For-Profit Enterprise in Health Care (1986) / Chapter Skim
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15 The Changing Structure of the Nursing Home Industry and the Impact of Ownership on Quality, Cost, and Access
15 The Changing Structure of the Nursing Home Industry and the Impact of Ownership on Quality, Cost, and Access
Pages 492-542
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From page 492... ...
Finally, it will attempt to apply what is known about developments in nursing homes to the hospital sector. Nursing home care is the third largest segment of the health care industry.
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From page 493... ...
Despite considerable improvement in nursing homes since the inception of Medicare and Medicaid, substandard quality of patient care and quality of life remain serious problems nationwide. Inadequate nutrition, dehydration, overdrugging, excessive use of physical restraints, failure to provide prescribed therapies, inattention to the psychosocial needs of nursing home residents, and ineffective government regulatory activity are but a few of the problems commonly cited (Mech, 1980; Kane, 1983; Kane et al., 1979; Himmelstein et al., 1983; Zimmer, 1979; Ohio Nursing Home Commission, 1979; Virginia Joint Legislative Audit and Review Commission, 1978; Mendelson, 1974; Texas Nursing Home Task Force, 1978; AFL-CIO, 1977, 1983b; U.S.
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From page 494... ...
Social Security and Old Age Assistance The original entry of proprietary providers into the business of owning and operating nursing homes was an unforeseen and probably unintended consequence ofthe Social Secunty Act of 1935, which also established a federal grants-in-aid program to the states for old age assistance (OAA)
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From page 495... ...
This transformation of the nursing home industry was furthered by the extension of HillBurton grants to public and nonprofit orga nizations for the construction of nursing homes. Apart from minimal state licensing laws, there were no regulatory standards for what kind of care these nursing homes should provide.
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From page 496... ...
In 1950, there were fewer than 9,000 nursing homes with approximately 250,000 beds (Dun lop, 1979~. Total spending for nursing home care was just $187 million, or 1.5 percent of national health expenditures, and government paid only 10 percent of the nursing home expenditures (Gibson, 1979~.
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From page 497... ...
As a result of these diverse factors, including reductions in hospital lengths of stay, the percentage of elderly persons in nursing homes rose 58 percent in the decade between 1950 and 1960 and 107 percent between 1960 and 1970. A combination of factors, therefore, fueled the demand for and utilization of nursing home beds.
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From page 498... ...
Senate Special Committee on Aging, 1974~. By 1978, the nation spent $15.8 billion on nursing homes, with government paying 53 percent of the total (Gibson, 1979~.
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From page 499... ...
But the most significant development in the immediate post-Medicare period was the development of proprietary corporate nursing home chains. In 1966, only a handful of firms owning nursing homes were registered with the Securities and Exchange Commission (SEC)
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From page 500... ...
During this period, many nursing homes survived and prospered by either lowering expenditures (often by cutting back on food and staffing) or by engaging in real estate manipulations (see Ohio Nursing Home Commission, 1979; New York State Moreland Act Commission, 1975; and Shulman and Galanter, 1976~.
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From page 501... ...
Second, the trafficking in nursing home real estate that is, the sale and resale of nursing homes as well as inflated lease and rental charges artificially increased the cost of providing care. Nursing home chains slowed their rate of growth.
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From page 502... ...
. ~Extendicare changed its name to Humana and sold its nursing homes to National Health Enterprises (1973)
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From page 503... ...
In addition, capital reimbursement policies encouraged trafficking in nursing homes (the sale and resale of facilities) and other real estate manipulations that also favor more sophisticated operators.
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From page 504... ...
For example, the Washington Senate Select Committee on Nursing Homes documented a 14 percent decline in the number of licensed facilities during the 1965-1975 period. However, the number of licensed nursing home beds increased by nearly 32 percent during this same period (Washington Senate, 19781.
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From page 505... ...
books of the nursing homes. Thus, many of the big chains diversified, forming subsidiaries that include real estate development, con struction, management services, medical equipment, laundry, linen, food, and house keeping services (information from 10K re ports filed with the SEC by the corporations; Ohio Nursing Home Commission, 1979; Lev inson, 1984; U.S.
