Nursing homes offer plan to raise their revenues, at the right price

The state’s largest nursing home association says it has a plan to boost funding for the struggling industry by 4 percent at just the right price for the state–nothing.

The East Hartford-based Connecticut Association of Health Care Facilities, which represents about 60 percent of the state’s nearly 230 licensed homes, recently told Gov. Dannel P. Malloy’s administration it could increase funding by up to $52 million next year by taking better advantage of existing federal law.

“We believe this plan represents a rare opportunity to increase revenues–using brand new federal revenues–that don’t increase overall state costs,” Matthew V. Barrett, the association’s executive vice president, said Wednesday.

The association’s plan hinges on what is commonly known as the “provider tax,” a back-and-forth revenue arrangement that Connecticut and many other states use to leverage additional federal aid.

Federal law allows states to levy a tax of up to 5.5 percent of net revenues on health care providers that serve low-income patients under the Medicaid program. Since 2006, Connecticut has levied a tax only on nursing homes, though other states also tax hospitals, nonprofit social services agencies, intermediate care facilities for those with development disabilities, and other community-based providers.

Connecticut collects about $116 million annually from nursing homes. But it then returns most of that same funding to the industry.

Why the back-and-forth arrangement? Because under complicated Medicaid rules, both the tax payments the homes make, as well as the expanded payments state government makes to the facilities, count as expenditures eligible for partial federal reimbursement.

This typically leverages additional federal aid equal to more than 80 percent of the initial revenue raised by the tax.

The system does have its complications. The federal government requires states to do more than simply raise and then return the revenues. Dollars must be redistributed in some fashion. Typically, nursing homes serving wealthier clients lose some funding while those serving more low-income patients gain. Also, Connecticut shares a portion of the funds it raises with community-based, social service agencies that serve Medicaid patients.

Still, the nursing home association noted in a recent appeal to Malloy that Connecticut has been passing up a chance for the past six years to leverage even more federal aid at no net additional cost to the industry.

Specifically, Gov. M. Jodi Rell’s administration never updated its numbers over the six years that the tax has been levied. In other words, nursing homes still are being taxed based on the net revenues they earned in 2005.

If projected revenues for 2012 are used when the tax is collected next January, Connecticut could boost its take from Washington, D.C. by $45 million, Barrett said.

And federal law calls for the maximum provider tax allowed to increase in October 2011 from 5.5 to 6 percent. If Connecticut takes advantage of that to bolster its provider tax, the end result is an extra $52 million in aid from Washington.

The bipartisan federal commission researching options for reducing the national budget deficit recommended scrapping the entire provider tax system. But with emergency federal stimulus expiring next fiscal year, and with numerous states facing multi-billion-dollar budget deficits, Connecticut’s 2nd District congressman, Joseph Courtney, said he believes the 6 percent provider tax limit will be in place for the next fiscal year.

“I don’t think that’s a reckless piece of advice to give,” he said. “We’re at a point where much state fiscal relief has been exhausted, but the states are still in a pickle.”

Courtney, who is a former co-chairman of the Connecticut legislature’s Public Health Committee, quickly added, though, that all states should remain focused on controlling costs in their long-term health care planning, and should not assume that the provider tax system will remain unchanged down the road.

“We’ve all got to do a better job dealing with this,” he said. “This is a national challenge.”

The Malloy administration, which must deliver its budget proposal for the next two fiscal years to the legislature on Feb. 16, was cautious in its reaction to the plan this week. “We’re exploring all options for raising revenue,” Gian-Carl Casa, undersecretary for legislative affairs in the governor’s budget office, said Tuesday. The administration inherited a budget facing a built-in shortfall of $3.67 billion for the coming fiscal year.

Malloy, a former mayor of Stamford, was critical of Rell during last fall’s campaign, charging her administration failed to take full advantage of federal funding available to Connecticut.

Connecticut’s nursing home industry is suing state government, charging that it has under-funded long-term care in violation of federal Medicaid standards.

The number of licensed homes has shrunk from 255 to 229 over the past decade, largely due to bankruptcies.

The current $19.01 billion state budget includes $1.23 billion to fund care for about 17,300 nursing home residents through the Medicaid program, about two-thirds of the state’s entire nursing home population.

State government hasn’t increased general rates for nursing homes since 2007, and the current budget made to changes that cost homes $166 million this fiscal year: the cancellation of a scheduled rate adjustment and an accounting maneuver designed to push a portion of the June monthly rate payment into 2011-12.