Health Care Spending: The Basics; How Much Do We Spend on Nursing Homes?

We know that as a nation, we invest well over $2 trillion each year in healthcare. But where exactly do our health care dollars go?  Where are they well-spent and where are they wasted?

In recent months I’ve been trying to answer those questions by looking at healthcare spending sector by sector, analyzing how much we spend on physicians’ services (here  and here);  on hospitals (here and here) ; and what share our health care dollars is eaten up by insurers’ “administrative costs and overhead.”

This post will take a hard look at spending on nursing homes.  As the chart below reveals, the nursing home sector accounts for roughly 6 percent, or $124.9 billion of the more than $2 trillion that we invest annually in healthcare. As always, the question is “Are we getting good value for our money?”  Given how vulnerable nursing home patients are, questions about quality deserve special attention.



Quality of Care

The news is almost as depressing as The Savages. (A powerful film, starring Philip Seymour Hoffman, Laura Linney, and Philip Bosco about a brother and sister who are faced with putting their father in a nursing home.)

Begin with a recent GAO report.  Last month the Government Accountability Office reported that when Congressional investigators double-checked nursing home reports from state inspectors, they found widespread “understatement of deficiencies,” including malnutrition, severe bedsores, overuse of prescription medications and abuse of nursing home residents.”

The New York Times reports that “GAO found that state employees
had missed at least one serious deficiency in 15 percent of the
inspections checked by federal officials. In nine states, inspectors
missed serious problems in more than 25 percent of the surveys analyzed
from 2002 to 2007.”

(According to GAO the nine states most likely to miss serious
deficiencies were Alabama, Arizona, Missouri, New Mexico, Oklahoma,
South Carolina, South Dakota, Tennessee and Wyoming.) Nationwide, fully
one-fifth of the homes were cited for serious deficiencies last year.

Lewis Morris, chief counsel to the inspector general of the Department of Health and Human Services, describes what
inspectors have seen: “We have found nursing home residents who were
grossly dehydrated or malnourished. We’ve found patients with maggot
infestations in wounds and dead flesh. We’ve found residents with
broken bones that went un-mended.”

Legislators are talking about raising the maximum fine—now usually
$10,000—to $25,000 for a “serious deficiency” and to $100,000 for one
that resulted in a patient’s death. One hundred thousand dollars —not a
very high price to pay for taking a human life.

Meanwhile, Bruce A. Yarwood, president of the American Health Care
Association, a trade group for nursing homes, protests such a harsh
approach:  “We should not be increasing fines, adding auditors and
encouraging a ‘gotcha’ mentality. We should be testing new, less
punitive ways to measure and improve the quality of care.”

This is one point of view. Alternatively, rather than fining nursing
homes where “deficiencies” lead to deaths, we might simply close them

While Prices Rise, New Owners Take Over the Industry

Just a few weeks ago, U.S. Congressman Bart Stupak raised a red flag at an oversight hearing on nursing home care, pointing out
that in recent years “a wave of new owners and investors has begun
purchasing nursing home chains – both large and small – successful and
unsuccessful. These firms are private, unregulated, and new to the
nursing home market.”

As Stupak, who is chairman of the House Energy and Commerce Committee’s
Subcommittee on Oversight and Investigation, went on to explain: “Many
worry that the top priority for these new owners will be profits,
rather than providing the staffing and resources necessary to ensure
top quality care for our loved ones. Frequently, they use complex
corporate structures, separating the nursing home real estate from the
operating companies and putting multiple layers of limited liability
partnerships between themselves and the day-to-day operations of the
nursing home.”

This makes it difficult to figure out who owns many of these homes. And
if you can’t identify the owner, who do you hold accountable when
mistreatment leads to “unnecessary amputations”? Patients and families
who try to sue have found themselves lost in a legal labyrinth.

“The impact of these new owners on the quality of care and safety of
nursing home residents is still unclear,” Stupak added. “Some companies
re-invest their profits into the facilities and focus on quality
patient care. Others, unfortunately, skim off the profits to line the
pockets of investors or plow the money into separate ventures that have
nothing to do with nursing home care.

“What is certain, however, is that the Centers for Medicaid and
Medicare (CMS) and the states lack the tools to keep up with the rapid
changes in the industry – to know who actually owns the country’s
nursing homes and who should be held accountable for the residents in
their care.”

Meanwhile, the price of nursing home care is rising. A survey by
Genwroth Financial  released last month shows that this year, the
average annual cost for a private room in a nursing home hit  $76,460,
or $209 per day this year—a 17 percent increase over the $65,185 cost
in 2004.

Who Pays and Who Profits?

Who is paying billions for what might diplomatically be called “uneven care?”

You and I, of course. As the chart below shows, taxpayers pick up the
tab for 63 percent of nursing home care by funding Medicaid, SCHIP,
Medicare and the VA. Nursing home patients and their families pay
another 26 percent of the bills out of pocket.


