State law may trap Stevens Square nursing home in costly building

City of Lakes wants to build a facility to save money, but a deficit-burdened state may find the upfront price too high

The owner of the City of Lakes Transitional Care Center, a 145-bed nursing home at 110 E. 18th St., is considering building a new, $13 million facility on a parking lot across the street at the northwest corner of 18th and 1st Avenue South, said Administrator Dave Brennan.

Repairs on the 92-year-old building are draining City of Lakes' funds. However, since the state would pay 90 percent of the cost of a new facility, taxpayers would have to come up with $11.7 million -- a tough sell with Minnesota's projected $5.5 billion budget deficit.

The state has a 20-year-old moratorium on new nursing home construction designed to rein in state health-care spending.

Brennan said that forces City of Lakes to spend money to maintain a building that is too big and inefficient.

"All the repairs to the infrastructure are becoming greater and greater," Brennan said, noting he just paid $150,000 to replace the 80-foot chimney. "That is becoming our big challenge, especially when you are competing with nursing homes that are newer, like Walker and Augustana."

Some nursing homes can change the carpeting, windows or furniture -- the kinds of things that improve residents' quality of life, he said. "We don't have that ability," he said. "We are putting it into heating and air conditioning."

The City of Lakes building was originally Abbott Hospital, which operated there from 1911 to 1980, Brennan said.

It sat empty until Ebenezer Caroline Center opened a nursing home in 1984. It sold to Health Dimensions Inc. in 1994, which sold to the Benedictine Health Systems in 1998.

Benedictine Health Systems operates 80 hospitals and nursing homes, Brennan said. Steve Chies, vice president for operations for the system, said staff had discussed City of Lakes' future for 18 months.

"We have engaged a couple of consultants to do some evaluations of the marketplace," he said. "We'd like to have a decision by 2004."

"The market is changing and the neighborhood is changing and we need to change with it."

Finding a niche

The state has roughly 43,000 nursing-home beds and dropping, said Linda Sutherland, director of facility and provider compliance for the state Health Department. Each year, between 300 and 500 beds close.

(Recent Minneapolis nursing-home closures include the Good Samaritan, 4429 Nicollet Ave. S. and LaSalle Convalescent Center, 1931 LaSalle Ave.)

People have more nursing-home alternatives now -- assisted-living programs and in-home health and supportive services, Sutherland said. People in nursing homes are older and frailer than before.

City of Lakes has developed three specialty areas: homeless people, ventilator patients and hospice care, Chies said.

He adds that the standard "plain vanilla" nursing homes will not survive in the metro area anymore.

"Long-term care is starting to evolve into a niche business," Chies said. "You can do plain vanilla in East Overshoe, Minnesota. What happens in the Twin Cities is there is a lot of competition, because people are willing to drive 10 to 15 minutes to another facility or another type of care setting."

City of Lakes closed 40 beds last year, bringing it down to 145 beds, Brennan said. If allowed to rebuild, its new facility would have between 80 and 100 beds.

It has 170,000 to 180,000 square feet in its current building, Brennan said. "It is probably double the size we need for the number of patients we have," he said. "It is because we took over an old hospital. We have given everybody private rooms."

Waiving the moratorium

Sutherland said Medicaid, a health-care program for the poor, would pay 90 percent of the construction and financing costs of the new $13 million building, or $11.7 million over the life of the project.

That's assuming it gives a moratorium waiver.

"It's a huge commitment," Sutherland said. "We have recently awarded money for projects under the moratorium. We don't know if there will be any more money like that in the future. That is something the legislature has to earmark."

Chies said given the current level of state funding, it would take 100 years to replace the aging nursing homes around the state.

"We can't wait 100 years," he said.

Little financial wiggle room

For Benedictine Health Systems, the building problem may take a back seat to possible state cuts in nursing home Medicaid rates.

In 2002, Medicaid paid nearly $890 million for Minnesota nursing-home care, a state official said. Half came from state coffers. The program pays for nearly two-thirds of all nursing-home care.

The City of Lakes gets 90 percent of its funds, or more than $10 million a year, from Medicaid, Brennan said. Gov. Tim Pawlenty recommended a 4 percent cut in state nursing-home Medicaid rates in his Feb. 18 budget, which would translate into roughly $480,000 less for City of Lakes.

Chies said City of Lakes is making contingency plans how to "cut," "nick" and "trim." Seventy percent of nursing home costs are for staff. More than one-third of all costs are for nursing.

"I have adopted the attitude I am going to draw a line in the sand with the legislature, and say 'If you want to cut rates 10 percent, we want you to take 10 percent of our people,'" Chies said.

What happens with old Abbott?

Benedictine Health Services is looking at a number of different models for a new building -- perhaps a land swap to give it Nicollet Avenue street front, Chies said.

"Maybe we have some type of retail/commercial center on the lower level. Maybe we do some medical services there," he said. "If we are able to pull it off, it could set a standard for what inner-city facilities need to migrate toward."

Benedictine Health Services would likely sell the current building, Brennan said. "It could be used as assisted living. It could be used as a regular apartment building," he said. "It would be up to the marketplace."