Hartford Business Journal

10 Hartford Business Journal • August 29, 2016 www.HartfordBusiness.com the past decade," said Matthew Barrett, CEO of the Connecticut Association of Health Care Facilities (CAHCF). Between 2005 and 2015, Connecticut lost 17 licensed nursing homes and 2,229 beds, equivalent to declines of 6.9 percent and 7.5 percent, respectively, according to data from the Office of Policy and Management. Medicaid spending on Connecticut nurs- ing homes totaled $1.19 billion last fiscal year, down from $1.2 billion in each of the previous two years, according to the Department of Social Services (DSS), which administers the state's Medicaid program, with funding split between the state and federal governments. Nursing-home operators argue that DSS has left rates flat for years, making it hard to keep up with rising costs of providing care. DSS spokesman David Dearborn con- firmed last week that there has not been a statutory Medicaid rate increase in Connecti- cut since a 2.9 percent bump in 2007. Dear- born, however, noted the legislature's 2015 approval of an additional $39 million per year for wage and benefit hikes for nursing-home employees across the state. Barrett said the added funds enable better employee retention and stability for nursing homes, but don't address key fiscal challenges for nursing-home operators, like flat Medicaid rates, falling revenue and rising costs. Dearborn said some nursing homes use Medicaid rates as a scapegoat for their finan- cial woes, ignoring other issues like misman- agement or top heaviness within manage- ment ranks. "Financial viability is based in large part on level of demand for services, and that demand has been gradually decreasing," Dearborn said. "The demand for the level of service provided by [nursing homes] is not what it used to be, chiefly because there are many more community-based options to help people live independently when they don't really need nursing-home care." Dearborn said that, generally, nursing homes with a more diverse mix of payers — from Medicaid and Medicare to private pay — tend to be the healthiest. Nursing homes also blame a 2008 state initiative that aims to lower long-term care costs to the Medicaid program by incentiviz- ing the elderly and disabled to join communi- ty-based or homecare programs, rather than checking into nursing homes. Hebrew Health Care and Cheshire-based Affinity Healthcare Management, which both filed for bankruptcy this year, cited the Money Follows the Person (MFP) program as adding to their financial challenges. As of June 30, MFP had transitioned more than 3,500 people out of long-term care facili- ties, according to reports compiled by UConn Health's Center on Aging. The state's total nurs- ing-home population in Sept. 2015 was 23,842, down from 27,840 in 2005. While Connecticut policymakers have been a factor in declining nursing-home beds, they have also used state and federal funds to issue $12 million in grants to help nursing homes dip their toes into home- and community-based care business models and reduce their reliance on Medicaid, which funds the majority (72 per- cent in 2015) of nursing-home stays. Barrett said nursing homes understand that a robust homecare industry is important and he has no problem with tweaking business models. "Yes, the diversification of the sector is good so long as the state fully funds an ade- quate supply of nursing homes," he said. Creditor protection So far this year, two Connecticut nursing- home operators, with five nursing facilities between them, have filed for Ch. 11 bankrupt- cy restructuring. Affinity is in the midst of its second bank- ruptcy in eight years. It said in a March court filing that its Bloomfield nursing home, Alexan- dria Manor, suffered the steepest losses since Affinity emerged from its first restructuring in 2010. The facility, which closed recently with court approval and surrendered its license back to the state, had 100 employees, many of them unionized, according to court filings. In an effort to address Alexandria's financial problems, Affinity closed a wing of the facility last year, reducing available beds from 120 to 90. There were 86 residents at Alexandria when Affinity filed for bankruptcy in January. Some left in the months that followed, while Affinity said it expected to move others to its three remaining homes. Affinity's ownership hopes to retain its other three Connecticut nursing facilities through the restructuring, according to its attorney, Eliza- beth Austin of Pullman & Comley, who also rep- resented Affinity in its 2008 bankruptcy. Austin said Affinity's Blair Manor in Enfield recently received the Centers for Medicare & Medicaid Services' highest rating — five stars. "These particular homes have always been very well known for high levels of care they provide to their residents," she said. Austin is also representing Hebrew Health Care, which wants to transfer operation of its 257-bed West Hartford nursing home to National Health Care Associates, a New York company that has approximately 40 nursing, rehab and assisted-living facilities in the Northeast, including 13 across Connecticut. Hebrew was among a number of nursing homes to receive a state grant to diversify its business lines. In 2014, the company received nearly $1.1 million to convert a wing of its nurs- ing home to a transitional living wing, intended to move more residents into community settings. Speaking about the industry generally, Aus- tin concurred with Barrett that Medicaid rates and the state's homecare push continue to hurt nursing homes' financial viability. Whereas in the