LTC Bullet: Do People on Medicaid Get Worse Nursing Home Care?

Wednesday, August 11, 2004


LTC Comment: Do private payers receive better nursing home care? Does being on Medicaid mean getting lower quality nursing home care? These perennially perplexing questions answered once and for all, after the ***news.***

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LTC Comment: Does being on Medicaid mean you will receive lower quality nursing home care? Does paying privately mean youíll receive better care? These are sensitive questions that people have been fighting over for decades. Feelings are strong on both sides of the issue.

People in the nursing home profession--from corporate executives to CNAs (certified nursing assistants)--insist they give equal care to all residents regardless of payment source. Yet, more and more in the past few years, caregivers complain that notoriously low Medicaid reimbursements impair their ability to provide quality care.

Elder law attorneys, especially those who specialize in Medicaid estate planning, insist that state and federal laws require equal care regardless of payment source. Moreover, they claim to be able to ensure that THEIR clients do receive quality care.

On the other hand, decades of academic research and plenty of anecdotal evidence suggest that people on Medicaid face serious problems of access to and quality of nursing home care. Itís common for long-term care insurance agents to recommend their product as a means to avoid such problems.

Whoís right? Letís try to sort the issue out. Weíll finish with some excerpts from and a link to an excellent journal article that sheds further light on the matter.

First of all, there is no direct link between source or level of financing and quality of care in specific, individual cases. In other words, we cannot say definitively that Mrs. Jones received poor care because she was on Medicaid. Nor can we conclude that her care was deficient because she resides in a nursing facility which has 90 percent Medicaid residents instead of the national average of 67 percent. No cause and effect relationship pertains at the individual level.

But does this mean there is no link between Medicaid financing and nursing home quality problems? Not at all. Medicaidís low reimbursement rates and heavy, often counterproductive, regulations create downward pressure on care quality. Thus, while some facilities and some caregivers may rise above these pressures and provide top quality care to specific individual residents, the overall tendency is for care to decline in the presence of Medicaid financing. Caregivers across America struggle, with varying levels of success, to provide the best possible care in spite of low salaries, insufficient staffing, counterproductive regulations, and many other challenges incidental to heavy dependency on Medicaid funding.

For example, nursing facilities that have relatively low Medicaid censuses and relatively high populations of private-pay and Medicare residents have much more cash flow than facilities with higher Medicaid censuses. Thatís because Medicaid pays only 70 percent of the private-pay rate on average and much less than what Medicare pays. So, if you are lucky enough to get into a nursing home with relatively few Medicaid residents, youíre much less likely to be in a facility that has to cut corners on care to make ends meet. Bottom line, the facility staff--from the Administrator to the Director of Nursing to the CNAs--have more resources to work with to provide high quality care for everyone in their facility, including their Medicaid residents.

Well, you might say, "how do I make sure I can get into one of those nicer facilities with fewer Medicaid beds?" The answer to this question reveals why our welfare-financed, nursing-home-based long-term care system is so dreadfully inequitable. People who have the wealth to pay privately for their first year or so of nursing home care have easy access to the best facilities. Itís called "key" money, because it opens the doors of the very best nursing homes. If you have key money, the world of long-term care is your oyster. If you donít, you have fewer choices, less control, and greater vulnerability.

So what? The practical effect is that affluent people receive better Medicaid-financed care than poor people. That is because their Medicaid planners advise them to preserve enough wealth--as they shelter or jettison everything else--to pay privately for awhile. This practice guarantees them a bed in a quality nursing home. After a year, the lawyer flips a legal switch, converts the client to Medicaid, and transfers the financial burden to Medicaid, tax-payers, and the nursing home. Suddenly, the nursing home receives much lower reimbursement for the same resident, thus dragging down the facilityís ability to provide quality care for everyone. Incidentally, disreputable insurance agents who market "Medicaid-friendly annuities" and claim no differences in care quality between Medicaid and private pay are equally blameworthy.

