LTC Bullet: Studies Prove Need for LTCI

Wednesday September 19, 2001

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What profit-motivated entrepreneur in his or her right mind would try to attract customers by offering inferior products or services? None, of course, but that's precisely the premise of an ostensibly serious scholarly article just published in the American Journal of Public Health (AJPH, Vol. 91, No. 9, September 2001, pps. 1452-1455, full text available at

"Does Investor Ownership of Nursing Homes Compromise the Quality of Care?," by Charlene Harrington, Steffie Woolhandler, Joseph Mullan, Helen Carillo, and David Himmelstein, answers its own question in the strongest possible affirmative: "Our results suggest that investor-owned nursing homes deliver lower quality care than do nonprofit or public facilities." (p. 1454)

Counterbalancing the findings in the AJPH article is "A Briefing Chartbook on Shortfalls in Medicaid Funding for Nursing Home Care," prepared by BDO Seidman, LLP for the American Health Care Association (the trade association for America's proprietary, i.e. for-profit, nursing homes), August 30, 2001.  (Full text available at

The Seidman piece finds that over two-thirds of residents in America's nursing homes are financed by Medicaid and that "the average shortfall in Medicaid reimbursement exceeded $9 each day on every Medicaid patient." (p. 7) No wonder for-profit nursing homes have trouble providing adequate staffing and quality care. They constitute almost two-thirds of all nursing facilities and over two-thirds of their residents are on Medicaid. When you're losing money on every customer, you can't make up for it in volume!

CLTCF COMMENT: Whatever the merits of either or both of these studies, we conclude that the only way to assure yourself and your loved ones access to quality nursing home care is to be able to pay privately. If you can pay privately, all nursing homes (for profit or not-for-profit) will roll out the red carpet for you. If you don't like what you get, you (or your representative) can just march right over to the next facility to see if it is any better, and keep going until you find the best available nursing home for the money. Because of their excessive dependence on inadequate government financing, nursing homes depend for their financial survival on the ability to attract at least a minimum number of full-pay private residents from whom they can cost-shift to support their heavier welfare caseloads. If you can pay privately, you hold all the cards. Anyone who doubts the accuracy or wisdom of this advice should visit a 100% Medicaid nursing home, a 100% private pay nursing home, and one in the middle, then decide. Of course, the only way to pay privately for nursing home care without spending your own money is to have private long-term care insurance. That's not to say insurance is the only option, or even the best option for everyone. But it is the only way to shift the cost of obtaining quality care to someone else.

Here's an abstract of the AJPH article, followed by a few sample quotes from both pieces, and then our critical analysis:

"Does Investor Ownership of Nursing Homes Compromise the Quality of Care?," by Charlene Harrington, et al.:

"Objectives. Two thirds of nursing homes are investor owned. This study examined whether investor ownership affects quality.

"Methods. We analyzed 1998 data from state inspections of 13,693 nursing facilities. We used a multivariate model and controlled for case mix, facility characteristics, and location.

"Results. Investor-owned facilities averaged 5.89 deficiencies per home, 46.5% higher than nonprofit facilities and 43.0% higher than public facilities. In multivariate analysis, investor ownership predicted 0.679 additional deficiencies per home; chain ownership predicted an additional 0.633 deficiencies. Nurse staffing was lower at investor-owned nursing homes.

"Conclusions. Investor-owned nursing homes provide worse care and less nursing care than do not-for-profit or public homes." (p. 1452)

"Investor-owned facilities had more Medicaid patients (68% of all residents) than did nonprofit facilities (49%) or public facilities (62%)." (p. 1453)

"Homes with a higher ADL index had more deficiencies, as did those with a higher proportion of Medicaid patients." (p. 1453)

"Skimping on staffing by for-profit homes may partly explain their lower quality." (p. 1454)

"We (and others) have found lower quality at facilities with more Medicaid patients, presumably because Medicaid payments are generally low, and Medicaid patients have fewer options for care." (p. 1454)

"Despite clear federal guidelines, surveyors' decisions may be somewhat subjective, and perhaps some are biased against for-profit homes." (p. 1454)

"The most obvious explanation for our findings is that profit seeking diverts funds and focus from clinical care." (p. 1454)

"Nursing homes care for many people who are too frail, too sick, too poor, and too powerless to choose or even protest their care. We believe that it is unwise to entrust such vulnerable patients to profit-seeking firms." (p. 1455)


"A Briefing Chartbook on Shortfalls in Medicaid Funding for Nursing Home Care," prepared by BDO Seidman, LLP:

"The results, based upon data from 36 states, indicate that nationwide, the average shortfall in Medicaid reimbursement exceeded $9 each day on every Medicaid patient. In 1999, unreimbursed Medicaid allowable costs exceeded $2.5 billion for these 36 states and over $3.3 billion when the results are extrapolated to all 50 states. If all costs of operations were considered, not just Medicaid allowable costs…, the $3.3 billion shortfall would be significantly greater." (p. 7)

"While historically, Medicaid programs have always cost-shifted to other payors, increasing Medicaid shortfalls and greater emphasis on higher staffing and better outcomes have made cost-shifting increasingly difficult in that:

"1. Medicaid is the payor source for approximately 60-70% of residents in any state;

"2. Cost shifting to Medicare is less plausible given that it is no longer a 'cost-based' program; payment rates are fixed; and Medicare residents only account for approximately 7-10% of total patient census in a nursing home; and

"3. Private pay occupancy is declining due to the proliferation of other service delivery options such as assisted living and home and community-based programs. Increasing choices for the elderly have reduced private census in nursing homes and made the charges for nursing home services far more competitive." (p. 7)


CLTCF Analysis: What's wrong with the AJPH article and its reasoning? Never mind that at least two of its principal authors (Woolhandler and Himmelstein) are outspoken advocates for a government takeover of health care and they frequently display outright bias against market-based health care. The fundamental problem is the study's failure to take into account the reality of how nursing home care is financed in the U.S. In a free market, for-profit firms compete to offer the best possible service for the lowest possible price. That's how they win market share. Nursing home care in the U.S. is not a free market, however. Nursing homes have to fight for enhanced government reimbursements. Their customers are state Medicaid agencies and federal bureaucrats, not the old, sick and vulnerable people they serve. As much as they way want and struggle to provide high quality care, they can't make a silk purse out of a sow's ear. Medicaid pays for over two-thirds of all nursing home residents in the U.S., and because Medicaid residents tend to be the longest stayers, Medicaid pays for upwards of 80 percent of all patient days. Furthermore, if Medicaid pays even one dollar toward the cost of a resident's care, the nursing facility gets Medicaid's low reimbursement rate, even though most of the total payment comes out of the resident's pocket. For-profit nursing homes, especially chains, are most dependent on Medicaid reimbursement, which is inadequate to assure quality care. For-profit homes lack the supplemental revenue sources available to nonprofit nursing homes (i.e., philanthropic funds, religious contributions, and membership donations) and government facilities (i.e. taxpayer funds). Clearly, therefore, the correlation between for-profit status and lower quality care is coincidental (with for-profits' lower funding), not causative. The AJPH article's logic is specious and the Seidman data shows why this is so.