Source: National Health Expenditure Accounts, 2006, CMS. Available on CMS website.

Medicaid (and SCHIP) is responsible for such a big chunk of nursing
home payments because Medicaid is far more generous than Medicare in
covering long-term care. Medicare only pays for “skilled nursing
facility care”—that is, care that’s needed by patients for  a limited
amount of time following an injury or illness (For instance, they may
need a physical therapist to help correct strength and balance problems
or a speech therapist to regain the ability to communicate after a

But Medicare does not reimburse for “custodial care”—the long-term
assistance many nursing home patients needs with daily living (bathing,
eating, walking, dressing, etc).

Medicaid, on the other hand, will cover custodial care at home and in
nursing homes for certain patients—but only after a patient has run
through his own resources and is “poor enough” to qualify for Medicaid.
Even then, low-income seniors don’t get a free pass: an individual must
continue to put all income toward the cost of nursing home care, except
for a small personal needs allowance (typically $30 per month).

Who profits from a system that bankrupts the elderly while consuming billions in tax-payer dollars?
“The wave of new owners” Congressman Stupak referred to at his
hearing. Twenty years ago, Stupak explains, “the typical nursing home
was owned by a sole proprietor or family, and was not part of a chain.
Today over 50 percent of nursing homes are part of a chain, and many of
those are in the hands of private equity investors.”

Indeed, according
to the Center for Disease Control, by 2006, two-thirds of the nation’s
15,899 nursing homes were in the hands of private investors. The new
owners include prominent private equity firms like Warburg Pincus and
the Carlyle Group. The remaining one-third were owned either by the
government or by non-profit organizations.

Stupak acknowledges that when private “chain ownership has the
potential to improve quality of care by allowing the sharing of
resources and expertise across facilities.” But “at the same time,
chains have the potential to hide common problems and obscure
responsibility for inadequate care.”

Last fall, the New York Times ran a superb story that
confirmed Stupak’s worst fears. Examining more than 1,200 nursing homes
purchased by large private investment groups since 2000—plus more than
14,000 other homes—reporters compared investor-owned homes against
national averages in multiple categories.

As the table below shows, the ratio of nursing home residents
to RNs was significantly higher at the investor-owned homes (20:1) than the
national average (13:1), as was the share of long-term residents who
suffered from health deficiencies, anxiety and depression, or  needed
more help with daily activities such as simply moving around their
rooms.  In the investor-owned homes, patients were deteriorating.


The piece highlighted the tale of Habana Health Care Center, a
150-bed nursing home in Tampa, Fla., that had been purchased by a group
of large private investment firms who snapped it up, along with 48
other nursing homes, in 2002.

The investors saw a “golden opportunity”—and they were right. Investors
and operators were soon earning millions of dollars a year from their
49 homes.

How did they do it? By cutting costs. “Within months,” the New York Times
reported,  “the number of clinical registered nurses at the home was
half what it had been a year earlier, according to records collected by
the Centers for Medicare and Medicaid Services. Budgets for nursing
supplies, resident activities and other services also fell, according
to Florida’s Agency for Health Care Administration.”

Predictably, residents did not do as well. “Over three years,” the Times
reports, “15 at Habana died from what their families contend was
negligent care in lawsuits filed in state court.” The paper quoted
Vivian Hewitt, who sued Habana in 2004 when her mother died after a
large bedsore became infected by feces: “They’ve created a hell-hole.”

The acquisition of a nursing home such as Habana Health Center by
private investment firms is becoming commonplace. Last year the Carlyle
Group, the nation’s largest private equity firm, acquired the nation’s
biggest nursing home chain, HCR Manor Care, for $6.3 billion. In 2006,
the firm Fillmore Capital Partners paid $1.8 billion to scoop up
another of the nation’s biggest chains.  The Times sums
up the trend:  “In recent years, large private investment groups have
agreed to buy 6 of the nation’s 10 largest nursing home chains, Private
investment groups own at least another 60,000 beds at smaller chains
and are expected to acquire many more companies as firms come under
shareholder pressure to sell.”

And these Wall Street types have learned how to turn handsome profit
while caring for the elderly: “large chains owned by an investment
company in 2005 earned $1,700 a resident, according to reports filed by
the facilities. Those homes, on average, were 41 percent more
profitable than the average facility.”
That firms prune nursing home staff in order to jack up short-term
profits shouldn’t come as a surprise. The operating principle of
private equity firms is “the flip”: buy a company, strip it down, make
it profitable, and then “flip” it by cutting it loose with an IPO
[initial public offering] which gives the private equity firm a huge
payday. “It’s possible that Manor Care will be back on the block within
five years or so,” says John J. O’Connor, vice president of McKnight’s
Long-Term Care News. “An even bigger sale in half a decade will be good
for the lawyers, accountants and top management people who are in on
the deal.”

