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.
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
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
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.