LTC Bullet: Medicaid, Nursing Homes, Quality Problems and Insurance: How to Connect the Dots

Tuesday, October 7, 2003


LTC Comment: Fire killed ten people last week in a nursing home that was "self-insured" for liability. What's the connection between long-term care reimbursement, quality of care, and private insurance? More after the ***news.***

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LTC Comment: Following are summaries of some recent news stories. First is the report of a nursing home fire that killed ten people in Nashville, Tennessee. The second item explains that the facility in which they died was self-insured for liability. Third is an excerpt from an AARP study that summarizes the nursing home liability insurance crisis. Fourth and finally is a reference to a recent study that ties nursing home quality problems to low Medicaid reimbursement rates.

Here's the connection between these stories: Seventy percent of all people in America's nursing homes are on Medicaid. Because Medicaid residents tend to be the longest stayers, the program's notoriously low reimbursement rates--often less than the cost of providing the care--apply to nearly 80 percent of all nursing home patient days. Excessive dependency on inadequate Medicaid reimbursement tends to pull down nursing home quality like dragging an anchor slows down a ship.

Over time, quality problems lead to litigation which leads to huge punitive settlements which scare insurers who raise premiums on nursing home liability insurance or bail out of the market altogether. Consequently, more and more nursing homes and assisted living facilities across the country are "going bare" for liability insurance or self-insuring, even though a large tort liability settlement could put them out of business. The end result is that when something truly tragic happens, like the fire in Nashville, liability insurance is unavailable to help the victims and their families. The nursing home company may be ruined and other providers may decide to get out of the business of long-term care for fear of a similar outcome.

The obvious solution to these problems is to change the long-term care financing system. Encourage private financing at market rates and give Medicaid back to the poor so it can pay adequately for a smaller number of recipients. We describe how this goal could be achieved in "LTC Choice: A Simple, Cost-Free Solution to the Long-Term Care Financing Puzzle" at .

Is this the direction public policy is taking? Not yet unfortunately. Judging by the recommendations in the AARP report cited above and excerpted below, corrective action is aimed at everything but the real culprit. Six "proposed solutions" are considered: (1) limit the victim's right to sue, (2) enforce quality standards more stringently, (3) implement expensive risk management programs, (4) reward good providers and punish poor ones, (5) develop creative insurance products, and (6) regulate the insurance industry more severely.

Each of these "solutions" addresses the symptoms, not the cause. The truth is that quality problems, giant tort settlements, and liability insurance problems will not disappear until long-term care providers are compensated sufficiently to provide quality care. And long-term care providers will not be compensated adequately to provide quality care, until private financing of long-term care through home equity conversion, asset spenddown and/or private insurance becomes the rule rather than the exception as now. Making that happen is where the focus of public long-term care policy needs to be now and in the future.


"Nashville Nursing Home Fire Leaves 8 Dead [a ninth and tenth person died after this account]. By John Gerome, Associated Press. The Chicago Tribune. September 27, 2003 - 1:49 PM EDT. A fire that started in a corner room of an old four-story nursing home in Nashville has killed 8 women ranging in age from 76 to 96. Twenty more residents were critically injured. The brick and steel building, built in the mid 1960s, had no sprinklers in the residents' areas. According to Tennessee regulations, sprinklers were not required unless the building underwent complete renovations. Assistant Fire Chief Lee Bergeron said that sprinklers "definitely would have made a difference." It took firefighters one hour to get the blaze under control but three hours to evacuate residents from the building. Firefighters had to carry residents out of the building, along with their oxygen tanks, ventilators and other equipment. Some were carried down ladders on backboards. The nursing home is owned by National Healthcare. " [Abstract of article is free; full article requires an archive retrieval fee. To find it, click the above link and search "nursing home fire."]