In some industries, when a bloated company is purchased, stripped and
flipped, the “down-sized” company is, in fact, more efficient. But in
the health care industry, as for-profit hospitals have discovered, when
you try to trim the nursing staff, patients die.  Healthcare, like
education, is labor-intensive. There is no way around it. Thus, the
fundamental premise of private equity firms is at odds with the needs
of the nursing home industry.

Some on Wall Street understand that healthcare is “different.” In an interview
with Bill Moyers, John Bogle, founder of Vanguard, the world’s largest
mutual fund company, commented on the Times article about
investor-owned nursing homes: “it’s a national disgrace. Simply put.
And there are some things that must be entrusted to government and some
things that must be entrusted to private enterprise. And what we see
here, at least in my judgment, is that we’ve taken medical care—a
profession in which the patient is the object of the game —and turn[ed]
it into a business. And so, it’s the bottom line [that matters]. I’ve
often said we’re in a bottom line society. We’re measuring the wrong
bottom line.”

“We all know that in the professions, the idea has been service to the
client before service to self. That’s what a profession is,” Bogle
continued.  “That’s what medicine was . . . That’s what trusteeship
used to be inside the mutual fund industry. But, we’ve moved from that
to a big capital accumulation — self interest — creating wealth for the
providers of these services when the providers of these services are in
fact subtracting value from society. So, it doesn’t work.”

Moyers summed up what Bogle was saying: “So, the private equity nursing
homes have added to their wealth. But, they’ve subtracted from society
the care for people who need it.

“That is exactly correct,” Bogle replied.


The Nursing Home business is a tough business. It’s hard enough to run a good nursing home, let alone make a profit on it.

Indeed, the sordid history of nursing homes suggests that those who
have succeeded in making nursing homes lucrative usually have done so
at the expense of patients. As Bogle puts it, “there are some things
that must be entrusted to government.”

Long-term care for the elderly is a “public good,” and in this case,
since taxpayers are paying for it, government should, at the very
least, be regulating it. The Centers for Medicare and Medicaid Services
needs to make a much larger investment in inspections which, in the
end, will pay for themselves.  Without tight regulation, fraud will
continue, tax-payer dollars will be wasted, and helpless patients will
suffer. Electronic medical records would make the task much easier.

The fact that nursing homes are regulated by the states only adds to
the confusion about quality. Federal standards are needed, laying out
precisely how many RNs, LPNs and paraprofessionals are required to
provide good “custodial” as well as “skilled-nursing” care for a
certain number of patients. And then those regulations must be strictly
enforced. Just one example of what happens without Federal oversight:
last month Florida cut nearly $164 million from Medicaid reimbursement rates for nursing homes and gave the homes permission to cut staffing levels.

Medicaid’s stingy payment schedule also makes it very difficult to recruit and retain nursing home workers, according to The National Commission for Quality Long-Term Care. While reimbursement rates vary by facility, in New York City,
one nursing home administrator reports that he earns $400 each day for
rehabilitation patients covered by Medicare—compared to $250 each day
for nursing home residents covered by Medicaid. Ultimately, we need to
fold Medicaid into Medicare, and pay doctors, nurses and
paraprofessionals who care for Medicaid patients the same rates that we
pay those who treat Medicare patients.

In its 2007 report, the Commission stresses that we must find a way to
“Achieve wage parity between long-term care and acute Care.” The
Commission goes on to point out that: “Wages and benefits of the
paraprofessional work-force are particularly problematic given the
level of responsibility they are expected to assume, the heavy
workloads they must endure and high injury rates. Almost 30 percent
live at or below the poverty line.
They are less likely to have health
insurance than the average worker in the United States, and 75 percent
have no employer-sponsored pensions.” No wonder turnover is high.

If we think the nation’s elderly deserve compassionate, competent care,
we must find a way to fund eldercare for those who cannot afford to pay
for it themselves. This will include many upper-middle-class seniors
who live beyond the age of 85 (This is when seniors are most likely to
begin to need assistance with everyday activities.)  Even those who
have been conscientious about saving probably will find that they
haven’t saved enough to cover 15 years in a nursing home where staff
are fairly compensated—and patients are respected.

For the healthiest, less expensive alternatives to nursing
homes—including assisted living centers and day-care for seniors who
live with their children—are likely to become more and more popular.
In-home care also can be affordable if a senior has an extra bedroom
and can offer room and board in addition to a small salary. “Immigrants
are a particularly important source of labor in the home care sector,”
the National Commission for Quality Long-Term Care points out. “They
are a growing force in the nursing profession. They may be more willing
than U.S.-born natives to work in care giving occupations with lower
wages. Changes in immigration laws can have a big impact on their

As Americans live longer we, as a society, will need to think seriously
and creatively about long-term care. Trying to turn it into a
profit-center is probably not the answer.

20 thoughts on “Health Care Spending: The Basics; How Much Do We Spend on Nursing Homes?

