The Indianapolis Business Journal reported that building new nursing homes cost Indiana millions. Since the last nursing home building ban ended in 2008, more than 5,000 new beds for patients needing skilled-nursing services have been added (or are being added) at nursing homes around the state. All that building is costing the state money, according to an analysis by accounting firm Myers & Stauffer, which was issued in December by the Indiana Family and Social Services Administration.  27 new nursing homes that opened or began construction in 2014, plus another 10 expected in the next year or so, will cost the state $24 million in additional payments from the Medicaid program, according to Myers & Stauffer’s analysis.

The roughly 2,200 skilled-nursing beds either opened or started in 2014 represent 4.3 percent of the 50,000 existing skilled-nursing beds in the state. Assisted-living beds, which are also part of nursing homes, are not counted in this total because they do not require nursing staff and do not qualify for Medicaid payments.  The number of Medicare recipients staying at nursing homes has been flat or declining. That’s partly due to the fact that 30 percent of Medicare beneficiaries are in privately run Medicare Advantage plans, which earn higher profits if they reduce the overall cost of care. Also, Medicare has signed accountable care contracts with teams of health care providers, also rewarding them if they reduce the overall cost of care for specific groups of Medicare patients.

Given those larger trends, adding more nursing home beds will almost certainly decrease the occupancy level further at Indiana’s nursing homes. Average occupancy statewide now stands at 76 percent, according to the report published by the Indiana Family and Social Services Administration. That’s actually up 2 percentage points since late 2013, but is still down from 80 percent in early 2011.Nationwide, nursing homes are 83-percent occupied, on average.

Low occupancy is problematic, the state argues, because it will stretch staffing capacity across the industry. And staffing levels are a key indicator of the quality of care residents receive.  Also, lower occupancy actually costs the state Medicaid program money, due to the convoluted way it pays for nursing home care. The Medicaid program sets its payments based on cost data from each nursing home, including costs of care, of administration and of capital.

But the state assumes nursing homes are at least 90-percent occupied. When they are not, nursing homes stretch their fixed costs over fewer patients, which raises the per-patient cost data on which the state bases its payments.

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