Despite some valid financial concerns, Good Shepherd Nursing Home District is not in crisis, according to District Administrator Lance Smith.

Declining income at the district's two skilled nursing homes combined with an unforeseen large expense to put the district out of compliance with one of its bond covenants in Fiscal Year 2011 (July 1, 2011-June 30, 2012).

Despite some valid financial concerns, Good Shepherd Nursing Home District is not in crisis, according to District Administrator Lance Smith.

Declining income at the district's two skilled nursing homes combined with an unforeseen large expense to put the district out of compliance with one of its bond covenants in Fiscal Year 2011 (July 1, 2011-June 30, 2012).

"We're not going to close. We're not to the point of going bankrupt. We're far from there, but we do want to be a good, smart business," Smith says.

The GSNHD will likely have two years in a row of negative net income from operations at all four of its facilities - Laurie Care Center (LCC) and Laurie Knolls and Good Shepherd Care Center (GSCC) and Kidwell Home in Versailles.

Subsidized by tax funding - around $950,000 annually from property owners in parts of Morgan, Moniteau and Camden counties - and with monies in reserve, the overall finances of the district are still within its means.

But the board is required to have a debt service coverage ratio - the number of times over you can pay off long term debt - of 1.1. In its last fiscal year, its ratio ended up at 0.85 after a construction project was necessitated when the board found out in a state inspection that the LCC basement needed to be fire rated.

After the funding that project, the district had net income available for debt service of $868,112 - which is $217,525 less than what the bond indenture requires them to have in reserve.

Being out of compliance required the district to have an outside financial analysis completed to see where improvements of the bottom line could be made.

The analysis by BKD CPAs & Advisors showed that GSCC had actual revenues for FY2012 of $2,199,744 as of Oct. 31 and actual expenses of $2,050,803. GSCC was the recipient of a $225,000 donation. Operationally, GSCC is also currently operating at a loss, according to Smith.

LCC had revenues in the same time frame of $1,488,943, but expenses totaled $1,598,250.

Where the district really lost money, however, was at its two residential care facilities. Kidwell Home showed expenses of $163,669 and revenue of $92,244. Revenue at Laurie Knolls totaled $112,841 with expenses of $224,371.

Overall, operations combined for a net loss of $249,032 for this time period.

Subsidized by the local property tax, the district's goal each year is to break even on operations and save tax funding in CDs for capital improvement projects and large ticket building-related expenses as well as meet its bond indenture.

Typically, at least one of the nursing homes makes enough of a profit to cover operations at the other facilities, Smith says. That was not the case in the last fiscal year and is not in line for this fiscal year either.

Definitely cause for concern, he says, but the district is far from insolvency. It is part of a wider, ongoing discussion about the future of long term care.

Uncertainty about "Obamacare," the economy and Medicare cuts has put the entire industry in turmoil, according to Smith. Declining census - number of residents - at nursing homes is happening nationwide, not just locally, he says.

A variety of factors are at play, from patients opting for fewer elective surgeries such as knee replacement to more one-income families who then choose to take care of an aging parent at home. Around 95 percent of nursing home residents are referred by hospitals. With hospital census down, according to Smith, nursing home census numbers are subsequently seeing declines as well.

It is believed that census counts will eventually climb again as the Baby Boomer generation will need the services of these types of facilities more and more, however as they hit the system, Smith says, the industry expects reimbursement from state and federal programs to go down.

Private pay residents make up a small portion of total occupancy. About 75-80 percent of residents are on Medicaid and 10-15 percent on Medicare, according to Smith.

While the legislature raised Missouri Medicaid reimbursement retroactive to July 1, 2012, GSNHD has lost an estimated $100,000-$150,000 in Medicare cuts.

Medicare has a much higher reimbursement rate than private pay or Medicaid. While these residents also require more care and thus incur more expense, they are still where nursing homes typically make profit and cover losses from Medicaid and private pay residents, Smith says.

"Despite promises, cuts happen. So we'll have more in the system, but less reimbursement. It will become a volume business," says Smith.

To deal with the changing face of the industry, Smith says the district needs to work smarter and more efficiently without losing quality care.

The analysis recommended the district look at ways to increase the number of residents at its facilities, review resident care classifications and be more efficient with staffing levels.

