Editor’s note: This is the first in a series of two stories about nursing home closures in South Dakota.

The health and stability of some of South Dakota’s most vulnerable residents are being threatened by a wave of closures of long-term care facilities across the state.

Three nursing homes closed over the past three years and two more are slated for closure by February. Another 17 former Golden Living Centers are now being operated by a state-approved receivership created after the New Jersey firm running the homes went bankrupt.

The closures have occurred in small towns in South Dakota that have few or no options for relocation and are often many miles from another operating nursing home. 

The recent nursing home closures in towns such as Tripp, Bryant and Rosholt and the likely closures in Madison and Mobridge have put a hardship on those towns and the people who live or work at the homes. Nursing homes are sometimes the biggest employer in small towns and employees are typically laid off upon closure. Residents of rural nursing homes tend to be locals and uprooting them from their long-term homes is physically and emotionally traumatic for the patients and their loved ones.

Several factors are leading to the closures: a low rate of per-patient payment to facilities that accept Medicaid and Medicare; rapidly increasing costs of skilled nursing care; a shortage of qualified employees in a field with generally low salaries; and a steady reduction in residents due to a “Baby Bust,” the term for a drop in the birth rate during and after the Great Depression in the 1920s and 1930s.

The inability of nursing homes – including both nonprofit and for-profit facilities – to make money or even just stay afloat is causing a crisis of care for vulnerable state residents that could linger for generations, said Mark B. Deak, executive director of the South Dakota Health Care Association.

“I believe we really are at a pivotal place right now where we have to muster the will to do what needs to be done to take care of those who cannot take care of themselves,” Deak said. “It really is a crisis. When you have 18 nursing facilities in receivership, that’s never happened in the history of the state. You have two likely to close, and I don’t believe they will be the last; they may be just the tip of the iceberg.”

Lack of revenues put nursing home at risk

Deak and other experts say the primary cause of nursing home failures in South Dakota and across the United States is stagnant and insufficient Medicaid payments to nursing facilities.

According to a recent study commissioned by the American Health Care Association in which 28 states supplied data, South Dakota had the lowest Medicaid reimbursement rate at just $131 per day. With the cost to house a patient estimated at $163 in South Dakota, nursing homes are losing $32 per day, per Medicaid patient, a total loss of about $39 million a year statewide.

Nursing homes typically survive by housing a mix of patients with differing abilities to pay. Losses from Medicaid patients are offset by higher rates paid by “private pay” patients who can afford to pay on their own or those with long-term care insurance.

In some areas, often those with higher populations and a broader mix of incomes, that system can work. But in rural South Dakota, some nursing homes have more than half of their patients on Medicaid, leading to financial challenges.

“In the nursing home space, there’s not as much private pay, so Medicaid and Medicare are major sources,” said Caroline Haarmann, vice president for Medicaid reimbursement and research at the American Health Care Association. “It speaks to the challenge that nursing centers face; they’re definitely on very thin margins.”

Nursing home numbers have been stable on the national level over the past decade.

But many homes remain at risk of closure, said Beth Martino, senior vice president of public affairs for the American Health Care Association.

“Many skilled nursing centers across the country are struggling to keep their doors open. The closures and ownership changes that have occurred reflect that trend,” Martino wrote in an email. “Medicaid is drastically underfunded, and the margins for many centers are incredibly thin. We are reaching a point nationally where we have to find a way to pay for the care that seniors and individuals with disabilities need and deserve.”

South Dakota has about 110 nursing homes with roughly 6,800 beds. About 55 percent of nursing home patients in South Dakota are on Medicaid, according to the state Department of Social Services.

The average nursing home in South Dakota has a positive operating margin of only 0.7 percent, Deak said, which makes them highly vulnerable to market forces, government payment rates and unexpected facility costs.

Operating costs have continued to increase at nursing homes as patients live longer and encounter a greater need for more skilled care, such as for dementia or Alzheimer’s Disease or for patients with bariatric issues or traumatic brain injuries. The average cost to consumers for a nursing home bed ranges from about $7,000 to $9,000 a month in South Dakota, Deak said. 

That figure, however, must cover the cost of 24-hour care, administration, facilities, food and other overhead costs, he said.

Staffing shortages are common in nursing homes, especially in rural towns with small employment pools. Certified nursing assistants, who do most of the hands-on care, make only about $12 an hour, which is comparable to some retail jobs.

While nursing homes in some areas have waiting lists, those in rural areas have too many openings. The long-term care industry expects admissions to rise in the coming decades as the “Silver Tsunami” of baby boomers reaches retirement.

Easing the burden

One way the state could ease the burden on nursing homes would be to increase the Medicaid reimbursement rate, a cost split between the state and federal governments, but it will take more than that to ensure solvency of rural homes, said Ryan Cwach, a Democratic state representative-elect from Yankton.

Cwach, a lawyer who made nursing home funding a part of his campaign platform, said the Legislature needs to address comprehensive nursing home reform. For instance, Cwach said, the state Medicaid reimbursement level is based on a payment of 90 percent of the estimated daily nursing home cost from 2012, a figure that has certainly risen significantly since then.

Cwach pointed out that availability of one method of paying for nursing home care – long-term care insurance – is dwindling as insurers rapidly leave that market. Cwach said he represented a client at his law firm who didn’t qualify for the insurance because he had a knee replacement a decade ago and was considered too high-risk by insurers.

The number of private-pay nursing home residents who prop up the Medicaid and Medicare clients may continue to fall as private and nonprofit providers develop more apartment-style long-term care facilities that are attractive to those who can afford to maintain their independence.

Those types of facilities are becoming more common in urban markets such as Sioux Falls and Rapid City, further sapping revenue from rural nursing homes.

“I think we need to step back and approach this with an open mind about other solutions that aren’t just fixing Medicaid reimbursement,” Cwach said. “It’s really a harsh, cruel system that we put on our elderly with the financial component of how we fund nursing homes.”

Outgoing Gov. Dennis Daugaard said in his recent 2019-20 budget address that the state is likely to see about $53 million in new revenues in the coming year.

Deak said he will lobby lawmakers to use some or all of that money to boost Medicaid reimbursements for long-term care.

“The moral test of government is how we treat those in the dawn of life, our children, those in the shadows, the disabled, and those in the sunset of life, the elderly,” Deak said. “It really comes down to the equation: do we have the will to use the dollars we have available because the chronic underfunding of long-term care is coming home to roost.”