July • Report No. 11-06
Arizona Department of
Department operates nursing home
The Department operates a
200-bed nursing home in Phoe-nix
for Arizona veterans, their
spouses, and parents whose
children died while serving in
the armed forces of the United
States. Most residents are
male, 75 years of age or older,
and are not expected to be
discharged from the Home. As
of June 29, 2011, 78 percent of
the Home’s beds were filled.
Home not self-sustaining in fiscal years
2008 through 2010—According to
Arizona Revised Statutes §41-603.01, the
Home should be self-sustaining, but it
operated at a loss between fiscal years
2008 and 2010 and received State
General Fund and Veterans’ Donations
Fund subsidies to support its operations.
Two main factors contributed to the need
for these subsidies:
• The Department’s former director mis-managed
the Home’s operating funds.
• The Home had poor quality of care.
In 2007 through 2009, both the U.S.
Department of Health and Human
Services Centers for Medicare and
Medicaid Services (CMS) and the U.S.
Department of Veterans Affairs (VA)
found the Home to be in noncompli-ance
with many quality-of-care regula-tions.
Because of the noncompliance,
the CMS fined the Department $10,000
and denied payment for new admis-sions
for several weeks. The VA also
suspended the placement of veterans
in the Home for several months.
As a result of mismanaged resources and
poor resident care, the Home’s
occupancy decreased from 94 percent in
fiscal year 2007 to 75 percent in fiscal
year 2009. Further, the Home’s operating
revenues decreased by $1.3 million from
fiscal years 2008 to 2009.
Department has taken steps to improve
Home’s financial condition—Since then,
the Department has endeavored to
improve the Home’s financial condition.
This included increasing the Home’s
average daily occupancy to 87 percent in
the first three quarters of fiscal year 2011,
which is slightly below the break-even
census of 177 residents.
Additional steps needed to ensure self-sufficiency
of veterans’ homes
The Arizona Department of
(Department) operates a
nursing home for Arizona
veterans and their
spouses. Although the
Veteran Home (Home) is
supposed to be
fiscal years 2008 and
2010, the Home operated
at a loss. With
management, the Home is
although financial risks
Source: Photo courtesy of the Arizona Department of Veterans’ Services.
Arizona Department of
July 2011 • Report No. 11-06
A copy of the full report is available at:
Shan Hays (602) 553-0333
The Department has
also developed a more
balanced payer mix. As
illustrated in the table,
Medicaid pays the least
and Medicare pays the
most each day.
According to a
expert, a nursing home’s
optimal payer mix has 60
percent or less Medicaid
maximizing its Medicare
population. As of September 2010, the Home had
made significant strides in reaching this optimal
The Home has also improved its quality of care by
complying with federal regulations. For example, in
2009, the VA found just 15 instances of
noncompliance as compared to 40 instances in
Finally, the Home has reduced its operating
expenditures from about $17.7 million in fiscal year
2008 to nearly $15.3 million in fiscal year 2010.
According to a department official, the Home was
overstaffed with nurses according to VA guidelines.
Although the Home continues to exceed the VA’s
minimum nurse staffing guidelines because of its
high percentage of residents who are disabled and
require rehabilitation, it has been able to reduce
operating costs by reducing nurse staffing levels.
Despite improvements, financial risks remain—In
fiscal year 2010, billings for services were not
sufficient to completely cover noncapital
expenditures. During that time, the Home averaged
about $670,000 in cash on hand, enough to cover
only 18 days of operations. As of April 2011, the
Home had $1.8 million in cash on hand, enough to
operate for more than 43 days. The Maricopa
Integrated Health System, Maricopa County’s
Special Health Care District, budgeted for 65 days
cash on hand for fiscal year 2011, with a long-term
goal of 122 days cash on hand. The Department
should continue to increase its cash on hand.
The Department has begun developing fiscal
management policies and procedures to monitor
quality of service, revenues, expenditures, staffing,
and capital expenditures. It should finalize and
The Department has also reduced its administrative
costs from 18.5 percent in fiscal year 2008 to 14.7
percent in fiscal year 2010 and should continue to
reduce these costs.
Ensuring self-sufficiency of future veterans’
homes—The Department is building another
veterans’ home with 120 beds in Tucson, which is
scheduled to open in October 2011. It also has
plans to open homes in the Flagstaff, Yuma, and
Kingman regions by 2019 based on the VA’s
projection of the need for additional homes in
Funding to construct the Tucson Veteran Home
came from approximately $17 million in VA grant
monies and $10 million from the State General
Fund. One-time startup and operating costs in fiscal
year 2012 will be paid by a $1.9 million
appropriation from the State General Fund and $4.7
million from the Home for Veterans’ Trust Fund. The
Department projects that the Tucson Home will be
self-sufficient as early as fiscal year 2013. However,
national, state, and Phoenix nursing home data
suggests that the occupancy projection may be
optimistic. Specifically, nursing home occupancy
rates have been declining and were less than 84
percent nationally in 2009 and less than 77 percent
The Department should:
• Ensure that the Phoenix Veteran Home
maintains its improved financial condition by
finalizing and implementing fiscal management
policies and procedures.
• Continue to increase the Home’s cash on hand
and reduce the Home’s administrative and gen-eral
• Ensure the self-sufficiency of future veterans’
homes by maintaining a high quality of care,
maintaining a balanced payer mix, and keeping
operating costs and administrative expenditures
Change in Proportions of
Residents with Highest and
Lowest Payment Rates
1 Monies received from the VA for certain residents
who have disabilities caused or aggravated by
their active military service.
Medicare 374 2.0 6.1
Medicaid 157 73.5 56.8
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