  1. One of the problems with nursing home inspections is they depend on the paperwork to verify the residents are getting good care. They pay nurses to make sure the paperwork is perfect, thereby ensuring a good inspection.
    The word is put out for surveyors not to cite anything they don’t absolutely have to, oversight budgets are cut or under-funded, and they look at self-reported and audited data (data reported by the facilities themselves and no oversight agency verifies audits to ensure that it is even true).
    To really inspect a nursing home, they should have decoy residents to actually experience and observe what goes on in a nursing home on a day to day basis. Or else have an inspector be hired as a staff nurse and work there for a few weeks to see what is really happening.
    Ironically, the ethics council of the American Medical Association (AMA) is considering endorsing undercover patients to evaluate the performance of doctors and their staffs in hospitals. Hospitals and health clinics are increasingly turning to these undercover patients to grade the health care experience being offered.
    AMA delegates to the council are expected to vote on such a proposal, along with dozens of others, during their five-day meeting beginning today. Is this a farce? Listen up congressional and senate staffers who need ideas to bring to the attention of your bosses!
    We’re facing a huge increase in the need for quality nursing home care. It strikes me that for the past seven and a half years, our federal government has been run by an administration that has little regard for running good government. With private equity groups like the Carlye Group taking-over facilities like Manor Care, nursing home care has gotten worse!

  2. Fascinating post, Maggie. To me it is yet another example of how standard marketplace principles are simply the wrong model for healthcare. It’s not an ordinary commodity.

  3. As far as egregious violations at independent centers, as well as poorly run private equity facilities, nothing good can be said. It is a stain on our system.
    Having said that, and having visited numerous nursing homes over the past 10 years, I am always puzzled at how they do it with the little money they receive. Talk to any administrator or medical director, and you will hear how they are hurting. While I dont like reading about violations and citations, frankly, I understand why they happen.
    To me, it is not about a broken system, as much as an underfunded one–as you alluded to Maggie. Why anyone would want to get into this business always puzzles me. It is almost an invitation to underperform and invite criticism. Invariably, the success stories you view on the news stem from special funding, special places, or the convergence of a group of truly exceptional people–a rarity.

  4. Brad, Chris, Gregory–
    Thanks for your comments.
    Brad–I agree: it’s an underfunded system.
    While much of what I write is about how we’re spending too much on wasteful care, nursing homes is a sector where we’re pretty clearly spending too little.
    It’s all tied up with the fact that Medicaid payments are so low–which goes back to the fact that Southern Congressmen refused to vote for the original Medicare/Medicaid bill if doctors and hospitals that cared for poor (i.e. black) patients were paid as much as those who cared for elderly (i.e. white patients). Back then, only a small percentage of blacks lived past 65, so the majority of people on Medicare were white.
    If Medicaid was folded into Medicare, and Medicaid payments were raised so that they were equal to Medicare payments, that would be a start toward porperly funding long-term care, and attracting more workers.
    I suspect that we also need to recognize that “custodial care” actually requires more skill than we realize, and that pay for custodial care should be much closer to pay for “skilled nursing care.”
    Chris–I really do think that nursing homes should be non-profit. The patients are too vulnerable, and too isolated. They are not able to speak up for themselves and should not be left to the mercy of people trying to “profit” on long-term care.
    For-profit nursing homes became very popular during the bull market of the 1960s and here’s what happened:
    “Stocks of the Fevered Fifty publicly-traded nursing home companies soar, then crash.”:
    “In spite of the looming problems with Medicare reimbursement, publicly-traded nursing home chains became one of the hottest things on Wall Street.
    Everyone viewed Medicare and Medicaid as a risk-free source of revenue that made this a business where no one could lose money. In 1966 there were only a few publicly-traded nursing home chains, by 1969 there were 58, and by 1970 there were 90. The best known were called the “Fevered Fifty”, and they were promising investors returns of 20-25% a year. In many cases, they went public before they had even completed construction of their nursing homes, with prices at a huge premium to the rest of the market.
    “The stock of the “Fevered Fifty” exploded in 1969 and 1970, then the bottom fell out by 1971, as reality set in.
    “In part, the precipitous fall in the stock price was due to was poor management and unrealistic expectations, but there were also some highly visible instances of fraud. The most notorious one was Four Seasons Nursing Centers. Four Seasons came public at $11, shot up to $181.50, then dropped to $.06 a share when the SEC suspended trading after indicting the company president, partners in their accounting firm (Arthur Andersen!), and two officers of a brokerage firm for securities violations. Four Seasons started out as a construction company, but investors didn’t seem to care that the owners had no medical background as they pumped the stock higher before the fraud came to light.
    “Four Seasons entered bankruptcy and was reorganized as ANTA. ANTA’s subsidiary, Four Seasons Nursing Centers, was later acquired by Manor Care, a much healthier publicly-traded nursing home chain that ultimately merged with Health Care Retirement to form HCR Manor Care.”
    Plus ca change.
    Gregory–I agree, we need undercover patients in nursing homes.
    And inspections should always be “surprises.”

