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A Health Department official Thursday announced a moratorium on nursing home participation in the Medicaid program, and a representative from a long-term care facilities group told lawmakers it needs supplemental money to cover the cost of caring for Medicaid patients - and will sue the state, if it has to.

Rod Betit, director of the Division of Health Care Financing, which administers Medicaid, told members of the health and social services appropriations panel of the Utah Legislature that the division will refuse Medicaid certification to nursing homes that are not already part of the program, starting April 1.Medicaid pays for more than 70 percent of the state's nursing home clients. But providers said the payment is so small that some facilities actually lose money by caring for Medicaid patients.

Betit said, "The situation is really bad in the nursing home industry. Fewer than 50 percent are making a profit and for those that do, it's only 2-3 percent."

Utah's nursing homes have 1,700-2,000 vacancies, so while the moratorium will limit the number of providers, it will not put a cap on the number of Medicaid beds available, Betit said.

Dennis McFall, Utah Health Care Association, which represents long-term care facilities throughout the state, said his group will present lawmakers a request for a $600,000 supplement on Friday. The money will "help cover the costs" of caring for Medicaid patients.

Betit said the division supports a compromise supplement - "not what they asked for, but a bridge to the governor's budget." He also promised quality care incentives for nursing homes that "do over and above" Medicaid mandates. In the future, he said, the division will ask for exemption from federal regulations so it can competitively bid new beds.

Sara Sinclair, administrator of the Sunshine Terrace Foundation, said 60 percent of its clients are on Medicaid. "It is costing us $5 a day to care for these people. For 1989, to come within $30,000 of breaking even - we're not yet - we had to cut 117 hours a week of nursing care. It gets down to an issue of quality versus what Medicaid pays. The patient suffers."

The moratorium would probably not last more than two years, said Dr. Suzanne Dandoy, Health Department director, and could be rescinded on 30 days notice. Meanwhile, she said, a task force will examine long-term care.