AUGUSTA — When it comes to Maine’s nursing homes, most observers agree the industry is in crisis. Because of a change in state policy in 1994, which raised medical eligibility standards for admission, nursing homes are now caring for the most acutely ill or impaired of the elderly. Those needing less assistance are using home- or community-based services.

But at the same time, the state’s Medicaid reimbursement rates to nursing homes have remained based on 1993 cost levels. That, along with a labor shortage driven by a healthy economy, has made it extremely difficult to recruit and retain nursing home workers, according to industry officials.

The troubling reality is public policy has directed that only seriously ill Mainers will qualify for nursing home care, yet the money to care for their many needs has not followed, according to Paula Valente, president of the Maine Healthcare Association, a trade group representing the state’s long-term care industry.

On Monday, Valente, with dozens of other nursing home providers, took their case before the Health and Human Services Committee in favor of a bill that would base reimbursement on more recent cost figures.

The bill is based largely on the recommendations of a 15-member commission formed in 1997 to look at the financing of Maine’s long-term care facilities.

Maine spent just over $185 million in Medicaid on nursing facilities for about 8,600 people in 1998, according to a report released last month by the Department of Human Services. Reimbursement is based on a complex method that takes into consideration the differing levels of resident care provided at any given nursing home.

The reimbursement bill, sponsored by Rep. Elaine Fuller, D-Manchester, was submitted as an emergency bill, meaning that if passed it would go into effect immediately.

Other provisions of the bill call for setting up a pilot project that would reward high-quality care in nursing homes based on performance standards; replacing the Department of Human Services’ minimum staffing ratios with requirements that more closely reflect the care currently needed at nursing homes; calling for a report on ways to reduce state-required paperwork in nursing homes; and requiring the Bureau of Insurance to study ways to encourage Maine residents to buy long-term-care insurance.

Michael McNeil, a member of the rate-setting commission and a financial consultant, told the human services committee on Monday that it would require between $16 million and $20 million more a year to bring Medicaid reimbursement to levels that reflect nursing home costs.

A spokesman for the Bureau of Medical Services, which oversees the state’s Medicaid program, told the committee that the bureau opposes the reimbursement portion of the bill because it would cost too much.

And opposition came also from several members of the rate-setting committee, most notably from Sally Wagley, an attorney with the state’s long-term care ombudsman program. She, along with Sen. Chellie Pingree, D-North Haven, and others, say that the commission gave short shrift to the state’s consumers of nursing home services.

“Our disagreement is not with the recommendations of the report,” said Wagley, who was one of the authors of a commission minority report. “It’s on the emphasis of the report.”

Pingree said that higher reimbursements should go only to direct care of residents, not to administrative work. She is author of a bill that calls for the appropriation of $2.1 million each of the next two years for Medicare reimbursement — all to be used for “hands-on services to residents.”

The minority report said that “nursing homes need to do their part to solve the problem of high staff turnovers in facilities by examining their own business practices, by making jobs more attractive and by putting more of their resources into salaries and benefits for direct care.”

McNeil called the minority report “disruptive.”

“This bill cannot be taken apart piece by piece,” he said. To deal with some segments and not others will simply fragment further the way the state deals with medical reimbursements to long-term-care facilities.