The district is reviewing what are called Resource Utilization Groups (RUGs), which is categorization of patients for funding under Medicare and Medicaid. The district has lower levels in many higher paying RUG categories. The review is to make sure the district is receiving appropriate reimbursement for the level of care that is being provided.

The district is proceeding with many of its recommendations, including cutting positions mainly in non-direct care departments such as laundry, dietary and administration. These cuts are saving the district about $150,000, according to Smith.

The board has long kept private pay rates lower than similar facilities due to the district's tax supplement, but with the financial issues, private pay rates were increased 4 percent across the board for all facilities this year to become closer to what similar facilities charge. The private pay rates, however, are still less than actual cost of care.

The main goal, however, is to get census numbers up.

The district is reviewing its marketing strategies to try to encourage more referrals from its current sources as well as develop new ones. It will likely expand marketing to a wider area, Smith says.

The board has also discussed closing one of its residential care locations - Laurie Knolls or Kidwell Home - at some point.

These facilities have historically always lost money, according to Smith, due to low census.

Unlike skilled nursing homes, they are a more of a want than a need and both of the district's residential care facilities have long had low resident counts. In the independent analysis, Kidwell had an average occupancy rate of 39 percent for the last fiscal year, and Laurie Knolls 36 percent. For Kidwell, that was an average of 17 residents per day in the 44 bed facility. And Laurie Knolls

In comparison, GSCC and LCC had average occupancies of 78 percent and 66 percent respectively for the same time period.

While the census counts at all the facilities could be higher, controlling costs without losing quality of care is also key to bringing the district closer to breaking even on operations again, Smith says.

Still, he says, there are no plans to shut down any of the facilities any time soon, and no residents would ever be kicked out to close a facility. It could include moving residents of Kidwell and Knolls over to GSCC and LCC for greater efficiency.

Potentially heading into a rocky future for the industry, it is simply food for thought as the board plans for the future, he says.

Quality of care at LCC

Along with cutting expenses, the district must maintain quality of care at its facilities to attract and maintain residents.

GSCC received a five out of five star (Much Above Average) overall rating in its 2012 Medicare review, but Laurie Care Center has been in the process of making improvements to services after receiving just two out of five stars. That is considered below average. However, it should be noted that LCC passed inspection and is fully licensed.

This rating system is based on nurse staffing, a health inspection and up to 20 quality indicators. These three categories are weighted and then compared to other facilities in its peer group and across the nation.

Five stars is extremely hard to obtain because a certain number of registered nurse (RN) staffing is required, according to Smith, and LCC just does not have the number of residents to justify that level. LCC actually staffs more nurses than most for direct care, he says, just not with RNs.

The methodology of this particular rating system has always been controversial within the industry, says Smith, but added that LCC should be rated higher.

"We should be no less than three, but we should be a four," he says.

Since the January 2012 inspection and subsequent rating, there have been major changes at LCC to improve care and become more efficient.

Smith acknowledged issues in the past, but says the difference between a good facility and a bad one is what they do with criticism.

"It's an opportunity to do something good, to fix things," he says.

Over half of the department heads have been changed out in the last six months, including LCC administrator.

The district is getting closer to hiring a new facility head. From more than 20 applicants, Smith has narrowed down the field to three. These candidates will be interviewed by a panel of LCC staff. The board will then choose from a final two candidates.

Smith has been acting administrator at LCC in the interim.

Among the other staffing changes, LCC has a new director of nursing, a key position that along with the facility administrator helps set the tone for the whole building, says Smith.

Tonya Randazzo is an RN with extensive experience in the acute medical field, working at a hospital in St. Louis for many years before deciding to move to the Lake.

The facility also hired former restaurant chef Jim Neff as its new dietary manager.

LCC's annual government inspection was in January.

It was one of the best reports the facility has ever had, according to Smith.

He expects at minimum a three star rating and possibly a four.

LCC has also been adding more activities for residents and community programs. They have a coffee shop and general store. They have movie nights and an Alzheimer's support group.

"We're in the people business. There will always be issues. We're not perfect, but we want to make life continue for our residents. We want to make their lives better," he says. "The staff here are part of the community. They all know somebody who has a family member here. We're a great buy, and we do have a good staff. I would trust my family here."