In a Wisconsin town an hour outside of Minneapolis last year, Tim Hood sought to find a balance between what is fair to taxpayers and what is right for the county’s senior citizens.
As a member of the St. Croix County Health and Human Services Board, Hood spent months reviewing the numbers for the St. Croix County Health Center in New Richmond, WI. The county nursing home was hemorrhaging money, losing more than $1.4 million in 2010, around $1.6 million in 2011, and close to an estimated $1.8 million in 2012.
“Anytime you talk about it, about closing it, I become the guy who wants to throw Grandma on the street, and I’m the bad guy,” Hood says. But he says it wasn’t fair to taxpayers or residents to keep pouring money into the center, describing it as a “moral issue.”
While county taxpayers voted via a 2008 referendum that they wanted to keep the home open, even if it meant subsidies, Hood says that decision was based on lower deficit projections of $330,000 a year.
He is not alone in his frustration. Like many county nursing homes nationwide, St. Croix had to cope with a decaying building, a union contract, increased competition and taxpayers reluctant to sell. But all of those lead back to one topic: that of money, or rather a lack thereof.
Hood notes he has high respect for St. Croix certified nursing assistants and nurses working at “a tough job, an important job.” But “it’s immoral, to me, to take the amount of tax dollars from people to compete with private enterprise,” he says.
St. Croix interim administrator and Director of Social Services Lisa Leahy disagrees with Hood, saying the center is a 5-star facility that is generally full, has low turnover, and meets an important community need. She has been at the center 32 years, and has been through several debates of whether closure is warranted. Plus, the staff has made sacrifices, including a pay cut, to keep the center going, she says.
“We’ve done everything possible. It’s not just about the building. It’s about what’s inside the building,” Leahy says. When the future of the center was being debated in the fall, “residents read the paper, they hear us talking and they’d say, ‘Where will I live, where will I go?’ It upsets me.”
A philosophical question
Despite geographical variations, many county nursing homes across the country face the question: In an era of diminishing state and federal reimbursement, can the facility and administration garner enough local support to keep the doors open? Many counties, especially those in the Northeast, are choosing to sell, or outsource management, rather than operate at a loss.
To protect New Jersey’s county homes, for example, an advocacy group called County Nursing Homes of New Jersey sprang up in January as an affiliate of the New Jersey Association of Counties, Executive Director John G. Donnadio says. There are 11 county-operated nursing homes in the state, and out of the estimated 4,148 residents in 2012, 79% were on Medicaid.
“It’s a group to protect Medicaid funding,” Donnadio explains. “Counties do a terrific job at providing a terrific level of care to people who can’t afford private nursing homes. Who will take care of those patients?”
A handful of counties in New Jersey have sold their facilities in recent years, he says, and private companies are eager to buy other county-operated facilities.
That’s not believed to be the case with Maplewood Manor, the county nursing home in Saratoga County, NY. It has been running a multi-million dollar deficit since 2004, and the county expected to have to budget for a $10 million shortfall in 2013, according to county documents. The home’s operating budget is $28 million.
Joanne Yepsen, a Saratoga County Board of Supervisors member representing Saratoga Springs, says last year she found herself asking a “basic philosophical question.”
“Do I think county government should be running nursing homes?” she pondered.
Larry Minnix, the president and CEO of LeadingAge, says that in many cases, yes, it should. County nursing homes, and small rural nursing homes in general, need reinforcement and better Medicaid reimbursement, he feels.
“County nursing homes are an important part of the service and fabric of many communities, especially rural communities. Increasingly, it’s not just seniors but special populations,” he says.
“The taxpayer has a moral responsibility,” asserts Minnix, a holder of a Doctor of Ministry degree. “You do have people who live there and have jobs there. When you read an article where some county officials said we are selling this place to a developer because they can pay lower wages and do things cheaper, those are all the wrong reasons.”
But Yepsen has felt the pressure from both sides, with some constituents urging the sale of Maplewood and others worried about the quality of care going downhill if it was privatized.
Ultimately, she was disappointed with the vote of the board in January, which was 17-5 in favor of transferring Maplewood to a local development corporation (LDC), which Yepsen described as “shady.” The seven-member board of the LDC is expected to seek a broker who will help it put out proposals for those who want to bid on Maplewood. Supporters say it will let the county complete the sale and receive the best value.
