A recent wave of bankruptcies and receiverships has slammed Connecticut’s nursing homes in recent weeks, highlighting the financial strains on an industry that is likely headed for even more uncertainty.
Six nursing homes in Connecticut have either been placed into receivership or filed for bankruptcy since Jan. 11. They include four homes owned by Maryland real estate investment trust Omega Healthcare Investors, which took ownership of the properties in 2008 from scandal-plagued and now defunct Haven Healthcare.
The state’s 13th largest nursing home—The Jewish Home for the Aged in New Haven—which houses 226 beds filed for chapter 11 reorganization in February.
Another 21 homes are being propped up by the state with an interim Medicaid rate increase, in some cases to prevent even more facilities from going belly-up.
The recent difficulties follow years of red ink within the industry, now compounded by a poor economy. It also comes at a time when the state is looking to aggressively shift 5,200 people out of institutional care and into community-based care over the next few years, creating even more questions about how the industry will adapt.
“This is unprecedented,” said bankruptcy lawyer Elizabeth J. Austin, of Pullman & Comley in Bridgeport. “I have not seen this many homes going into receivership or bankruptcy at one time. I wouldn’t be surprised if there are more.”
Austin said one of the problems is that there are too many Connecticut beds, and recent closings are partly a natural rescaling of the industry. The state has about 240 nursing homes with 28,000 beds.
When the state was financially healthy the overabundance wasn’t a big problem. But things are clearly different now.
The weak economy isn’t helping, Austin said. Jobless residents are more prone to keep elderly family members at home rather than send them to assisted-living facilities.
“It’s a huge factor as to why nursing homes are suffering as much as they are,” Austin said.
But the major issue industry officials point to is a perennial underfunding of Medicaid reimbursements from the state.
Matthew V. Barrett, the executive vice president of the Connecticut Association of Health Care Facilities, said nursing homes are underpaid daily by about $21 per resident from Medicaid, which is funded by the state and federal government.
And since Medicaid pays for about 70 percent of the services provided by nursing homes — particularly bread-and-butter long-term care — the shortfall dramatically impacts financial stability.
Barrett’s association filed a lawsuit last year against former Gov. M. Jodi Rell, claiming that the state for years has unfairly and unlawfully underfunded the Medicaid program by more than $100 million annually.
The suit is still pending, Barrett said.
Paul Liistro, owner of the 126-bed Manchester Manor and 120-bed Vernon Manor Health Care Center, said the average Medicaid rate is about $217 a day. The state—facing budget constraints—hasn’t raised the rate in the last few years, despite climbing operating expenses.
As a result, margins have shrunk into the single digits for many homes, forcing management to cut costs by reducing services and staffing. That in turn has had a direct impact on the quality of care being provided.
Aggravating the problem, Liistro said, is that lawmakers temporarily suspended a “fair rent” provision that allows nursing homes to receive increased Medicaid reimbursements for capital improvements. That has hit many skilled nursing facilities hard since the industry is very capital intensive, requiring constant upgrades to facilities that are 30 to 40 years old.
“Medicaid rates don’t pay all the costs of operating the business,” Liistro said.
Among the nursing homes swept up in the recent wave of receiverships and bankruptcies are four homes owned by Omega Healthcare Investors, leased and operated by affiliates of Formation Capital and managed by Genesis Healthcare.
They include Bishops Corner Skilled Nursing in West Hartford; Rocky Hill Skilled Nursing in Rocky Hill; Soundview Skilled Nursing in West Haven; and University Skilled Nursing in New Haven.
Omega took control of the homes in 2008 from the troubled Haven Healthcare company, which went bankrupt.
Together, those homes have 472 beds, and court records indicate they all appear to be drowning in red ink. They ended the 2009 fiscal year with losses of $1 million to $2 million each.
An Omega official did not return a call seeking comment, but according to the company’s annual report on file with federal securities regulators it has $26 million invested in the four facilities.
It is possible that one or more of the facilities will be closed, the filing said.
The 120-bed South Windsor Rehabilitation & Nursing Center has also been placed into receivership. The company has fallen behind on rent payments, state officials said.
Meanwhile, The Jewish Home For The Aged in New Haven, which field for Chapter 11 reorganization, is seeking a buyer to stay open. The nonprofit nursing home has assets of up to $10 million and liabilities up to $50 million. The state has been advancing the home money to keep its doors open, officials said.
Austin, the Bridgeport bankruptcy lawyer, said once nursing homes enter bankruptcy it can be tough for them to survive. But it does happen. In fact, Austin was counsel to Affinity Healthcare Management, which runs four nursing homes in Hartford, Bloomfield, Windham and Enfield, and emerged from bankruptcy last year.
Others haven’t been so lucky, like the 87-bed West Rock Health Care facility in New Haven, which closed in September.
In addition to homes being sorted out in the courts, there are another 21 skilled nursing facilities that are receiving an interim Medicaid rate increase from the state, in some cases, to prevent them from filing for bankruptcy protection, going into receivership, or closing. Thirteen of those homes are receiving an interim rate as a result of a change of ownership, officials said.
Michael Starkowski, commissioner of the Department of Social Services, said the recent financial troubles are a concern and that receiverships are used to determine if struggling nursing homes can be saved or sold.
He said the state nursing home industry as a whole has an occupancy rate of about 92 percent, but homes in the deepest financial hole are seeing occupancies in the 70 percent range.
A 100-bed nursing home with six empty beds will lose about $80,000 in revenue a month, Starkowski said. In some cases nursing homes with the lowest occupancies are looking at monthly revenue losses between $300,000 and $400,000.
Besides the economy, Starkowski said, fewer beds are being filled because of a push over the years to get patients out of institutional settings. There are about 14,000 residents, for example, currently in some type of homecare right now. And Gov. Dannel P. Malloy recently announced a plan to move another 5,200 patients out of nursing homes and into a community care setting by 2016, the state’s most aggressive transition effort yet.
“The emphasis on community-based care,’’ Starkowski said, “is having a significant impact on nursing homes.”
But some help may be on the way.
In his budget, Malloy has proposed changes to the complex “provider” tax paid by nursing homes that would actually increase the tax rate as a means to bring in more federal revenue through higher reimbursements, creating an estimated $17 million windfall for the industry.
“It won’t completely mitigate the effects of the Medicaid shortfall,’’ Barrett said, “but it will lead us in the right direction.’’