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From page 506... ...
Several factors contribute to this: demographic trends; decreased availability of family support and a shift from private residences to nursing homes; and the substitution of nursing home care for acute care hospitals FOR-PROFIT ENTERPRISE lN HEALTH CARE as a result of changes in Medicare policies. Each of these factors is expected to contribute significantly to a demand for nursing home expansion.
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From page 507... ...
Many analysts, such as Carl Sherman, a health care industry analyst with Oppenheimer and Company, believe that this shift in hospital payment policy will be a boon for the nursing home industry (Punch, 1984~. Taking all these factors into account, Montgomery Securities has developed "unit growth model" for nursing homes over the next 8 to 10 years.
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From page 508... ...
ble, and encourage the concentration of ownership by creating incentives for firms to expand through acquisitions. The average occupancy rate in nursing homes nationwide is at least 95 percent, and many facilities, particularly the better ones, have long waiting lists.
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From page 509... ...
For example, there are tax savings resulting from rules on depreciation and aPcer-tax capital gains. As real estate investments, nursing homes are not subject to the standard limitation on deductions, an advantage for a highly leveraged (low equity)
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From page 510... ...
During that time, health and safety regulations governing nursing homes have been developed at both the state and federal level, and the industry has become dominated by investors who seem to be increasingly sophisticated businessmen. Despite these developments, quality of care and quality of life for residents in the nation's nursing homes continue to be problems.
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From page 511... ...
The issue has taken on new urgency in the minds of many observers and policymakers with the growth of the for-profit sector in longterm care, particularly with the emergence and growing presence of nursing home chains. Debates about the impact of ownership type on the performance of nursing homes are often tied to arguments about the alleged benefits and shortcomings of private versus public ownership in health care generally.
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From page 512... ...
Excellent facilities are found in each category, but truly wretched ones are almost always proprietary. However, one's evaluation of the performance of nursing homes may differ according to the dimension of quality under consideration.
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From page 513... ...
The Ohio Nursing Home Commission (1979) studied differences between facilities rated as "high quality" and "low quality." On the basis of agreement from three sources (a reputational survey of nursing home ombudsmen, hospital discharge planners, and state inspection staff; licensure and federal certification survey reports; and inspections of facilities by commission staff, 60 nursing homes were identified as providing either high or low quality Of these, 27 low-quality homes and 28 high-quality homes had current Medicaid cost reports on file with the Ohio Department of Public Welfare.
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From page 514... ...
They studied 129 of 690 nursing homes in Massachusetts, using an index of nursing services, patient activities, and physical plant characteristics from survey and patient care reports. They found no significant differences in their quality index on the basis of facility ownership.
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From page 515... ...
In general, "ownership variables added only minor explanatory power," but it did account for some of the variation in spending on nursing staff The Minnesota Senate/House Select Committee on Nursing Homes also examined the spending patterns of nursing homes and found significant ownership differences in the distribution of expenditures (Minnesota Senate and House, 19761. Proprieties spent nearly twice as much as nonprofits on cost of capital (property and related expenses)
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From page 516... ...
The Ohio Nursing Home Commission's analysis of 1977 costs reported by nursing homes to the state Medicaid agency revealed a similar pattern. On average, nonprofit facilities outspent proprietaries on raw food and dietary supplies ($4.67 per patient day versus $3.01)
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From page 517... ...
Nonprofit facilities spend an av erage of 47 percent of their total expenditures in the patient care category. Variations in Licensure and Certification Deficiencies and Complaints Another source of data that can be used to evaluate the performance of different nursing homes is information on state licensure and federal certification reports regarding violations of minimum health and safety standards.
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From page 518... ...
J quality, licensure and certification deficiencies may capture important aspects of quality of care. Complaints reported by patients, family members, or others familiar with the facilities are another potential source of data about the performance of nursing homes.
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From page 519... ...
Of the 41 nursing homes that were the subject of three or more complaints during 1974, 39 (95 percent) were proprietary facilities.