Before the vote, Yepsen and Dorothy Tyler, whose mother lives at Maplewood, formed the Citizens Advocate for a Sustainable Maplewood Manor. Ideas such as reorganizing staff benefits or finding ways to bring revenue into the nursing home to close the budget gap fell on deaf ears, they say. The group will continue to push to keep Maplewood in the public eye, Tyler says.
“At this point, there is no public input and the LDC can sell it to whomever they want,” Tyler says. “While it would be better for a local nursing operator to take over, companies here said they wouldn’t take it for free.”
Still, Tyler says she’s reluctant to move her mother, who has been at Maplewood since 2010.
“The staff are awesome,” she says.
Building up a county home
Out of 15,622 nursing facilities in the United States in 2010, 6% were county or state-owned, according to the National Association of Counties. The states with the highest percentages of government-run nursing homes are Alaska, Hawaii, Nebraska and Wyoming. The lowest percentages exist in Connecticut, Maine, Massachusetts and Rhode Island, which all had 1% or less. Of LeadingAge’s 6,000 members, 130 are county-owned nursing homes.
Communities have long provided almshouses for the indigent or elderly. But it was in the early 1970s, roughly five years after Medicaid was created, that many counties began building nursing homes.
“There are some cases where counties got into business out of need and necessity,” says Jeff Binder, managing director of Senior Living Investment Brokerage, Inc. “Resources, from a capital perspective, were more plentiful.”
Geographically, the struggle of the county home would be less prevalent in western states, notes Daniel Hermann, the senior managing director and group head at Ziegler Capital Markets. That’s different from New England counties, many of which built “homes for the aged” in the post-Civil War era.
“It’s the same thing as what you would see with orphanages. As the West unfolded, it’s a different build-up history,” Hermann observes.
A case in point: While St. Croix’s center was founded in 1897, the Uintah Care Center in Vernal, UT, was built as a 52-bed nursing center in 1983. It was acquired by the county in 1987.
In 2000, it became a part of a special service district in the county, along with a senior center. Traditions Health Care took over the management, although workers are still district employees with the pensions, health insurance and benefits of their cohorts. Currently Traditions manages 10 facilities, including what are believed to be the only three county nursing homes in the state.
“Traditions’ accounting structure and financial and industry knowledge keeps us competitive,” says administrator Wayne Dunbar, who is also the executive director of the Uintah Health Care Special Service District. “The building belongs to the county, and we will probably build in the future.”
The center has around 60% of residents on Medicaid, and is located in an area where there is an important role for the county home, says Bryan Erickson, Traditions Health Care CEO.
“In these rural areas of Utah, where counties own, it’s a good business plan to own the nursing home,” Erickson notes. “It’s not reasonable to expect a private company to come in, as we’re talking about 100 miles between locations.”
But in other areas with more competition, the sector has experienced rapid change in the past decade, making it hard for county homes to keep up.
Today “the spending capital to enhance IT and clinical services, it’s not done in a timely fashion,” Binder says. “The decisions take longer at a county home. In the last 10 to 15 years, they’ve [gone from] profitable to not profitable, and with all the pressure on various government entities, from a budgetary perspective it’s the 800-pound gorilla.”
States vary widely in how much Medicaid reimbursement allotted to long-term care providers actually covers the cost per resident. Wisconsin and New York led the country in the projected differences between what was being paid and what the costs were in 2011, according to an Eljay LLC analysis. In 2012, Eljay found that New Hampshire was $57 short per resident day when it came to pay rates and projected costs. New York had a $46 difference, New Jersey $41 and Wisconsin $40. Eljay’s“A Report on the Shortfalls in Medicaid Funding for Nursing Home Care,” was conducted for the American Health Care Association.
With those types of losses, there’s little room to upgrade software or equipment, much less invest in capital improvements.
Last year, Hood estimated it would cost around $700,000 in capital improvements to keep St. Croix’s center certified. At Vermilion Nursing Home in Danville, IL, officials estimated last year it would cost $3 million to $5 million to repair the roof, parking lot and windows. Staff had to set out buckets to handle leaks during August rain.
“The average nursing home in Wisconsin is 33 years old,” notes John Sauer, the president/CEO of LeadingAge 
Wisconsin. “Now is the time to replace and renovate.”
Sales struggles uncovered
When counties do decide to sell, many advocates feel the ideal scenario is a nonprofit buyer that will assure no residents are moved and no staff are let go. But many nonprofits “are solidifying their core markets,” Binder says.
