January 16, 2008	2008-R-0020
Nursing homes
By: Robin K. Cohen, Principal Analyst

You asked for information concerning nursing homes. Specifically, you want to know

1. the number of beds per thousand residents aged 65 and older;

2. to what extent there has been a shift from less-skilled beds to skilled beds;

3. how the exceptions to the certificate of need (CON) moratorium described in OLR Report 2007-R-0657 have resulted in increases in nursing home spending;

4. whether long-term care spending has shifted from institutional to community care;

5. how the state’s Long Term Care Plan addresses nursing home beds; and

6. how the state’s rate setting structure, including interim rates, has affected the nursing home system.

SUMMARY

The number of nursing home beds per 1,000 residents over age 65, which is a measure of the supply of beds, has been slowly dropping over the last several years, reflecting a decline in the number of nursing home beds in the state. In 2006 it was 61.2, which was a 7 1/2% drop from 2000.

While the overall number of beds has gradually declined, there has been a dramatic shift in the types of beds that remain as many homes have converted their less-skilled, rest home with nursing supervision (RHNS) beds to more costly, higher-skilled chronic and convalescent nursing home (CCNH) beds. In 1992, there were nearly 24,000 CCNH beds and 5,549 RHNS Medicaid-certified beds in the system; in 2006, these numbers were 27,794 and 1,002, respectively.

The shift in bed types is one example of an exception to the CON moratorium. These exceptions to the general bar on additional beds have allowed nursing homes to make certain capital improvements and other changes that have resulted in additional Medicaid expenditures.

For the past several years, the state has undertaken a number of initiatives to shift Medicaid spending from nursing homes to noninstitutional alternatives, such as home care and assisted living. As a result, the state has spent a larger percentage of long-term care funds on home- and community-based services. The Long-Term Care Planning Committee’s Long Term Care Plan for 2007 seems to continue the trend. It recommends that 75% of state long-term care spending go towards noninstitutional care by 2025. It does not address the implications this would have on the state’s nursing home industry.

As the nursing home industry faces more bankruptcies, receiverships, and closures in part due to the inadequacy of Medicaid reimbursements (a new study suggests that Medicaid under-funds Connecticut nursing homes an average of $12.40 per patient per day), the state has looked to interim rates to help homes cover their costs. These rates are expected to increase Medicaid nursing home costs by more than $50 million in FY 08 over the amount the state would have spent if it had continued using its existing rate setting structure to reimburse these homes.  

NUMBER OF NURSING HOME BEDS/1,000 RESIDENTS AGE 65 AND OLDER

The number of nursing home beds per state residents age 65 and older has fallen steadily since 2000. This is not unexpected as the number of residents age 65 and older has remained steady while the number of nursing home beds has declined. Table 1 shows changes in the over 65 population and the number of nursing home beds.

Table 1:  Nursing Home Beds Per Thousand Residents

Aged 65 and Older

Year	Number of Residents Age 65+	Number of Nursing Home Beds	# Medicaid-Certified Beds per 1000 Residents Age 65+
2000	470,747	31,185	66.2
2001	469,800	29,869	63.6
2002	469,014	30,402	64.8
2003	470,431	30.090	64.0
2004	470,151	29,232	62.2
2005	470,147	29,155	62.0
2006	470,443	28,796	61.2

Sources:   OLR calculation using U.S. Bureau of the Census, Annual Estimates of the Population by Age and Sex for Connecticut: April 1, 2000 to July 1, 2006; DSS

SHIFT IN NUMBER OF RHNS AND CCNH BEDS

Since 1992, the total number of beds in the system has dropped by a relatively small amount (2.5%), but the licensure type for these beds has changed dramatically. Nursing homes have been converting their RHNS beds to more costly, CCNH beds at greater rates every year, shrinking the number of less skilled, less costly beds by 80% during this time. In 1992, there were 5,549 RHNS beds and 23,985 CCNH beds. By 2006, these numbers had changed to 1,002 and 28,796, respectively.

We do not know what the aggregate budget impact has been for these conversions. But DSS reports that it approved a 30-bed conversion for a home in New Britain in 2007. The home’s daily rate increased by $24.09 as a result, with an estimated annual Medicaid cost increase of $263,786 (assuming all 30 beds are continuously occupied by Medicaid-eligible residents).

Table 2 shows the bed conversions between 1992 and 2006.