Source: AHCA / NCAL Gazette, Friday, September 27, 2003


LTC Daily Analysis Briefs. Tennessee Nursing Home Hit by Fire Was Self-Insured. NASHVILLE, TN -- 09/30/2003 -- (Eli Digital) The company that owned the Tennessee nursing home where a fire last week killed eight residents and injured scores of others may not have adequate insurance reserves to cover the disaster. National HealthCare Corp. of Murfreesboro, TN has self-funded liability insurance and previously warned its coverage might be inadequate in an emergency, the Associated Press reports. The company warned of the possibility that claims could exceed coverage limits and reserves in a statement filed earlier this year with the Securities and Exchange Commission. Meanwhile, some Tennessee legislators are considering closing a loophole in the law that allows older long-term care facilities -- such as the fire-ravaged NHC HealthCare Center -- to operate without sprinkler systems.

Source: LTC Daily Analysis Briefs, September 30, 2003, prepared by for


"Liability insurance helps to cover costs incurred because of injuries or damages and is an important part of the responsible operation of any business, including a nursing home. In recent years, nursing homes in some states have experienced dramatic increases in the cost of liability insurance. Many insurers have stopped offering coverage altogether in some states."

Source: AARP Research, "In Brief: Nursing Home Liability Insurance: An Overview," a short summary of the AARP Public Policy Institute Issue Paper in which Bernadette Wright examines the nature and extent of problems with the cost and availability of nursing home liability insurance, the causes of these problems, and proposed solutions. . . .

"The Issue Paper examined six proposed solutions to the problems of cost and availability of nursing home liability insurance:

* Limits on residents' right to sue-Some studies suggest that certain types of restrictions on lawsuits, referred to as tort reform, can improve the availability and affordability of liability insurance, while other studies suggest that tort reforms are not effective. Additional research is needed to assess the impact of these restrictions on quality of care and access to compensation for residents who are harmed, and state courts have found some restrictions to be unconstitutional.

* Strengthened enforcement of nursing home quality standards-Some studies suggest that nursing homes with poorer quality are more likely to be sued and are likely to pay higher premiums for liability insurance. Moreover, strengthened enforcement may improve quality of care and reduce the need for lawsuits, thereby lowering insurance premiums.

* Risk management-Reports from nursing home liability insurance companies and nursing homes indicate that risk management programs in nursing homes can make liability insurance more available and affordable. However, these programs can be expensive.

* Experience ratings-An experience rating system rates nursing homes on the basis of risk to the insurer, including whether it has a strong risk management program. Using such experience ratings can reward good providers with lower premiums and hold providers with a history of poor care accountable by charging them higher premiums.

* Alternatives to traditional insurance-Alternatives to traditional insurance, such as self-insurance, group self-insurance, and joint underwriting agreements, have made insurance more available and affordable for many nursing homes, but they may not be available for all providers.

* Strengthened regulation of the insurance industry-While insurers contend that increases in premiums are needed to cover losses, consumer groups have argued that inadequate oversight allows insurers to overcharge customers. Additional research is needed to examine the role of the insurance industry in the current crisis."


LTC Daily Analysis Briefs. Study: Low Medicaid Rates Hurt Nursing Home Residents. LAKE SUCCESS, NY -- 09/30/2003 -- (Eli Digital) In news that probably won't come as a shock to many long-term care providers, a study has found that government fiscal and regulatory policies get in the way of good nursing home care., a company that provides information for nursing home consumers and providers, analyzed data from the Centers for Medicare & Medicaid Services. It concluded that current staffing and Medicaid payment policies are hurting facilities' ability to provide high quality care. "The government has imposed a series of policies, which lack a cohesive structure and will do more to impede care than ensure the well-being of residents," says MyZiva founder and CEO Robert Abrams, who presented his findings at the recent National Association of Subacute and Post Acute Care conference. The report -- titled "Government Dilemma: How The Government's Own Data Exposes a Direct Correlation Between Inadequate Medicaid Reimbursement, Low Staffing Levels, Excessive Regulation and the Harm Caused to Nursing Home Residents" -- is available for free in PDF format by clicking here.

Source: LTC Daily Analysis Briefs, September 30, 2003, prepared by for