“We don’t even have not-for-profits buying other not-for-profits,” Ziegler’s Hermann agrees. “Once you are in 100% Medicaid or state-supported business, because reimbursement is so low, it’s very difficult to run a vibrant business with appropriate reinvestment of capital.”
There’s also the challenge of staffing. In Wisconsin, for example, county nursing homes have about half the turnover of other facilities. But interested buyers often say they would need to trim staff to make the facility viable.
While that strikes horror into residents and employees, “county nursing homes are overstaffed,” says Mark L. Myers, the senior director of the National Senior Housing Group at Marcus & Millichap Real Estate Investment Services.
“In many [county] facilities, there will be a 1-to-1.5 resident-to-employee ratio, rather than the industry standard of 1-to-1,” he says. Additionally, many county nursing home employees have benefits that can include a pension plan. It all creates an impossible system to maintain, Myers says.
“In an era where private enterprise involves more work and less benefits, county nursing home employees are living in another era,” he says.
Myers evaluated buyers for the 1-star, 216-bed Chautauqua County Home in Dunkirk, NY, last year. In July 2012, it was revealed that while there were more than 35 interested buyers, only two — Absolut Care Facilities Management and Altitude Health Services Inc. — were considered qualified. Absolut, which owns two facilities in the county, originally offered a $1.6 million-a-year lease with a purchase option of $16 million; Altitude offered $16.5 million in cash.
A special meeting of the Chautauqua County Legislature in October drew a range of comments from the public, from residents testifying in favor of keeping the home to complaints about the difficulty of selling homes in the county due to high taxes. The president and CEO of the Chautauqua County Chamber of Commerce and the Manufacturers Association of the Southern Tier, Todd Tranum, commented “the bottom line is, as currently structured and operated, [the county home] cannot stand alone without taxpayers’ subsidy and that is reality.”
The county has long considered selling, Myers says. But “as long as the losses could be offset by taxpayers, it was OK,” he says.
But with New York putting a cap on real estate tax, and pension obligations doubling each year, it was costing the county $2 million a year. Over time, Myers believes that the county would end up saving between $50 million to $80 million over the next decade if it sold the Chautauqua facility.
“Sell it to save it,” he advises. “Spend that money on a school.”
County legislators did not agree. Seventeen legislators had to vote in favor of selling the home to Altitude in January, per a local law that requires a supermajority to sell county property. The debate grew heated through the fall, with some legislators criticizing Altitude president Avi Rothner and his family, and others arguing that, as Myers holds, rejecting the sale would continue to cost taxpayers millions of dollars. The final vote was 16-9, leaving it one vote short of approving the sale.
Marcus & Millichap is still under contract with the county, according to local reports, and “the county is still deliberating this matter,” Myers said in February.
For nursing homes like Chautauqua, which counties appear determined to keep operating, CliftonLarsonAllen’s Allan B. Larson advises stakeholders to understand payment reform and the government’s increased focus on clinical standards.
“There’s no longer the luxury of not being efficient,” he says. “Those facilities that have put the money into operational or performance improvement during the recession are slowly starting to see better financial results.”
He urges trying to be “Number one or two in the regional market.” It’s not uncommon for a local nursing home to use a small and local CPA firm, he observes, while also recommending the use of an auditor or financial consultant with national senior living experience.
“The more proactive and knowledgeable they are, the better they are going to be,” he says.
Success stories
There are areas where county nursing homes are doing well financially. Take North Dakota, where 93% of the state’s 82 facilities are nonprofit and two are owned by county or city governments.
There are challenges, but the state has been good to work with and funding is less of an issue than elsewhere, 
says Shelly Peterson, the head of the North Dakota Long Term Care Association.
“The top issue is workforce,” she says. Roughly one-third of the long-term care workforce is age 50 or older, and the state needs to staff 1,880 nurses across the healthcare spectrum in the next five years, she adds.
The county-owned Gracedale Nursing Home in Nazareth, PA, also can be seen as a success story, although not without having taken some wrong turns.
In 2011, the facility was put up for sale and had a potential bidder. A group of residents’ family members not only objected but also rallied together against the sale. Ross P. Marcus, director of human services in Northampton County, PA, is the first to admit the county leaders had not anticipated the pushback.
“They made a convincing case and, to be perfectly frank, we did not,” he says. “If you believe in democracy, this is democracy at its finest.”
