A nursing home in Derby, Kan., was running out of money fast last month, unable to pay basic bills for utilities or prescription drugs.
So the state of Kansas took it over. Just as it’s done for 20 other financially insolvent skilled nursing facilities this year alone.
“We don’t want to be a receiver or operate these facilities,” said Tim Keck, secretary of the Kansas Department for Aging and Disability Services. “But we felt like it was best for the residents that we do so.”
According to industry insiders, in an average year Kansas might have to take legal control, or receivership, of one or two nursing homes. But 2018 has been anything but average so far, and it could be a sign of things to come. Changes in the way nursing homes are reimbursed have made it harder for them to make enough money to stay in business, especially for homes owned by out-of-state investors who siphon off revenue — a growing share of the market.
Sign Up and Save
Get six months of free digital access to The Kansas City Star
The financial troubles of Westview of Derby and the 20 other homes under state control stem from a variety of factors, some national and some confined to Kansas. One home — Fort Scott Manor — has already had to close, and others may follow.
Kansas still has plenty of nursing home beds overall right now, but they’re not distributed evenly. In some parts of the state closures would mean residents have to move to other communities, away from friends, family and even spouses. Areas of shortage are only likely to grow as baby boomers age.
This year’s shakeup in the Kansas nursing home industry could provide an opportunity for the state to invest in services that allow those folks to stay in their homes longer. If not, the state could find itself in a bind as the 20,000 or so residents currently in Kansas nursing homes are joined by thousands more.
“What’s going to happen to those folks and what’s going to happen to the folks coming behind them who need long-term care?” said Mitzi McFatrich, who heads Kansas Advocates for Better Care, a group that represents elderly Kansans. “We don’t have a good backup plan. We don’t have a good transition plan.”
The 21 nursing homes under state control are scattered throughout the state and include three in Edwardsville — Kaw River Care & Rehabilitation Center, the Edwardsville Care & Rehabilitation Center across the street and the Parkway Care & Rehabilitation Center next door.
Those three and 12 others were purchased in 2016 by Skyline Healthcare, a small company based above a pizza parlor in New Jersey that gobbled up dozens of nursing homes in several states and then quickly fell behind on all sorts of bills.
Experts who watched Skyline fail in Kansas and elsewhere say its owners bit off way more than they could chew.
“That is something that never should have happened,” said Stephen Monroe, a partner at the Connecticut research firm Irving Levin Associates that specializes in the senior housing and health care investment markets. “The states, Kansas included, never should have approved them (for licenses).”
But Monroe said Kansas and other states are now full of nursing homes run by out-of-state investors like Skyline that took out large amounts of debt to buy them.
Nursing homes were appealing investments from about 2010 to 2016, he said, as their values soared thanks in part to lucrative Medicare reimbursements for short-term rehabilitation stays after hospitalizations.
But since then more people have opted for privatized Medicare Advantage plans that squeeze those reimbursements and limit the length of those rehab stays.
Monroe said the shift “caught the industry with its pants down,” and operators carrying a lot of debt were especially vulnerable.
“If you’ve got a very leveraged capital structure, in times like this, you’re screwed,” Monroe said.
Nursing homes run by Skyline and other companies are going into receiverships by the dozens in some other states as well, though not in Missouri, where state officials said that they operate none right now.
Groups that represent nursing homes say the national struggles have been amplified in Kansas because of changes to the state Medicaid program, which pays for long-term nursing home beds for elderly and disabled people who can’t pay for them out of pocket.
For years Kansas nursing homes have faced long delays in getting residents’ Medicaid applications approved, after the state privatized the application processing system and consolidated it in a single Topeka office. Even when residents are approved, getting timely payments has been more complicated since the start of KanCare, when the state contracted out all Medicaid services to three private companies.
Rachel Monger, a spokeswoman for LeadingAge Kansas, which represents nonprofit nursing homes, said the eligibility and reimbursement issues have “run our field ragged.”
“On the other hand, you’re not seeing most of the homes in Kansas behaving the way these homes are behaving and requiring intervention from the state,” Monger said.
A profit motive makes failing homes more likely to cut corners in tough times, she said, especially if they’re run by out-of-state operators with no connection to the community.
Monger said her organization hopes the spate of receiverships spurs Kansans to try to keep the nursing home industry more locally owned.
“These companies that are coming in seem to have very little accountability in Kansas,” Monger said.
An overdue crackdown
Kansas took over the 15 Skyline homes in March and turned over operations to Mission Health, a large chain based out of Florida that has helped KDADS with receiverships in the past.
Since then Kansas has had to take over six more, including three owned by another out-of-state group called Pinnacle Management Co.