Table 2:  Medicaid Certified Beds—1992-2006

Year	CCNH	RHNS	Total Beds
1992	23,985	5,549	29,534
1993	22,621	4,064	26,685
1994	27,026	4,216	31,242
1995	27,997	3,653	31,650
1996	28,452	3,139	31,591
1997	28,423	2,626	31,049

Table 2: -Continued-

Year	CCNH	RHNS	Total Beds
1998	29,057	2,454	31,511
1999	28,649	2,330	30,979
2000	29,195	1,990	31,185
2001	28,006	1,863	29,869
2002	28,726	1,676	30,402
2003	28,518	1,572	30,090
2004	27,812	1,420	29,232
2005	27,868	1,287	29,155
2006	27,794	1,002	28,796

Source: DSS

IMPACT OF APPROVED CONS—1995, 2000, 2005

The legislature has continually extended the nursing home CON moratorium since it was imposed in 1991. But the law’s exceptions have resulted in increased state spending for nursing home capital projects (which are built into a facility’s Medicaid reimbursement). (We do not know the cost of CONs with associated non-capital costs (e.g., bed conversions)).

For example, according to DSS, 72 CON requests were made in 1995. These resulted in an increase of $23.3 million in approved capital projects covering six of the requests, most of which was approved for Medicaid rate setting purposes. In 2000, fewer CONs were approved, resulting in a loss of almost 40 beds. Yet capital costs associated with these CONs were slightly more than $15.3 million, with about $12.75 million incorporated into Medicaid rates. And in 2005, 45 CONs were requested, resulting in a net increase of CCNH beds, and over $38.5 million in approved capital improvements, over $30 million of which affected Medicaid rates.

Attachment 1 provides details of CON requests for 1995, 2000, and 2005.

SHIFT IN LONG-TERM CARE SPENDING

The American Association for Retired Persons (AARP) reports that between 2000 and 2005 state spending for Medicaid-funded, home- and community based services grew at a much faster rate than nursing home spending, suggesting that more residents are choosing alternatives to nursing homes. Nursing home occupancy was at 93% in 2005, compared to 95% in 1999 and 91.6% in 2003.

Table 3 shows trends in Medicaid nursing home and home- and community based services as a percentage of all Medicaid spending.

Table 3:  Medicaid Spending in Connecticut—Long Term Care in 2000 and 2005

Medicaid spending (in millions)	2000	2005	Percent Change
Total	$3,266	4,113	26
All long-term care	1,776	2,007	13
Nursing home	985	1,050	7
Medicaid home- and community based services	561	737	31

Source: AARP Public Policy Institute, Across the States: Profiles of Long-Term Care and Independent Living—Connecticut, 2006

Table 4 shows how spending for home care, which includes both the Connecticut Home Care program and other Medicaid-funded  home care, constitutes a growing share of Medicaid long-term care expenditures.

Table 4:  Medicaid Home Care Expenditures as Percentage of All Medicaid Long Term Care Spending [*]

Fiscal Year	%
96	9.68
97	9.19
98	11.31
99	12.35
00	11.31
01	12.45
02	13.57
03	15.73
04	16.44
05	17.7
06	16.7
07 (est)	16.92
08 (Governor’s recommended, Feb. 07)	16.98
09 (Governor’s recommended, Feb. 07)	17.84

Source:  Office of Fiscal Analysis, January 2008

*Home care expenditures include the Connecticut Home Care Program for Elders (Medicaid- and state-funded portions, and a portion of other community Medicaid funds (elderly). All long-term care expenditures include those for chronic disease hospitals and intermediate care facilities for the mentally retarded (ICF-MR).

While these numbers indicate that the state is spending a greater share of Medicaid funds on home care, the state’s Long Term Care Plan for 2007 reports that Connecticut ranks 26th in the U.S. for this spending, and 5^th in New England, with only New Hampshire spending less (see below).

STATE LONG TERM CARE PLAN—NURSING HOMES AND ALTERNATIVES FOR STATE’S ELDERLY

The 2007 Long Term Care Plan, produced by the Connecticut Long Term Care Planning Committee, includes an analysis of future demand for long-term care services. Relying on U.S. Census data, it points to the relatively small projected overall population increase between 2005 and 2025, but a more than 50% jump in the number of state residents age 65 and older.

The plan acknowledges differences in opinion as to the effect this dramatic change will have on the long-term care system. For example, AARP believes that disability rates among the elderly continue to decline, which could slow the growth rate for the future demand for services. But others believe the “sheer numbers” of elderly could overwhelm any positive impact that the decreased prevalence of disability might have (Plan, p. 57).

