What Options are Open to Counties with Nursing Facilities?

How’d you like to be a county executive, legislator or member of a board of supervisors and have to decide the future of a financially-troubled county-owned nursing home? Often one of the area’s major institutions and employers, it provides an important community service, even though typically costing the county taxpayers significant amounts of money.  No matter what you decide, you’re likely to be criticized from one or more directions.  That is the unpleasant reality currently being faced by public officials in counties throughout all regions of New York State.

As recently as 2005, more than 40 counties outside New York City owned and operated public nursing homes containing some 9,900 beds.  Now those numbers are closer to 35 counties and 8,100 beds, and those totals are likely to dwindle further over the next few years.  Why the sharp declines in such a short period of time?  Rising costs and declining revenues combine to force county taxpayers to plug steadily-rising deficits.

And that reality is not likely to get better without major changes.  Costs of negotiated health care coverage and retiree pension costs continue to increase for public employees.  Reimbursement levels from Medicaid and Medicare—the primary payers in most nursing homes—are being reduced, relative to operational costs.  For example, Medicaid pays for about 80% of the resident days in the typical county home, yet the Medicaid daily reimbursement rates are often $100 or more below the actual daily operational costs.  These trends are likely to be exacerbated in public homes in the future, as fringe benefits continue to exceed private sector benefit rates by wide and often growing margins:  Total benefits typically approach or exceed 50% of the costs of wages and salaries of the work force in the county-owned homes—close to twice the proportions in proprietary and not-for-profit homes.

Why does all this matter?  County nursing homes typically have been in operation for many decades, and have been considered an important part of the county’s mission, often serving residents other nursing homes are reluctant to serve.  In some counties, there are few competing homes.  The average county home serves more than 200 residents and employs more than 300 people.  So with hundreds of lives affected, elected officials are understandably reluctant to alter the status quo.  Adding to the political complexity of the decision, facility employees are typically members of a local union, and are often active in local elections. These factors create considerable pressure to keep the facility open and under county control.

And yet, those employees cost the nursing home lots of money in salaries and benefits—costs directly subsidized by county taxpayers.  Unless the county can find ways to significantly reduce costs and/or expand revenues, taxpayers can anticipate an ongoing need for subsidies, often totaling millions of dollars per year per facility.

So what’s a county to do? How can county leaders balance the legitimate needs of residents, employees and taxpayers?  Counties do have a number of options to consider, in addition to closing their facilities, including but not limited to:

• Consider various management efficiencies and revenue enhancements that eliminate or substantially reduce the home’s annual deficit, as some homes have been able to do;

• Sell the facility to a new owner. Private operators are often better able to cut costs, while protecting the jobs of most employees (several counties have made such changes in the past few years);

• Consider management efficiencies and utilization across county nursing home and home care agencies simultaneously, which can cut the combined subsidy across both services—or consider selling both as part of a package deal, as a couple counties have recently considered; and

• Change the legal structure of the facility. By creating a public benefit corporation, for example, counties may in some cases be able to enjoy some of the same cost savings as private operators while maintaining a level of public control (at least one county is currently considering this option).

In each case, the goal of the county is to continue serving the needs of the frail elderly, even though the ownership, operations or governance of the facility may change.

Whatever the decisions of the elected officials about the future of their nursing homes, they will be agonizing, and not everyone will be pleased.  But CGR’s experience—we’ve worked with a half dozen counties in the past year alone—is that in nearly all cases, the officials are attempting to make principled, thoughtful decisions, taking into consideration and attempting to balance the different needs of important constituencies.  No single solution is best for all counties—but there are options available that can be crafted to each county’s unique circumstances that can enable critical services to be maintained in the community.