  5. There are plenty of questionable practices that go on in nursing homes whether they are non-profit or for profit.
    When my father entered a highly rated local nursing home following hip replacement surgery in 2000, for what turned out to be the last year of his life, he received numerous group physical therapy sessions to help him regain the ability to walk. These sessions were billed at $39 per 15 minute unit of time or $156 per hour. I have also heard of many instances of therapy being provided to residents, not because it was likely to help them, but to drive revenue for the nursing home. I think nursing homes have a lot to answer for with respect to both their therapy related practices and their billing rates. Much of this could be corrected, or at least mitigated, by proper oversight by primary care physicians. Unfortunately, they are not paid adequately for the time it would require to provide such oversight.
    With respect to billing rates for custodial care, our family paid the private pay rate $163 per day for my father’s care while the Medicaid rate at the time was $119 per day. Whatever the legislative history of the Medicaid program may have been, the states are free to set billing rates at whatever level they want, and providers are free to accept or reject them. I hear the term “underfunded” over and over again, yet we are already spending $2.2 trillion per year on healthcare. Hospital billing rates are from another world while physician billing rates for tests and procedures are grossly excessive.
    By contrast, when my wife needed physical therapy for a shoulder injury last year at a local facility, one on one customized therapy was billed at $75 for each 50 minute session, while insurance actually paid $57. The personal trainer that I see in Manhattan, who is extremely knowledgeable about diet and exercise issues and works closely with people just out of hospitals and referred by physical therapists (as well as with clients who are already very fit), charges $75 per hour which is quite reasonable for Manhattan.
    Perhaps if we could start to eliminate some of the inappropriate and unnecessary care that takes place throughout the healthcare system as well as make a dent in the fraud in both the Medicare and Medicaid programs, we might be able to make some payment adjustments where they would do the most good.

  6. I don’t buy the term “underfunded” or that Medicaid payments are so low. Louisiana nursing homes received one of the lowest Medicaid rates in the country. Although state-by-state profit amounts are unavailable, a study commissioned by the Louisiana Department of Health and Hospitals found that the average Louisiana nursing home had a 15% profit margin in the 2001-02 budget year. How does one get a 15% margin while Medicaid is reimbursing one of the lowest rates in the country?
    The desire for profit margins translates into less staffing at nursing homes, less training for the staff that they do have, less food (or a lower quality of food) for the residents, and less management and oversight. A conflict arises between saving dollars and providing good care.
    There would be a much higher level of care given to patients if adequate staffing were provided. However, Administrators benefit from the amount of profit generated by the nursing home they manage, usually paid annual bonuses based on bed-count. They must choose between increasing the profit margins of their individual facilities or supplying more support staff for the care of residents.
    Another way residents don’t receive the care they need because of profit concerns, ranges from which ambulance service the nursing home calls, to whether or not a patient even goes to the hospital after a fall or other calamity.
    Even nursing home abuse may occur because of the desire for profit. Caregivers who work in nursing homes are often stretched beyond their ability. They try to do the best job that they can, but the lack of additional support restricts what they can do to help patients.
    Some nursing homes are focusing on sub-acute care. This strategy has boosted revenues and profits at these homes. Manor Care doubled the capacity for medicare patients just out of hospitals, where it pays the most money. Although outbreaks are not uncommon in nursing home, those that concentrate on sub-acute care, outbreaks like the norovirus epidemic last year, occur with greater frequency. At a Manor Care in Sinking Spring, Pennsylvania, over 125 were infected with the norovirus out of 200 residents.
    Are isolation precautions followed? Manor Care puts residents with very contagious diseases in with healthy residents because they refuse to have people alone in a room because you would lose money on an empty bed. When charge nurses on the floor would demand that the affected residents be placed alone in a room in isolation, they are told to pull the curtain between the beds to prevent the spread to the healthy resident.
    The Carlyle Group takeover of Manor Care is the largest to date in an industry where private equity ownership has become a national trend. By acquiring the nation’s largest nursing home chain, Carlyle is looking to cash in and bank big profits from the increasing demand for long term care by the aging baby boomer population, but on the backs of its resident population.

  7. The reason Medicaid is such a large payer is because it is the payer of last resort.
    In a typical situation where a person is going to require long-term care the sequence runs like this:
    1. Exhaust insurance benefits (private or Medicare)
    2. Spend down assets. There are various limits on how much a person can own before becoming eligible for Medicaid. One of these rules frequently leads to couples getting a divorce so that the other spouse is not impoverished as well.
    3. Become a pauper and go on public assistance – Medicaid.
    When I was looking after my aunt who was suffering from Alzheimer’s and she has progressed to a point where assisted living (even in an Alzheimer’s unit) was no longer adequate we were forced to find a nursing home. They agreed to take her as long as her savings (plus Social Security) would cover the $7-8K per month for at least six months.
    After this time she would shift to Medicaid and their reimbursement would drop to about half. The firm had this all worked out based upon life expectancy and how much they would get in total, averaging the two levels of payment. Of course when she was no longer paying the higher rate services such as exercise would be dropped.
    Fortunately(?) for her she died in the month just before her savings would have run out.

