Pay boost for nursing homes floated. (Up front).

Nursing homes, hard hit by the state's budget crisis, are getting some help from the federal government after years of takeaways.

The Centers for Medicare and Medicaid Services is proposing a 2.9 percent rise in Medicare payments adjusted to account for inflation. That breaks down to an average payment increase of $8 to $9 for each patient per day starting Oct. 1.

That would add some $400 million nationwide to the industry's coffers, with California nursing homes especially benefiting since operators say they lose money on patients who are paid through Medi-Cal, the joint state and federal health program.

In addition, federal regulators are looking at another 3.26 percent payment increase, a proposal that is in the midst of a 60-day public comment period.

"The industry would not be solvent without Medicare," said Rick Matros, chief executive of Sun Healthcare Group Inc., an Irvine-based nursing home company that operates facilities in Norwalk, Pico Rivera and elsewhere in Los Angeles County.

"You have positive margins on Medicare and negative margins on Medi-Cal and Medicaid. California pays one of the worst rates in the country," he said.

California's average Medicare skilled nursing payment rate was $311 a day in fiscal 2000, the latest data available. By contrast, Medi-Cal pays little more than a third of that, about $118 per day.

The problem is exacerbated by the fact that Medicare only pays about 20 percent of total nursing home costs, with most patients paid by Medi-Cal and some by private insurers or out-of-pocket.

Still, the payment increase is good news for L.A. County's 370 facilities.

It comes as Gov. Gray Davis has proposed $260 million in nursing home Medi-Cal funding cuts as part of his bid to balance California's budget this year. With the loss of federal matching dollars the total cut would rise to $520 million.

Meanwhile, the budget impasse is threatening to halt Medi-Cal payments to nursing homes sometime in August, when a special $2 billion emergency fund runs out.

"For now we are protected, but we are very concerned about the proposed cuts in Medi-Cal funding and the delay in the budgets could cause a stop in payments," said Kefley Queale, director of communication for the California Association of Health Facilities, an industry trade group.

The hike in federal funds follows Medicare cuts the industry had to absorb from the Balanced Budget Act of 1997 that, according to industry officials, set off a string of insolvencies.

Sun filed for bankruptcy reorganization in 1999, citing lost revenue on declining Medicare funding. The company recently emerged from that process.

Fountain View Inc., which moved from Burbank to Foothill Ranch earlier this year, filed for bankruptcy in 2001. Its reorganization plan was approved last week.

Staff Reporter Laurence Darmiento contributed to this story.