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LTC Bullet--U.S. News Zaps Nursing Homes

Tuesday, October 8, 2002


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The LTC Reader #35--New Study on the Benefits of Long-Term Care Insurance
The LTC Reader #36--OECD Study on "Getting Older, Getting Poorer" in Nine Countries

The LTC Data Base #35--Boomers and Health Care Costs
The LTC Data Base #36--Census Reports 2001 Poverty Levels

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LTC Comment: America's beleaguered nursing home industry can't catch a break. U.S. News and World Report ran a feature news story by Christopher Schmitt in its September 23, 2002 issue that bashes nursing homes from every imaginable angle. You can read the whole article, including two scathing sidebars, at . (As of October 6, 2002, this article had been moved to the U.S. News archives and now requires purchase online for $2.95.) This bad publicity could not have come at a worse time. The Bush Administration and Congress were considering whether and to what extent to give nursing homes relief from the threatened cutbacks called the "Medicare cliff." (That dreaded October 1 deadline passed without action, but some statutory assistance may be on its way. We will follow this issue in the Center's donor-only web site zone.)

There are two sides to every story. So, we thought you'd want to hear the nursing homes' point of view.

William L. "Larry" Minnix, Jr., D.Min., President and CEO of the American Association of Homes and Services for the Aging wrote to the editor: "It is wrong of U.S. News to imply that cutting federal funding will pose no harm. It will, and nursing home residents deserve better."

Charles H. Roadman II, M.D., President and CEO of the American Health Care Association wrote to members of Congress: "The U.S. News author utilizes carefully selected examples in order to arrive at an erroneous 'man-bites-dog' conclusion. His reckless bid to reinforce his preconceptions could lead to actual harm to the nations' most vulnerable residents and the loss of thousands of jobs."

A well-respected industry analyst (Mick Cowles, author of the 2001 Nursing Home Yearbook, which we reviewed in an LTC Bullet last week) said "The nursing home issues of patient care and funding are complex and they deserve accurate and balanced representation. Mr. Schmittís article provides no such accuracy or balance. He repeatedly chose to ignore published facts in order to support his thesis and create a false picture of the nursing home profession. Unfortunately, he did a pretty good job of it. To the reader who knew nothing of the nursing home profession and long-term care, the article was probably persuasive."

One nursing home CEO told us: "No worse piece of fiction has ever been written."

Have nursing homes been the victims of a "hatchet job" by a prejudiced reporter, just as the long-term care insurance industry has been victimized in the past? You decide. Here are some quotes from the U.S. News article followed by responses we've patched together from the American Health Care Association, the American Association of Homes and Services for the Aging, and several leading industry experts. (All of the sources of these "N.H. Responses" do not necessarily agree with all of the following comments. Nor do the following comments necessarily reflect the position or opinion of the Center for Long-Term Care Financing.)

U.S. News: "The nursing home industry is profitable and growing . . . Many nursing homes are earning exceptionally healthy margins, often 20 and 30 percent."

NH Response: The U.S. News author Schmitt flatly states that nursing home profit margins of 20 to 30 percent are typical and that the industry is growing. If nursing homes were earning those kinds of profit margins, then the industry probably would be growing. They donít and it isnít. The contraction of the nursing home industry is well documented in the literature. "The numbers of residents and the number of facilities have been falling steadily since 1998 when they peaked at 1.51 million residents in 17,259 facilities. The total number of beds in certified facilities has been falling since . . . 1997." (2001 Nursing Home Statistical Yearbook, 2002, pp.1-2) See also D. Lakdawalla and T. Philipson, "The Rise in Old-Age Longevity and the Market for Long-Term Care," American Economic Review  92:1 (March 2002), pp. 295-306.

A variety of analyses show long term care margins - on average - at or near zero:

* A recent Lewin Group study shows current 3 percent margins falling to minus 1.5% if the Medicare add-ons expire.

* A market analysis by CMS reported that many not-for-profit nursing facilities have difficulty accessing the bond market because of thin profit margins and the uncertainty of cash flow from government reimbursement.

* Med-PAC staff estimated long term care margins without the Medicare add-ons at minus 2%.

The U.S. News reporter likely was confused by recent studies showing that a 20% average Medicare margin subsidizes Medicaid funding shortfalls; the 20% margins do not reflect total margins.

U.S. News: "There is no strong evidence, as the industry claims, that inadequate federal payments for care of the elderly are dragging down profits."

NH Response: As part of a larger study of nursing home finances, the American Association of Homes and Services for the Aging found that freestanding not-for-profit nursing homes have a program "profit" margin of roughly -3.75% (negative 3.75%). In other words, program costs exceed program revenues from Medicare, Medicaid and private sources. When revenues from endowment income and fundraising are added in, not-for-profit homes' total margin is a bit higher - but barely over 3%. While these findings are preliminary, based on our examination of the IRS 990 forms tax-exempt nursing homes are required to file annually, AAHSA believes they will prove representative of not-for-profit nursing homes as a whole, once our study is complete.

U. S. News: "While nursing homes have been awarded more federal money in recent years, it hasn't gone to what is widely considered the best way to improve care: more staffing."