  8. Barry, Gregory, Robert
    Thanks for your comments.
    Barry– First on for-profit vs. not-for-profit nursing homes. There has been a lot of reserach on this. It turns out that .
    quality is significantly higher at not-for-profits.
    The most recent round-up comes from Consumer Report’s online report on nursing homes which says:
    Looking at inspection reports of 16,000 nursing homes nationwide, CR concluded that quality
    is higher at not-for-profits.
    As for Medicaid fees–you write “States are free to set Medicaid fees wherever they wish and providers are free to accept or reject them.”
    This simply isn’t true. As you know, states have to balance their budgets. Many states cannot afford to set Medicaid rates higher unless they significantly raise taxes.
    Neither legislators nor taxpayers are willing to raise taxes to provide better care for the poor.
    The poor (people on Medicaid) don’t vote in large numbers.
    As for providers being free to accept or reject: most doctors refuse to take Medicaid patients because the fees are so low. This means that these patieints are left with providers who are either a) are philanthopists (a small number) or b)can’t keep a practice going by attracting patients word of mouth.) So Medicaid patients get poor care.
    And nursing homes have no choice but to accept Medicaids’ low rates because, as the chart shows, Medicaid is the main payor.
    I’d argue that the fact that nursing homes are underpaid attracts the kind of very sleazy businessmen who uses that as an excuse to provide poor services– such poor service that he can make a profit on Medicaid’s stingy fees.
    Let’s go back to what Brad said: “having visited numerous nursing homes over the past 10 years, I am always puzzled at how they do it with the little money they receive . . .Why anyone would want to get into this business always puzzles me. It is almost an invitation to underperform and invite criticism.”
    Why would anyone go into this business? Because they know that it is virtually unregulated, that the “customer” is usually not in a position to go elsewhere–or even to raise much of a fuss.
    So, just as you say, patients are fed poor quality food, homes are understaffed, patients are abused as a result, etc.
    If Medicaid raised its fees for nursing home care it would be possible for legitmate businesspeople to run nursing homes that paid fair salaries, were fully staffed, attracted good nurses and paraprofessionals and provided good service.
    I still see no need for nursing homes to have shareholders and pay profits.
    According to Consumer Reports the best are independent non-profit operations.
    Finally, I agree–it looks like Manor is going to be the next nursing home disaster.
    What happened to your aunt happened to my mother–expect she lived another 7 years after both her mind and her resources ran out.
    This is one reason why I became interested in writing about health care.

  9. Maggie,
    Of course, you’re right that states have to balance their budgets, people are reluctant to pay higher taxes to support higher Medicaid payments, and the poor don’t vote in large numbers. So where does that leave us? I don’t think the Medicare program can afford to take over nursing home costs even at current Medicaid rates, let alone, higher Medicare rates paid for a limited time when patients are discharged from a hospital to a nursing home. Medicare has enough of a challenge trying to control its costs as it is.
    With respect to non-profit nursing homes that try hard to provide the highest quality care possible, cost is a huge problem for them too. I don’t know how you would define high quality in terms of staffing ratios, food, or wages and benefits for nursing home staff. I would guess, however, that such a home in the NYC metropolitan area would have to charge north of $100K per year per patient to make ends meet and more than that for those with additional needs like feeding tubes or ventilators. At the same time, with Medicaid as the main payer and their rates woefully inadequate according to many in the industry, I don’t know how we square this circle. I think providing and paying for long term care is probably one of the most intractable issues in all of healthcare, especially over the longer term as the baby boomers age.

  10. let’s stipulate there are a lot of insensitive capitalists running nursing homes — and government facilities that aren’t a whole lot better. we should make them better.
    that said, seems to me the medicare distinction makes sense. much of this is not health care spending. it is custodial care. you could contrast it with that provided by hospitals who treat folks on an outpatient basis and have them stay at nearby affiliated hotels, thereby saving the non-medical costs. or include state facilities that take care of kids taken away from parents who are unable to do the job. that’s a vital government role, but it isn’t a healthcare cost.
    my point here is that there is an inflated medical budget that can and should be tamed, but nursing homes are not a big part of it. they are something else and deserve separate consideration.

