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LTC Bullet:

Shedding Tiers

Wednesday June 14, 2000


The following article was originally published in the March 1992 issue of LTC News & Comment. Since then, some conditions of the long-term care marketplace have changed. For example, private-pay assisted living facilities have co-opted nursing homes' light care residents. Most factors covered in the article, however, have stayed the same or gotten worse. Medicare cut-backs and Medicaid's parsimony have driven one in ten nursing home beds into bankruptcy. Nevertheless, public expenditures for nursing home care have increased ten percent in the past ten years, while out-of-pocket expenditures are down ten percent. In the meantime, the public's perception of nursing home quality has plummeted while litigation against nursing homes has skyrocketed. In other words, everything is playing out just as predicted in the article. That's why we think its argument needs to be re-stated. The secret to universal access to top-quality long-term care at the most appropriate level is to maximize private financing and target public financing to the genuinely needy. The result will be better care for rich and poor alike.

Shedding Tiers

Stephen Moses
President, Center for Long-Term Care Financing

You have heard the argument a hundred times. Private financing of health care leads inevitably to restricted access and unequal care. When some people pay their own way, while others depend on public assistance, two-tiered service is inescapable. The rich get preference; the poor get scorned. Alternatively, a national social health care program would provide universal access to equal care. So the advocates say.

At least in the nursing home industry, however, the truth is exactly the opposite. The only thing sustaining quality of care in nursing homes today is that a few people still pay privately. If we lose the last of the private payers to the connivances of Medicaid estate planners, the whole system falls apart. Here are the facts:

Seventy percent of all patients in America's nursing homes are covered by Medicaid. Medicaid pays nursing homes less than the cost of providing the care. To compensate, nursing homes charge private payers more than they would otherwise have to pay. This induces private payers to convert to Medicaid as soon as they possibly can. Medicaid estate planners make the conversion to welfare easy by offering Medicaid eligibility within 60 days regardless of income or assets. Their fees are often less than the cost of one month's privately financed care. Consequently, private pay census is falling precipitously in most nursing homes. This combination of more welfare patients and less revenue weighs like an anchor on quality of care.

Nationwide, the average profit earned by nursing homes is 1.2%. That is one-fourth of the return on money in a passbook savings account. Investment capital migrates toward its highest and best use. Therefore, under this myopic Medicaid monopsony, nursing home owners face an unenviable choice: get out of the business; accept inferior profits (by generally accepted standards); or cut corners on care. We should not be surprised when some facilities take the latter course.

Research shows that differentials in quality of care are not a problem in nursing homes with a significant proportion of private pay residents. Quality problems are most likely to occur when resident census approaches 100% Medicaid. As the prosperous clients of elder law attorneys occupy more and more Medicaid slots in the better nursing homes, the genuinely poor, who have no choice but public assistance, are pushed increasingly into Medicaid "mills." The horrific conditions documented recently by 20/20 in Texas Medicaid nursing homes are the logical outcome of this perverse system.

Public sector initiatives to mandate quality care through regulations, inspections, fines and penalties will never succeed. In a Medicaid-financed system, nurse's aides receive less for working in blood and feces at the nursing home than they can earn for handling sodas and fresh vegetables at the Taco Bell. Even if the government places armed guards in every nursing home in the country, quality will not improve while compensation lags. One nursing home association executive told me that his group has an unwritten contract with the state quality control program: "they agree not to enforce the rules and we agree to accept inadequate reimbursement." It sounds like the communist worker's lament: "They pretend to pay us and we pretend to work."

Government micromanagement of the nursing home industry--including centralized planning, price controls, certificate of need programs, and regulation of quality and standards--is an extremely complex enterprise that often exacerbates the very problems it attempts to solve. Reality is much simpler. It does not matter whether you are John Q. Public or Uncle Sugar. You get what you pay for and that is all you get. Two-tiered care comes from too little private financing, not too much. If you want to shed tiers in nursing home care, rein in Medicaid with estate recoveries and give long-term care insurance a chance.


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