NH Response: Schmittís next major misrepresentation of the facts relates to staffing. The literature is clear on this subject; direct patient care staffing hours, expressed as hours per patient day, have increased slightly. In order to argue the contrary, Schmitt presents an incredibly contrived argument relating only to nurses aide time and further limited to facilities that are certified as "Medicare-only." To appreciate the irrelevance of such an argument, one only needs to realize that nurses aides are one of many categories of direct patient caregivers providing care in nursing homes. In addition, facilities that are characterized as "Medicare-only" comprise only about one sixteenth of the nursing homes in the United States. By choosing only one classification of caregiver, and only one small category of nursing home, the author has seemingly purposely misrepresented the true and factual trend that nursing home staffing levels have actually increased.

A 2002 GAO report states that among free-standing SNFs, which make up 88% of all SNFs nationwide, there is a "statistically significant" increase in staff. A 2002 staffing analysis by Don Muse & Associates based on a 2001 Buck Wage and Compensation Survey shows an increase in Registered Nurse and Licensed Practical Nurse salaries, and that providers have put more resources into hourly wages for RNs and LPNs than was provided in the 16.6% in BIPA.

A study by the University of North Carolina showed that PPS-related Medicare cuts were associated with a reallocation of nursing staff, characterized by decreased RN hours for the majority of SNFs and a heavier reliance on lower cost nursing staff. Following the relief presented by BBRA (Balanced Budget Refinement Act of 1999), SNFs reversed this trend by increasing RN hours. These results show that SNFs were forced to reduce nursing costs following the implementation of PPS - driven by the fact that labor costs account for more than half of the typical SNF's operating budget. This assessment is reinforced by the increase in RN staffing stimulated by BBRA relief. Additionally, an analysis by Muse and Associates indicates (see attached) that long term care provider spending on licensed nurses has exceeded the 16.6% add-on for labor provided as part of BIPA (Medicare Benefits Improvement and Protection Act of 2000) relief.

The magnitude of the looming Medicare cuts is significant: $1.4 billion annually. Nursing homes have used these funds to increase staffing hours and provide much-needed wage and benefit increases to frontline workers. These cuts - the so-called Medicare "cliff" - threaten nursing home residents' access to quality care, restorative therapy, and assistance with daily activities.

U. S. News: "The government funding cuts the nursing home industry has described as catastrophic actually amount to about 1 percent of current revenue."

NH Response: Medicare cuts of $35 per patient, per day amount to a 10 percent cut in funding for skilled nursing beneficiaries. In 2004, cuts will increase to $68 per patient, per day, or 19%.

U. S. News: ". . . many nursing home operators steer big chunks of their revenues to themselves or related businesses before they calculate the bottom line."

NH Response: To guard against reimbursing providers for excessive or inappropriate costs, state Medicaid programs have created "caps" and "screens" to ensure that Medicaid funds care and costs that are reasonable and allowable.

U. S. News: "To ease the transition to the new system, the federal government approved temporary higher payments . . .."

NH Response: The Medicare add-ons provided through BBRA and BIPA were not enacted to ease the transition to a new PPS system. They were enacted to correct implementation problems made by the Clinton administration, which cut funding deeper than Congress intended in BBA '97 (the Balanced Budget Act of 1997).

* Five-year spending levels are $37 billion less than pre-PPS spending projections and $17 billion less than spending levels Congress included in BBA.

* In 2000 alone, Medicare spending for skilled nursing care was $3.6 billion less than Congressional Budget Office projections.

Even with the BBRA and BIPA add-ons, funding continues to be below BBA-anticipated levels.

U. S. News: ". . . there is no evidence that patients are markedly sicker today"

NH Response: After misrepresenting the nursing home profession as a growing industry, Schmitt goes on to state that there is no evidence of increasing acuity in nursing home patients. Again he is mistaken on the facts. "Nursing home resident acuity increased in 2001, continuing a long running trend" (2001 Nursing Home Statistical Yearbook, 2002, p. 3). This is reflected by increases in every measure of acuity over the period 1996 Ė 2001, and decreases in the percentage of residents who were independent at various activities of daily living over this same period. The following facts are taken from Table II-1 of the 1996 and 2001 editions of the Nursing Home Statistical Yearbook, pages 33 and 31, respectively.

* Bathing dependence: Nationally, the percentage of residents requiring assistance with bathing increased from 92% to 95% between 1996 and 2001.

* Dressing dependence: Dressing dependence increased from 84% to 87% between 1996 and 2001.

* Toileting dependence: Toileting dependence has increased from 75% to 79% between 1996 and 2001.

* Transferring dependence: Transferring dependence has increased from 70% to 74% between 1996 and 2001.

* Eating dependence: Eating dependence has increased from 46% to 50% between 1996 and 2001.

Granted the year-to-year increases in these factors are small but the cumulative effect over time is clear from even a cursory review of the historical data.

U. S. News: ". . . U.S. News found no relationship between a home's profits, or the size of its losses, and the portion of patients covered by Medicaid."

NH Response: First and foremost, no two facilities are alike. Looking at profits and losses between any two facilities with similar patient mixes is apples and oranges. There are numerous factors, such as condition of physical structure, upkeep, overhead costs, ownership of the building, area labor costs, local prices for medicines and food, Medicaid reimbursement rate, etc. A 2002 GAO report of government cost reporting data found that there is a statistical relationship between payor sources: those with more Medicare patients receive higher compensation, and those with higher Medicaid resources receive less. Medicaid pays an average rate of approximately $4.50 per hour, for the care of our nation's frail, elderly and disabled. Providers, patients, consumer advocates, families and others think this is a very poor and inadequate investment by our government for care - less than most people pay a teenage babysitter.