Keck says his agency found out that the owners of those facilities had unpaid bills for things like supplies and therapy services and were misappropriating funds, including diverting money from residents’ personal trust funds to pay employees.
The other facilities the state took over include one in Great Bend cited for a number of dangerous deficiencies in care, the Derby facility and Fort Scott Manor.
Not all were owned by out-of-state investors. A former employee of the Fort Scott home told a business news outlet that the problems there could be traced back several years to the contentious divorce of the owners, a local couple.
Keck said the agency did not want to close the home and move the occupants elsewhere, but it had no choice.
“We really are just trying to take care of the residents and do that the right way,” Keck said.
Industry advocates agree that the state is just doing what it has to do.
Cindy Luxem, the leader of a trade association for nursing homes called the Kansas Health Care Association, said the dramatic increase in receiverships this year is an overdue crackdown on operators that shouldn’t be in business.
“There have been homes in trouble in Kansas for a long time and there have been homes that previous administrations should have shut down and they haven’t,” Luxem said.
But Luxem said she feels for residents whose lives are thrown into flux when operators fail. Fort Scott had enough beds in other facilities to absorb most of the people displaced by the closure of its nursing home, but that wouldn’t be the case for some of the 20 other homes that are in more rural areas.
“If those homes close those people have to go 30 miles to 60 miles to get care,” Luxem said. “That’s very upsetting, but I don’t know what else they can do.”
One thing the state could do, long-term, is build up home health care services so there is less demand for nursing home beds. But that wouldn’t be a quick fix.
“We would love, love, love to see that happen and see that capacity building that we have been asking for for so long, especially in rural communities,” Monger said. “(But) as an immediate solution that’s probably not viable just because housing is not available in a lot of those communities.”
Shortages of affordable housing mean that seniors get priced out of their homes, and home health workers, who generally don’t make high salaries, may be reluctant to move to rural areas even if jobs are available.
Unless that changes, some areas of the state will need the nursing home beds that are currently in flux as the population ages.
Stuart Lindeman, the president and CEO of Mission Health, said he was optimistic new operators would buy the 20 homes and keep them running. The homes may be parceled out to several companies, and some of the facilities might combine operations with others. With the right operators, he said there’s no reason they can’t be viable.
But Lindeman also predicted that instability in the nursing home industry isn’t over, in Kansas or nationwide.
“The next couple years we’re going to have issues like this,” Lindeman said. “There’s going to be consolidation in the business, and people who are doing it right will do well and there will be people who shouldn’t be in the business who won’t do well.”
Mike Flanagan, an Overland Park attorney the state hired to help with the receiverships, said it’s not clear whether there will be buyers for all 20 of the homes.
Closures should be a last resort, he said, but even finding a company that could handle the 15 Skyline homes is a tall order, and Kansas needs to be choosy about who it licenses to be their next operator.
The state has so far been able to pay for the receiverships through a civil monetary penalty fund that nursing homes pay into when they’re fined for deficiencies.
But the state has had to draw $4.6 million out of the fund for the Skyline receiverships alone, and has so far only gotten back $2.8 million of that. There’s about $4 million left in the fund, according to KDADS.
“I think everyone would be in agreement you can’t have this happen another time to these facilities,” Flanagan said. “If the wrong operator were selected and Skyline 2 occurred, that would not be good.”
The list of 21
The nursing homes taken over by the state of Kansas, with dates of receivership (those dated March 29 were part of Skyline Health of New Jersey):
Chase County Care & Rehabilitation Center (Cottonwood Falls), March 29
Downs Care & Rehabilitation Center, March 29
Edwardsville Care & Rehabilitation Center, March 29
El Dorado Care & Rehabilitation Center, March 29
Eskridge Care & Rehabilitation Center, March 29
Kaw River Care & Rehabilitation Center (Edwardsville), March 29
Lansing Care & Rehabilitation Center, March 29
Neodesha Care & Rehabilitation Center, March 29
Parkway Care & Rehabilitation Center (Edwardsville), March 29
Pittsburg Care & Rehabilitation Center, March 29
Spring Hill Care & Rehabilitation Center, March 29
Wakefield Care & Rehabilitation Center, March 29
Wellington Care & Rehabilitation Center, March 29
Wichita Care & Rehabilitation Center, March 29
Wilson Care & Rehabilitation Center, March 29
Fort Scott Manor, May 15
Great Bend Health & Rehab Center, July 11
Providence Living Center (Topeka), Aug. 31
Village Villa/Village Estates (Nortonville), Aug. 31
Flint Hills Care Center (Emporia), Sept. 5
Westview of Derby, Sept. 12