Eventually, the question of keeping Gracedale went to a referendum, and citizens voted more than 70% in favor of keeping Gracedale publicly owned.
“We badly underestimated the determination of those who wanted to keep the facility public,” Marcus says.
Led by County Executive John Stoffa, the county directors regrouped and hired Premier Healthcare Resources to manage Gracedale.
What’s more notable, however, is the negotiations over the nursing home union contract led to the American Federation of State, County and Municipal Employees District Council 88 agreeing to a $2.2 million cut. That group was one of two unions in the facility, and the agreement was achieved only because the county made it clear that a future administration would likely have to privatize.
“Even if you sell the facility, most of the employees will keep their jobs, but clearly if Gracedale had gone private, there was no way of keeping the fringe benefit package the way it was,” Marcus says. That $2.2 million a year is a “huge amount of money,” and Marcus credits the union for putting “their money where their mouth was” by agreeing to the cut. They reduced salaries rather than benefits, he explains.
“In Pennsylvania, the state Department of Industry will often sit in on labor negotiations, and he said he had never seen a public union and public entity in such a tough negotiations maintain their professionalism and reach this degree of givebacks,” Marcus says.
Last fall, he said he was determined to move forward, and the county has been reasonably successful, including finding funding for a $10 million investment into the facility through a specialized guaranteed energy savings program. “We had huge, antiquated boilers, and expect to see huge savings,” he says. “It was paid for by future savings.”
The county also has managed to slash the outlay to Gracedale, Marcus asserts. The county budgeted $5.4 million originally in 2012 but was able to reset that amount to $4.5 million mid-year, and then actually came in at $4.4 million. In 2013, the budget is for $3.7 million; by 2014, it’s expected to be closer to $2 million.
“We are really proud of that,” he says.
In Illinois, Lake County also managed to find a way to save Winchester House without landing in the poor house. The county had owned the home since the 1850s “and realized it was putting a boatload of money into it,” says Winchester House Advisory Board Chairman Ric Olson.
“We wanted to be prudent,” he says, and the advisory board spent several years trying to find a way to balance the mission of Winchester House while lowering the amount of county money being put into the home.
In projections, “we brought it down to around several million, but we needed assistance to bring the numbers down and position Winchester House for the future.”
In 2011, the advisory board made the recommendation to the Lake County Board to let Health Dimensions Group manage the facility and employees.
HDG “are accountable to the county board,” Olson says. “The county is the owner and they call the shots. I believe it’s a wonderful model. With county homes, you need people who really know how to run a facility.”
For counties that are struggling, he says, the advisory board can also be an asset.
“Stay in business — don’t get out — but find a way to operate that will result in a reasonable commitment on the part of the taxpayer,” he recommends.
Lessons learned
Another solution, says LeadingAge Wisconsin’s Sauer, is for a county home to ask, “What is our niche?”
That may mean refocusing as a rehabilitation center, concentrating on behavioral patients or specializing in dementia care.
It also can agree to “right size” its number of beds. Since Wisconsin has had a moratorium on beds since 1982, Sauer says some facilities are agreeing to give up beds in return for financial incentives that could help with capital improvements.
Many counties feel it’s important to keep going, he notes.
“Some counties do say, ‘We’re not going to run a county nursing home,’” Sauer says. “[But] as many, if not more, are firm in saying that they want to stay in the nursing home profession.”
Minnix says that the right public relations plan, and turning to other industry leaders for help via services such as the LeadingAge 911 advice line, also can allow a county nursing home to succeed. Other options could include adding assisted living units or partnering with hospitals or nonprofit providers to “minimize infrastructure costs and provide services on an incremental cost basis,” he says.
In some rural states, Minnix notes, the county nursing home “is the only game in town.” It’s not only about the jobs that are involved but the “really sick vulnerable people” who are receiving care.
“These are people who are our responsibility,” Minnix says.
In October, the St. Croix County Board of Supervisors agreed, voting against the idea of closing the facility. Instead, it voted to build a new one. Leahy says the nursing home is waiting for incentive-proposal paperwork from the state that can be completed by the facility and might eventually lead to the construction of a new, one-story building that would have 40 beds for skilled care and 20 for assisted living. The board, however, would still have to vote on bonding for a new facility.
Reflecting on what could be the most important element for any county entity that wants to continue running a facility, Leahy notes, “The community, as a whole, has been very supportive of us.”
From the March 01, 2013 Issue of McKnight's Long-Term Care News