Alas, poor people, whom Medicaid is supposed to serve first, do not have key money. They must take whatever nursing home bed is available in whatever facility will take them. Itís tragically unfair, and the consequences are devastating. Not only do poor people, especially minorities, bear most of the burden of Medicaidís quality problems, but middle class and well-to-do people get the cream of what Medicaid has to offer. Consequently, they are less likely to feel the urgency to plan for long-term care and save, invest or insure against the risk. And so, the corrupt status quo is perpetuated generation after generation.

Whatís to be done? The solution is obvious. We must (1) change Medicaid eligibility rules to eliminate the abuse of "Medicaid planning," (2) target Medicaidís scarce resources to the genuinely needy by enforcing eligibility and estate recovery rules, (3) require the consumption of home equity through reverse mortgages as a condition of Medicaid LTC eligibility, and (4) encourage the purchase of private long-term care insurance through public education and tax incentives.

Implement these measures and fewer people will become dependent on Medicaid. Medicaid will be able to pay more adequately for a wider range of LTC services. Nursing homes and other LTC providers will have more revenue empowering them to hire more and better staff. Seniors and their families will have more and better long-term care choices. Home equity conversion and long-term care insurance products will sell much better. Tax revenues will increase due to the healthier long-term care service delivery and financing marketplace. And boomers will see the need to prepare financially for long-term care before itís too late.

Fail to implement such measures, and the existing long-term care system will continue its long, slippery slide toward total collapse within a decade or two.

For more on this topic, we refer you to two articles. First, check out "Shedding Tiers," by Center President Stephen Moses at .

Next, we strongly recommend "Driven to Tiers: Socioeconomic and Racial Disparities in the Quality of Nursing Home Care," by Vincent Mor, Jacqueline Zinn, Joseph Angelelli, Joan M. Teno, and Susan C. Miller, in the June 2004 issue (Volume 82, Number 2) of The Milbank Quarterly. Read it at .

Following are some excerpts from the Milbank Quarterly "Driven to Tiers" article:

Abstract: "Nursing home care is currently a two-tiered system. The lower tier consists of facilities housing mainly Medicaid residents and, as a result, has very limited resources. The nearly 15 percent of U.S. nonhospital-based nursing homes that serve predominantly Medicaid residents have fewer nurses, lower occupancy rates, and more health-related deficiencies. They are more likely to be terminated from the Medicaid/Medicare program, are disproportionately located in the poorest counties, and are more likely to serve African-American residents than are other facilities. The public reporting of quality indicators, intended to improve quality through market mechanisms, may result in driving poor homes out of business and will disproportionately affect nonwhite residents living in poor communities. This article recommends a proactive policy stance to mitigate these consequences of quality competition."

"Our findings have shown that a dependence on Medicaid affects the nursing home's staffing, case-mix, occupancy, and risk of termination from public reimbursement programs. This, in turn, affects the quality of the facility as reflected in the cited health-related deficiencies as well as quality measures aggregated from resident-level data. In this section we go beyond our findings, drawing on the literature to consider what market and regulatory forces may be driving and sustaining the two-tier structure."

"Cross-subsidization has historically been as closely tied to nursing facility finances as to hospital finances. Cross-subsidy can be explicit through cost shifting, that is, having enough profitable private-pay or Medicare residents to compensate for the Medicaid residents whose payments are quite low. . . . [I]n the past the Medicaid per diem shortfall was covered by the higher rates paid by Medicare and by privately paying residents. . . .

"The recent changes in Medicare's reimbursement policies have made cross-subsidization less likely. . . . Shifting these costs to Medicare is less possible now that a fixed-price system [the prospective payment system or PPS] has replaced the cost-based system."

"Cross-subsidy is also found in the mix of patients requiring varying levels of care. If enough residents need little care, it is possible to care for a small number of residents needing a lot of care as long as no case-mix reimbursement system is in place. Over the past decade, as these systems have been instituted under Medicaid payment, the opportunities for case mix-based cross-subsidy have evaporated. As in the acute care sector, over the past few years the various payers of nursing home costs, including managed care organizations using nursing facilities in lieu of or to speed up hospital discharge, have been less willing to subsidize the care of other patients . . ..