The plan continues to push for a shift from institutional to noninstitutional care. It points to the 2006 ratio of 49% institutional care and 51% non-institutional care and suggests that the state should follow a number of other states by increasing the ratio to 25% and 75%, respectively by 2025. It recommends a 1% increase in the percentage of Medicaid-long-term care clients served in the community each year until 2025. The plan does not address what the impact of such a shift would be on the nursing home industry, but it estimates 12,487 fewer people would be receiving institutional care by 2025 in adopting the lower ratio.  The Connecticut long-term care needs assessment asserts that even with the 1% yearly shift, the demand for nursing home care will increase by 25% by 2030.  (Assessment Executive Summary p.5)

The plan includes action steps specific to nursing homes and other institutions. It suggests that as homes close or experience lower occupancy rates, the state should conduct a needs analysis to determine if beds are needed elsewhere in the system and de-license or reclassify the remaining beds.  It also calls for a redistribution of resources when beds are removed.

The plan also recommends incentives for under-utilized institutions to convert their facilities to adult day care services, assisted living, residential care homes, independent living communities, or other community housing options. These types of conversions would minimize the need to invest large amounts of capital for building these types of service and housing options, which it predicts would be necessary should the shift to community-based care occur (Plan, p. 70).

RATE SETTING SYSTEM

When the legislature imposed the CON moratorium in 1991, it also adopted a new rate setting structure to further control spiraling Medicaid nursing home expenditures. It established caps for different cost categories (e.g., direct care, such as nursing), as well as geographical peer groups differentiating homes located in Fairfield County and those in the rest of the state, recognizing cost-of-living differences. The system rewarded homes that ran efficiently. It also re-based a facility’s costs less frequently, again as a way to slow spending.

While the structure for limiting the costs the state will allow remains in statute, the legislature has essentially rendered it moot by appropriating in recent years flat increases to homes and allowing DSS to grant them interim rates. (We will address the rate setting system and recent rate setting legislation in more detail in a future OLR report.)  

Interim Rates—Their Impact on Nursing Home Costs

DSS has granted interim rates to nursing homes for many years. The 1991 law attempted to control these rates by subjecting any interim rates issued on or after July 1, 1991 to the new law’s cost component caps. In 2004, as a means to stem the number of nursing homes filing for bankruptcy protection, going into receivership, or closing, the legislature more directly addressed interim rates.

The 2004 law directs DSS, in determining whether to grant a home’s rate request, to consider nursing facility utilization in the area, its physical plant condition and history of compliance with regulatory requirements, and the reasonableness of its actual and projected expenses. No rate can be higher than 115% of the median for the home’s peer grouping unless the DSS commissioner recommends it and the Office of Policy and Management approves it. If a home gets sold within five years of the interim rate being granted, the rate is considered rescinded (PA 04-5, codified in CGS § 17b-340(a)).

Since this law’s passage, DSS has granted over 160 interim rates, in some instances to the same home in different rate years. The additional overall cost of granting these rates is expected to exceed $50 million in FY 08.

We did not have time to review each request to determine the rationale for the increase. But DSS’ Kathleen Shaughnessy stated that most of the increases are granted to homes that can show that their costs have increased more than the rate increases the legislature grants. DSS denies requests if the requesting home’s cost report shows that the home was already making a profit and its projected cost increases would not be much higher than the regular rate.

Table 5 shows the number of homes requesting interim rates, the amount requested, and the amount DSS granted (i.e., the additional cost to the Medicaid program) since the law went into effect. Some homes have been granted multiple interim rates.

Table 5:  Interim Rates Granted Since 2004

State Fiscal Year	Number of Facilities Receiving Interim Rates	Potential Annual Impact of Requested Rates (Increase in Medicaid spending)	Actual Impact of Rates Granted (Increase in Medicaid spending) [1]
2005	85	$62,198,289	$26,033,236 [1]
2006*	44	28,672,220	11,339,299
2007*	36	18,212,550	9,991,064
2008*(partial)	11		3,349,730

Source: DSS, CON and Rate Setting Division, various quarterly reports and internal tracking

[1] The actual increase in 2005 was 1% less as homes had to forego the 1% increase the legislature approved, which would have been issued on January 1, 2005. 

* The data for these years come from DSS’ internal tracking and not from a formal report

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