MONTPELIER – Shortfalls in Medicaid funding could severely impact the elderly Vermonters whose nursing-home care is funded by the program, according to a national study released Thursday. And unless the projected deficit is filled by the state and federal governments, local advocates say, seniors could see painful cuts in health-care services.

"It's a very tough situation and I think that the state needs to be looking to hold its senior citizens as priorities when it's debating the budget this session," said Laura Pelosi, executive director of the Vermont Health Care Association, which represents 40 of the state's 42 nursing homes. "Vermont nursing facilities take care of the most vulnerable and most financially needy of elders, and they should be deemed a priority in this process."

According to a study by Elijay LLC., released Thursday by the American Health Care Association, Medicaid will under-fund the actual cost of providing care for nursing home patients in Vermont by nearly $12 million. The shortfall, the report found, amounts to more than $16 per patient per day.

Nursing home officials say they're forced to compensate for the disparity by cutting staff, deferring building improvements and eliminating some of the programs intended to improve quality of life for their clients.

"It's hard to measure the impact, but to some extent you're asking the facilities and their staff to work harder to accomplish the same tasks," says Jim Beeler, administrator at Rowan Court in Barre and president of the VHCA. "It doesn't necessarily mean that quality of care is going down, but quite frankly I think nursing facilities are pushing the envelope in that we are being asked to do more with less money."

Medicaid, which provides health coverage to low-income individuals and families who are deemed eligible under federal and state law, is administered by the states and involves a mix of state and federal money. The report found that Medicaid underfunds nursing-home care for eligible recipients by almost $5 billion nationwide. Since Medicaid comprises the majority of nursing-home revenues – about 70 percent of revenue at Vermont's nursing facilities comes from the state and federal program – the hit is particularly difficult to absorb.

Vermont's nursing facilities care for more than 3,000 residents at any given time.

"Roughly 70 percent of total nursing home costs are labor related," Pelosi says. "So the place you look to for greatest budget savings and reduced costs are going to be staff."

Federal rules mandate minimum staff-to-patient ratios, however Beeler says nursing facilities in Vermont offer premium care by staying well above those minimum standards. Dropping to the bare minimum, he says, will inevitably impact the quality of care.

Industry officials say nursing homes already have absorbed the brunt of state and federal fiscal troubles. Medicaid reimbursement rates have been frozen for two years running. And in October, Medicare reimbursements, which comprise approximately 15 percent of nursing-home revenue, took a 5 percent dive.

All this at time when Beeler says costs are increasing.

"It's really a double whammy for us because those two programs account for 80 percent to 85 percent of our business," Beeler says. "At the same time we're caring for older and sicker patients who require more time and effort from nursing home staff."

Pelosi says that the federal government could help by bolstering funding for the federal Medicare program, which provides coverage for more than 43 million beneficiaries, mostly people age 65 or older. With revenue shortfalls hampering state's abilities to fulfill their Medicaid obligations, Pelosi says, the federal government should increase Medicare budgets to help compensate for the shortfalls.

"To our federal legislators working on national health care reform in Washington, D.C.," Pelosi says, "this report is a stark and timely reminder that a strong Medicare funding component in a final federal bill is a literal lifeline to protecting their most vulnerable elderly constituents."