past, "the automatic solu- tion was grandma and grandpa moved into a nursing home," Austin said that relatively healthier patients have declined in number, instead choosing other living options. The situation has also made it tougher for operators looking to sell to find buyers, Austin added. Struggles continued after 2011 wave Early 2011 brought perhaps the clearest signal that the nursing-home industry was reaching a breaking point in Connecticut. In January of that year, four homes owned by Omega Healthcare Investors entered receivership. All closed by that September, according to the state Department of Public Health (DPH). In Feb. 2011, the 226-bed Jewish Home for the Aged in New Haven filed Ch. 11. It was sold later that year to nursing-home operator Makhlouf Suissa. At the time, DSS also provided 21 homes with interim Medicaid rate increases in an effort to help them avoid receivership or bankruptcy. Since then, many nursing homes have con- tinued to struggle. After entering state receivership in Oct. 2015, Bridgeport's Astoria Park closed in August, according to state officials. Meanwhile, Paradigm Healthcare, which sold five of its six nursing homes earlier this year, DPH confirmed, received permission from the DSS in July to close the sixth — a 100-bed facility in East Windsor. Operators Spectrum Healthcare and HealthBridge Management, which owned a combined dozen nursing facilities in the state, filed for Ch. 11 reorganization in 2012 and 2013, respectively. Spectrum emerged from bankruptcy in 2013 after winning approval to shutter two of its six homes — in Ansonia and Winsted — containing a total of 165 beds. Spectrum con- tinues to operate its four remaining homes. HealthBridge emerged from bankruptcy in 2014 after winning court permission to restruc- ture union contracts for workers at five Con- necticut nursing homes. The following year, HealthBridge sold seven of its Connecticut facilities, including one in Newington, to a Florida-based nonprofit, Eagle Lake Foundation, according to DPH documents. An acquirer weighs in Marvin Ostreicher, president of National Health Care Associates — the potential future operator of Hebrew Health's nursing home — has been working in the industry for about 40 years. Starting with an acquisition of an East Hartford nursing facility in the late 1970s, National has grown through a series of acqui- sitions — often of struggling operators — and now owns and/or operates 38 skilled-nursing homes in seven Northeast states, including 13 in Connecticut, which are all enrolled in Medicaid and Medicare programs. "I think it's certainly the most trying time since I've been in the industry," Ostreicher said in an interview last week. While he isn't exactly gung-ho about the mar- ket, he said smart operators can still make a prof- it in Connecticut, and he's open to further addi- tions to his portfolio, albeit with a more cautious approach than he might have taken 16 years ago. "Very carefully, very conservatively," he said. As far as Hebrew Health, Ostreicher said he would help turn the nursing home around by taking on a higher percentage of sicker or "higher-acuity" patients because Medicaid pays more for their care. Like many operators, National says it's los- ing money on Medicaid patients, but makes up for the loss with Medicare and private pay- ers, as well as careful attention to expenses. Ostreicher predicts nursing homes will need to evolve and become more like hospitals to survive. Healthier patients will continue to decline, as managed-care companies and hospitals deter staff from sending them to nursing homes. But for the foreseeable future, he predicts more bankruptcies are coming. "I've been saying for three or four years that there will be a thinning of the herd," he said. No one knows whether an influx of aging Baby Boomers will be enough to bring back the nursing-home industry, or if that wave will be overpowered by efforts to reduce nursing-home beds, he said. Despite challenges, optimism CAHCF's Barrett said many nursing-home operators these days, like Ostreicher, are carefully managing their case mix in order to help mitigate a Medicaid shortfall that the American Healthcare Association pegged at $25.43 per day, per patient in 2013. Barrett also concedes that not all strug- gling nursing homes can blame Medicaid rates. Some homes may be poorly managed. Despite the challenges the industry con- tinues to face, he said he's optimistic. Connecticut has an above-average ratio of Medicare patients with Alzheimer's, accord- ing to federal data, and skilled-nursing facili- ties tend to be the best environments for those patients, Barrett said. "I have an optimism that skilled nursing will be considered part of the solution to Connecti- cut health care," he said. n from page 1 Nursing homes have fewer beds, patients 220 225 230 235 240 245 250 220 225 230 235 240 245 250 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 21,000 22,000 23;000 24,000 25,000 26,000 27,000 28,000 29,000 26,000 26,500 27,000 27,500 28,000 28,500 29,000 29,500 30,000 Nursing Homes Patients Nursing Homes Beds Beds Patients Nursing Homes Nursing Homes 220 225 230 235 240 245 220 225 230 235 240 245 250 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 21,000 22,000 23;000 24,000 25,000 26,000 27,000 28,000 26,000 26,500 27,000 27,500 28,000 28,500 29,000 29,500 30,000 Nursing Homes Patients Nursing Homes Beds Beds Nursing Homes Number of Nursing Homes vs. Residents Number of CT Nursing Homes vs. Beds S O U R C E : S T A T E O F F I C E O F P O L I C Y A N D M A N A G E M E N T

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