LINCOLN — Edward Matney III had hoped to continue operating the nursing home that was his grandparents’ legacy in South Sioux City.

But on July 25, one month after his father, the home’s administrator, died, Matney warned state officials that the home could not make payroll.

“There was a number of issues, but particularly problematic was Medicaid reimbursement,” he said.

Matney’s Colonial Manor has not closed its doors. But five other Nebraska nursing homes have shut down this year. That’s more than in any of the previous five years, and 2018 is not yet finished.

Nebraska had 225 licensed long-term care facilities in May 2016, according to state licensing officials. As of last month, the total was down to 222, after accounting for both closed and newly opened facilities.

Nursing home officials said facilities are struggling, in large part, because state Medicaid payment rates have fallen farther and farther behind operating costs. Compounding their difficulties are Nebraska’s tight labor market and low occupancy rates that are due, in part, to a push toward less costly options, including in-home care.

“You can’t make that work on a napkin with a crayon,” said Heath Boddy, president and chief executive officer of the Nebraska Health Care Association.

Boddy said Medicaid rates have lagged nursing home costs for years.

But state budget-balancing moves last year increased the pressure. Lawmakers approved a budget that held nursing home payment funds flat during the two fiscal years ending June 30, 2019.

As a result, the gap between average Medicaid payment rates and average Medicaid-allowed nursing home costs has grown.

In 2014, Nebraska Medicaid paid homes about $25 less per day than their costs, according to information compiled by the American Health Care Association. By 2017, the gap had increased to about $36 — or 17.6 percent of costs.

Ron Ross, president of Rural Health Development, a nursing home management company based in Cambridge, Nebraska, said nursing homes have limited options to make up the shortfall.

Statewide, 53 percent of nursing home residents rely on Medicaid to pay for their care. In rural homes, Medicaid pays for as many as 65 percent of the residents, he said.

“We’re having to charge our private pay (residents) more and we’re having to cut where we can,” Ross said.

Making matters more difficult is the way the state calculates rates for individual homes.

The calculation is based on operating costs at each home and includes an inflation factor. Originally, Ross said, that factor was intended to update the cost information. More recently, it has been used to match payment rates to state appropriations.

For the fiscal year that ended June 30, state Medicaid officials set the inflation factor at a negative 2.65 percent. For the current year, it was set at a negative 7.17 percent.

Then, to keep the total flat, homes that got a rate increase had to be balanced by rate cuts for others. For this year, 41 percent of homes got rate reductions, Boddy said. The rest got increases.

Matney’s Colonial Manor saw its basic rate zigzag from $129.51 per day in fiscal year 2016-17, down to $126.05 in 2017-18, then back up to $130.16 for the current fiscal year.

Nebraska Department of Health and Human Services officials disputed the idea that nursing homes have had a rate cut, noting that the total appropriated by the Legislature has remained flat. Jeremy Brunssen, deputy director for the Medicaid and long-term care division of HHS, characterized the rate reductions as a “rebasing” or “rebalancing.”

HHS spokeswoman Julie Naughton said state officials are making it a priority to find a new method of setting rates for nursing homes. The current method rewards homes with the highest costs, rather than those with the best care, and is neither predictable nor stable, she said.

“The current methodology ... is not beneficial for the state, its residents or the nursing home industry,” she said.

Naughton also said Medicaid rates are not the only challenge facing nursing homes. Those that closed recently were only about half full, she said.

Ross agreed that the industry is in a slump. Vacancy rates have grown as the number of alternatives has increased and state and federal programs encourage more use of less costly home- and community-based services.

According to McKnight’s, a long-term care news publication, national nursing home occupancy dropped from nearly 86 percent in 2012 to less than 82 percent in 2017, well below the industry gold standard of 95 percent.

State Sen. John Stinner of Gering, the Appropriations Committee chairman, said he is concerned about the trends, especially how they are affecting rural nursing homes. When homes close, he said, it can mean rural residents have less access to care nearby.

Sen. Merv Riepe of Ralston, the Health and Human Services Committee chairman, also has concerns. He said work is needed to improve the reimbursement methodology before lawmakers decide that more money is needed for nursing home care.

The two are working on a legislative study this summer and fall that looks at Medicaid payment rates, the adequacy of state appropriations, the cost of regulations and other issues affecting nursing facilities. The Appropriations Committee, with help from HHS Committee staff, have a hearing on the issue set for 9 a.m. Oct. 19 at the State Capitol.

Boddy welcomed the attention.

“We’ve got to find a way to change, adapt, to find something sustainable or there will be big-time gaps in health care,” he said.

Martha Stoddard keeps legislators honest from The World-Herald's Lincoln bureau, where she covers news from the State Capitol. Follow her on Twitter @StoddardOWH. Phone: 402-473-9583.

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