  11. The Carlyle Group’s leveraged buyout of Manor Care, worth $6.3 billion, intailed CEO windfalls, fees, and the high level of debt that Manor Care will face for nursing home staff trying to provide quality care, the taxpayers whose money helps fund Manor Care’s operations and most importantly for Manor Care residents.
    In an effort to address this and outdated nursing home regulations, advocates are supporting U.S. Senate Bill 2641, the Nursing Home Transparency and Improvement Act. The bill could prevent companies like the Carlyle Group from setting up multi-layered entities that make it difficult to determine who is really responsible for care and would prohibit the separation of real estate holdings from nursing home operations, which companies do to shield key property assets from liability for care problems.
    Take a moment to call or write your U.S. Senators and member of Congress and ask them to co-sponsor and pass the legislation.

  12. Just a minor correction and comment to:
    As the table below shows, the ratio of RNs to nursing home residents was significantly higher at the investor-owned homes (20:1) than the national average (13:1)
    1)the ratio should read the ratio of nursing home residents to RNs; only on cruises are there more staff members than “guests”
    2)is RNs to patients a specious ratio because in most nursing homes, care is provided by aides; the RNs are there mainly to dispense medications.
    Please keep up your thoughtful, well-researched posts, Maggie; they add a lot of value to the debate
    Kenneth H. Cohn, M.D., MBA

  13. Kenneth–
    Thanks for the catch–(and I liked the comparison to cruises).
    I don’t think the RN ratio is specious because
    the number of RNs present says somethign about oversight and quality of care. The fact that 30 percent of nursing home paraprofessionals are paid at or below the poverty level is very troubling.
    Such low salaries means that turnover is very high, and so they would need supervision.
    That could be done by LPNs rather than RNs, but still I think the RN ratio is relevant.

  14. Actually, LPNs are there mainly to dispense medications. On any given day in a nursing home (excluding non-medical staff), 70 percent are CNAs, 25 percent are LPNs, and 5 percent are RNs.

  15. Barry, Jim Gregory–
    Thanks for your comments.
    Barry– You write: “States have to balance their budgets, people are reluctant to pay higher taxes to support higher Medicaid payments, and the poor don’t vote in large numbers. So where does that leave us? I don’t think the Medicare program can afford to take over nursing home costs even at current Medicaid rates, let alone, higher Medicare rates paid for a limited time when patients are discharged from a hospital to a nursing home. Medicare has enough of a challenge trying to control its costs as it is ”
    I agree. But, while people are reluctant to py higher taxes, it’s almost inevitable that they will have to. And not just to pay for long-term care for the poor (who, as you say, have little political power.)
    We will need higher taxes to pay for long-term care for the middle-class and upper-middle-class.
    Median income for a household (joint income) is $48,200. Only 13% of Americans have household income over $100,000.
    Middle-class households earning $35,000 to $60,000 cannot save enough to pay for long-term care. Upper-middle class households earning $80,000 to say $110,000 cannot save enough to pay for years of long-term care.
    Yet many people in those households will need long-term care.
    We pay far less in income taxes than most developed nations. This will probably have to change as we face the fact that people are living much, much longer and many will need long-term care.
    As the middle-class and upper-middle-class realize this, they will vote for the higher taxes that will fund this care. (Their children will also vote for these taxes. They would rather pay higher taxes, than try to figure out how to care for a parent with Alzheimers on their own.)
    Many of us will outlive our minds. (Alzheimers and other forms of senile dementia.) Some of us will have spouses or relatives able and willing to take care of us full-time.
    Many people won’t. In most cases, our spouses also will be elderly and our children will be working full-time (women as well as men) and raising their own families. We can’t expect them to stop their lives for five years, ten years, 15 years, while we live to be 85, 95, 103 . . .
    Nor can we leave people with Alzheimer’s —or people who are blind, deaf, suffering from congestive heart failure and 3 other diseases alone in their homes.
    So we are going to have to come up with public funds to provide decent care in nursing homes and other settings.
    This will probably mean returning to the much higher marginal income taxes rates for those in the top brackets that we had prior to 1980.
    This may sound extreme,but the fact is that Americans lived perfectly well in the 1960s adn 1970s when the rich paid much higher taxes, and the gaps between middle-class, upper-middle-class and wealthy were not nearly as big.
    Jim–You may well be right that long-term care should be funded under a program separate from Medicare.
    But a great many boomers will need medical care, not just custodial care. Because we will be living longer, many of us will become blind (acute macular degernation–no known cure); many of us will outlive our minds (Alzheimers, etc.) many will suffer from other diseases that ,in the past, were not that commonplace because people died of lung disase or heart disase long before they were old enough to suffer from the diseases that comes with “old, old age.”
    I’m afraid that we boomers have not thought very carefully about the problems that will come with longevity. The fact that we have exercised, eaten healthy food etc. will not protect us against Alzheimers, or the inevitable deterioration that accompanies aging.
    My son recently told me that he suspects that when his generation sees what happens to my generation, his generation will no longer see longevity as a major goal.
    Because we are a particular type of non-profit, I can’t write about specific legislation (though I can write about ideas). I am familiar with the bill, though and it’s good to see government doing something.
    I completely agree about Manor and Carlyle.–thanks much for all of the information..