"If the Boren amendment had not been repealed by the Balanced Budget Amendment of 1997, the need for cross-subsidization might have diminished considerably. When it was passed in 1980, the Boren amendment required state agencies to pay hospitals and nursing facilities according to a reasonable rate that was adequate to meet the costs of efficiently and economically operated facilities in order to provide care and services conforming to the applicable state and federal laws, regulations, and quality and safety standards (section 1902[a][13]). After this statute was repealed, nursing homes were left with no federal statutory protection for adequate reimbursement now or in the foreseeable future. Furthermore, the repeal of this amendment severed the link between Medicaid's nursing home rates and minimum state and federal quality and safety standards (Wiener and Stevenson 1998)."

"Lower-tier facilities, particularly for-profit facilities, are much more likely to serve the least desirable long-term care residents, those with a history of psychiatric diagnoses (Mosher-Ashley and O'Neill 1991). Many of these facilities may be serving the legacy of national policy directed at the deinstitutionalization of public mental hospitals over the last several decades (Mishara, Budd, and Dixon 1973). Once a facility is marked as attracting a preponderance of these residents in the community, potential referral sources may stereotype them in that capacity. Privately paying individuals will resist moving to a residence with a predominance of psychiatric patients, thus contributing to the facility's becoming increasingly dependent on Medicaid. Once established, it may be difficult to alter this reputation without a major investment of capital and the skills necessary to alter the community's perceptions. But as the number of residents funded by neither Medicare nor Medicaid increases, the number with a psychiatric hospital history will decline to the point that only 11 percent of residents in facilities with more than 50 percent Ďotherí pay residents have a psychiatric history."

"At the same time that nursing facilities are required to take increasingly complex patients and provide adequate resources to care for them, assisted-living facilities are attracting patients who need less care and could have helped cross-subsidize their care. While the extent of substitution appears to depend on the local market's supply and demand, estimates range from 10 to 25 percent of nursing home admissions (Newcomer et al. 2001; Spector, Reschovsky, and Cohen 1996). In the past, nursing home residents have needed relatively little care, mainly some help in the activities of daily living because they were unable to function well independently. By drawing away the custodial private-pay patients from nursing homes, assisted-living facilities contribute to increasing the acuity of nursing home residents. The only remaining sources of lower-acuity residents for nursing facilities are Medicaid recipients. Thus, the emergence of assisted living has contributed to the development of a two-tiered system of care because some facilities, unable to attract Medicare or private-pay patients, can offer only custodial care to Medicaid recipients."

"In sum, the combined effects of the market and regulatory forces just described may completely transform long-term care, with custodial services for privately paying residents provided only in assisted-living facilities and nursing facilities increasingly used to meet the relatively short-term needs of patients recovering from a hospital stay or beginning a terminal episode. The residual pool of nursing facilities unable to respond to this challenge are likely to be relegated to serving higher concentrations of poorly reimbursed Medicaid patients. The net result will be a bifurcation of the nursing home industry into those facilities that have the resources and sophistication needed to compete in the new environment and those that do not. Such transformations are common in many other industries and always create temporary dislocations of workers and consumers. However, for long-term care, such dislocations may translate into inadequate care and clinical resources for frail, old, and poor patients living in facilities that are predominantly supported by public reimbursement."

Conclusion: "We have described and examined the implications of the Ďtwo-tieredí system of nursing homes in the United States and have offered policy alternatives that may help protect the interests of residents in the lower tier. All the proposed alternatives will require an increase in the level of resources devoted to nursing home care. We acknowledge that there is a policy dilemma associated with investing more money in nursing homes at a time when the public prefers home care and/or assisted living (Teno et al. 2004). Most Americans know little about nursing homes, have little interest in knowing more, and desperately want to avoid them. Although the number of alternatives to nursing home care is growing throughout the country, the proportion of the population living in a nursing home, if only for short-term recuperation, is growing and is likely to continue to grow. Thus, this is a policy dilemma that cannot be avoided. Nursing homes will not disappear from the array of available long-term care options. It is better to face the dilemma proactively rather than ignore it, since exposure to Ďpoorí care is not a risk faced only by someone else's mother or widow."