they went crying to policy-makers to have taxpayers bail them out for their mistake and arrogance.

And they got it. In 2006, Gov. Kathleen Blanco and the Legislature put into law a case mix reimbursement methodology highly favorable to propping up nursing homes, which would come to include payments for empty beds that exceeded $20 million a year. At the time, the Fund, which only gets small amounts of revenue from specialty license plate sales and penalties paid by nursing homes for violations, buoyed by a good investment climate and with a state budget swelled by massive federal spending after the hurricane disasters of 2005, was rolling in dough over $800 million.

But as the artificial state economy wore off, the national recession hit, and Pres. Barack Obama’s economic policies continue to sabotage any meaningful recovery, the fund began to dwindle as the interest earnings went out the door to replace reduced state operating budget contributions to escalating Medicaid expenditures to nursing homes. This allowed their rates hardly to decrease while many other part of state government retracted more severely, if not entire programs lapsing. By 2011 the balance barely was above the original principal. Then that also began going to nursing homes, exacerbated by the 2012 decision of the federal government to reduce significantly Medicaid reimbursements that the state had enjoyed under a special post-disaster exception as well as by a one-off decision by the federal government that the original amount had been too much and the return of that chunk.

At the end of this just-started fiscal year, it now is budgeted to end up at just half of its original level, which has led some outside of government to complain. But this is a logical consequence of policy that biased in favor of nursing homes to the point it unwisely constrained other policy-making options.

All along, the state’s strategy has been to use taxpayer resources to give nursing homes special privileges until they can tide over the demographic changes that (both in fertility and in state out-migration only reversed in the past five years), in collaboration with the poor decisions made by them, have created the crisis. In essence, perhaps in a decade when baby boomers begin needing such services and swell demand, the overbuilt space intended to follow the developmentally disabled warehousing strategy will find use, then volumes will be such that the empty bed subsidy will disappear and rates can be lowered to a more market-realistic level, obviating need to dip into the Fund.

Until then, the money sits almost uselessly (and in a tough investment environment for low-risk instruments where the Fund must disproportionately place its funds, given the Obama strategy) unless it is used for a purpose clearly outlined in the law, reimbursement of nursing homes. The amendment further made its higher balance counterproductive by not permitting fund sweeps (even though they never had been attempted before). Even if the state had been unwise to privilege nursing homes so much that has led to reimbursement problems, it shouldn’t compound the error by making Louisiana taxpayers cough up when draining a portion of the fund will solve the problem.

That’s the proper conceptualization of the fund – as a device to bridge the gap for nursing homes to give them time to learn how to live less off the taxpayer while demographics become more favorable to them, not as treasure chest for that special interest to sit on. This tactic especially is needed as the fight continues to place greater emphasis on home- and community-based solutions that still is underfunded. Even as they search for other solutions to prevent this, policy-makers should not flinch when it comes to withdrawing money from this bonus jackpot for the few.