  16. Legislate Federal Mandatory Staffing Levels
    Many states fought twenty world-wars to get mandatory staffing levels, even then, it was constantly being attacked. In one state, when there was a possibility of cutting Medicaid funding, the industry jumped at the chance to use that funding cut as an excuse to abandon the staffing level requirements.
    Federal law only requires nursing homes to provide sufficient staff and services to attain or maintain the highest possible level of physical, mental, and psychosocial well-being of each resident, and we know this is insufficient.
    There have been numerous federal bills requiring various mandatory staffing levels, only to be defeated or die on the vine. Now is the time for those mandatory staffing levels!
    While the Nursing Home Transparency and Improvement Act of 2008, passed under the umbrella of the recent Medicare bill, proposed collecting accurate information about nurse staffing by comparing it with payroll records, mandatory staffing levels wasn’t in the nursing home bill.
    Write or call your federal congressional delegation to be on the ground floor at getting this much needed legislation passed.

  17. On Friday, September 26, 2008, Reps. Pete Stark and Jan Schakowsky introduced the “Nursing Home Transparency and Quality of Care Improvement Act of 2008.”
    The bill increases the transparency of nursing home ownership, ensures that residents and their families have information about the quality of care at these facilities, and strengthens enforcement of nursing home compliance with quality of care standards. It is a companion to S. 2641, introduced by Senators Charles Grassley and Herb Kohl.
    The Nursing Home Transparency and Quality of Care Improvement Act enables nursing home residents and government regulators to better know who actually owns the nursing home and who controls the decision-making that impacts the quality of care provided. In addition, the bill improves the reporting of information on staffing levels and direct patient care expenditures.
    In addition to increasing transparency, the bill takes additional steps to improve the quality of care. The bill puts patients first, by requiring advance notice of home closures, standardizing the nursing home complaint process, and establishing specific processes and consumer protections for complaint resolution.
    The bill also improves staff training to include dementia management and abuse training as part of pre-employment training. The bill improves accountability and enforcement by mandating that homes establish compulsory ethics and compliance programs, making civil monetary penalties more meaningful, and studying the feasibility of new independent monitoring requirements.
    While the bill proposes collecting accurate information about nurse staffing by comparing it with payroll records, mandatory staffing levels is not in the nursing home bill.
    There have been numerous federal bills requiring various mandatory staffing levels, only to be defeated or die on the vine. Now is the time for those mandatory staffing levels!
    Write or call your federal congressional delegation to be on the ground floor at getting this much needed legislation passed.

  18. This was posted on Trusted.MD blog about the AMA considering endorsing undercover patients to evaluate the performance of doctors and their staffs in hospitals.
    Do we really need mystery shoppers in health care?
    Submitted by Lori Erickson Trump.
    I have been a healthcare mystery shopper for about five years now. My health and best interests have never been “endangered” by what I have encountered in appointments, and the award-winning firm who sends me out would NEVER put me or any other shopper—or any other patient, for that matter—in an at-risk situation.
    Second, “regular patients” are not getting paid to memorize names, make mental notes of details, and later fill out thorough evaluations that include ratings of each employee and the facility encountered and a detailed three to five page accompanying report. In other words, everyday patients aren’t going to remember, much less be able to evaluate, those things the healthcare client wishes to know about. The information collected from mystery shop reports is specific to what those healthcare providers have requested and the numbers and info provided allow them to measure results easily over the long term. We only rate them on what they have requested to be rated.
    As to the concern about not wanting your doctor to think you are a mystery shopper, I would ask you: why not? Medical staff would do well to wonder if each and every patient is a shopper–they would then be certain to consistently deliver the best of care to each, wouldn’t they? How can the finest care possible be a “bad” thing?
    Finally, I would point out that, inasmuch as I am a human being, I am a healthcare consumer. I don’t “lack a relationship” with the doctors, I’m just like any other new patient. As a mystery shopper, I’m not “out to get” doctors or staff. As a matter of fact, I am always on the lookout for those who are doing it RIGHT and, in my reports, often point out employees deserving of awards. We are not heartless spies dedicated to getting people in trouble; actually, it’s the opposite—we are trained professionals hired by the healthcare providers to give them a true glimpse of the patient experience through the patient’s eyes. We’re there because they want us there. If staff were forewarned we were coming to specific appointments, those in charge wouldn’t get an accurate reflection of what the everyday patient “initial encounter” is like.
    Undercover patients help show those who utilize us where they are getting it right, where they can improve, and how they can beat the competition. It is win-win for everyone involved, and it is making healthcare in America better overall. Therefore, the answer is yes; we really do need mystery shoppers in healthcare.

  19. Frankly, I don’t really believe that we are spending so much money on this kind of services. After all, there are times when you can’t manage by yourself your problems and you need some extra help, right?