AAHSA study shows nursing homes losing money. (Front Page).

If you've ever heard a nursing home operator complain that it's hard to make a living in this business, it's 2 safe to assume they're not exaggerating. Most nursing homes are running in the red, according to a new report from the American Association of Homes and Services for the Aging (AAHSA).

The study, which reviewed 990 tax records for 272 non-for-profit, freestanding long term care facilities nationwide, showed that the average home had an operating margin of minus 4 percent during 2000-2001. The negative margin is largely due to reduced revenues from Medicare, Medicaid and private sources in the past year, according to the report.

Even after factoring endowment income and private fundraising efforts, the average facility had an operating margin of a mere 2 percent, meaning many not-for-profit homes are "operating very close to the edge," AAHSA President and Chief Executive Officer William Minnix Jr. said.

Reduced revenues already force nursing homes to use fundraising monies to maintain basic operating services, instead of using them for program improvements, according to Minnix. Another $1 billion in Medicare cuts recently enacted by Congress will "certainly have a direct impact on the ability of America's nursing homes to provide quality care for our frailest seniors."

That's not good news for nursing homes in many of the country's hardest-hit areas, such as Texas, where U.S. Rep. Ciro Rodriguez said 200 of the state's 1,200 nursing homes have gone bankrupt during the past two years, or New York, where nearly half of the state's nonprofit nursing homes are losing money, according to the New York Association of Homes and Services for the Aging.

Inflation is another factor. According to NYAHSA President Carl Young, New York's 685 nursing homes--for-profit and not-for-profit--rely on Medicaid payments for the bulk of their But Medicaid reimbursement rates aren't keeping up with costs.

For example, the cost of prescription drugs for the average nursing home was $1.50 in 1983. That total is $9.50 today, but Medicaid pays only $3.50, Young said. Under that scenario, a nursing home with 240 beds is losing $1,200 daily just on prescription drugs, he said.

Not-for-profit homes aren't the only ones feeling the pinch. Richard Herrick, president and CEO of New York State Facilities Association Inc., which represents for-profit nursing homes, agrees that many nursing homes "are just hanging on by their fingernails. We're all dealing with how to provide the best quality care, with limited resources.

The findings in the AAHSA study are close to those of other industry analysts, who place the typical nursing home's operating margins at 1 percent to 4 percent.

Such low margins are not unusual in the nursing home industry, according to Roger Clary, an accountant with Crisp Hughes and Evans, a Durham, NC., CPA firm that oversees the books for about 350 nursing homes.

Clary said nursing homes typically can tolerate low operating margins because many are guaranteed patients due to various state regulations that limit the supply of nursing home beds.

But life on a shoestring also means there's no room for error within a home's operating budget, according to Clary. A major cut in funding at the national or state level can mean a nursing home will have to reorganize, sell or go out of business.

RELATED ARTICLE: Minnesota Nursing Homes Lose Resident

Nursing homes in Minnesota are also losing potential new residents to assisted living facilities.

Business license totals reveal that the number of assisted living providers in Minnesota has risen 280 percent since the state began issuing such licenses in 1998. These assisted living options--help at home, apartments with 24-hour medical staff and independent living units--are attractive to seniors who consider themselves too young or too healthy or are simply too stubborn to move into a nursing home, according to state officials.

Aging adults are also pushing for health care that is different than the traditional, hospital-like setting of the nursing home. And, seniors are also asking to stay near their kids--many of whom live in the suburbs--resulting in most new assisted living facilities being built outside of major cities, according to Dan Lindh, president of Presbyterian Homes & Services, a nonprofit adult services provider in Arden Hills, Minn.

In 1981 the state of Minnesota imposed a moratorium on new nursing home beds and has not lifted it due to the increasing popularity of assisted living projects.

That may change in the near future, according to Rick Carter) president of Care Providers of Minnesota, a trade association for the state's long term care providers. Carter said there could be pressure for the state to regulate the number of new assisted living projects.