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From page 520... ...
received 169 (93.4 percent) of the compliance letters, 100 percent of the vendor hold actions, and between 90 and 100 percent of the 42 contract terminations.34 Nonprofit nursing homes (115, or 12 percent of facilities in the Medicaid program)
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From page 521... ...
A multibillion dollar multistate chain of 800 nursing homes, whose stock is publicly traded, is hardly the same organization as a 40-bed facility owned and operated by a practical nurse and her family. Yet, both are for-profits.
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From page 522... ...
Caswell and Cleverley (1978) in analyzing costs reported by Ohio nursing homes found that "proprietary homes do appear to be less costly than (nonprofit)
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From page 523... ...
When we take into account factors other than ownership that might account for cost variations, the difference in costs between nonprofit and for-profit facilities is reduced, but even with these factors taken into account, there is still a significant cost difference between for-profit and nonprofit nursing homes in Ohio. Second, the differences between the venous types of for-profits are quite interesting and may be missed by most analyses.
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From page 524... ...
Fi nally, the variations between the different ownership types in relation to the quality prox ies are provocative. Like most other studies, our analysis shows significant differences be tween for-prof~t and nonprofit nursing homes in their expenditures on direct patient care and dietary items.
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From page 525... ...
Indeed, our analysis of 525 the Ohio nursing homes could be seen as supporting this proposition. This conclusion may be premature.
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From page 526... ...
Other facilities "discharge" or evict individuals when they exhaust their private resources and become eligible for Medicaid. Nursing homes have also evicted Medicaid recipients when a privatepaying patient has sought admission (Ohio Nursing Home Commission, 1979; U
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From page 527... ...
In addition, there are few alternatives to nursing home care for those people who need longterm care on a daily basis. This combination of tight supply and a relatively inelastic demand gives nursing homes much flexibility in setting charges to private-pay patients and, for good quality homes, the ability to discriminate and still maintain high occupancy rates.
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From page 528... ...
Ownership and Discrimination Evidence suggests that all nursing homes that can attract private-pay patients discriminate in their favor and against Medicaid patients. Nonprofit homes and facilities that are part of some of the major proprietary nursing home chains seem most successful in achieving a relatively high percentage of private-pay patients.
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From page 529... ...
Evidence of its success in attracting privatepay patients and the greater price flexibility they have with these patients can be seen in the data displayed in Table 14. Summary and Conclusions Regarding Access There is substantial evidence that Medicaid recipients some two-thirds of all long-stay nursing home patients and those with heavy care needs experience discrimination in access to nursing homes and that such discrimination places Medicaid patients disproportionately in homes that provide the lowest quality of care.
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From page 530... ...
Further, the general pattern of differences among nonprofits and proprietary nursing homes, with the nonprofits consistently spending proportionately more on patient care and the forprofits spending more on property arid administration, suggests that the cost offor-profit health care may be quite high, particularly for the most vulnerable members of our society the infirm and disabled elderly. While the findings about the impact of ownership on quality seem relatively clear, data about variations in cost and "efficiency" are more difficult to interpret.
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From page 531... ...
Rango, personal communication, 19851. In addition, nursing homes have lower sta8-to-patient ratios for direct-care staff than hospitals and place greater reliance on untrained aides and orderlies who provide 80 to 90 percent of all patient care.
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From page 532... ...
These are primarily cost containment measures adopted in the last few years, such as prospective payment systems, reimbursement ceilings, and moratoria on new nursing home bed construction. For nursing homes with sizable populations of patients supported by Medicaid, such reimbursement policies contain incentives that tend to inhibit admission of those most in need of care and that may encourage reductions in staffing and food.
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From page 533... ...
Many states found nursing homes responding to this incentive, with proprietary facilities being sold as often as every three to four years, providing indirect profits to the facilities and increased costs (but not services) to the states (Ohio Nursing Home Commission, 1979; Washington Senate, 1978~.
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From page 534... ...
They argue that these are usefill surrogates for the quality of patient care and found that "profitability increases as the service intensity (quantity and quality of labor inputs) decreases." The study focused on 43 nursing homes in California.
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From page 535... ...
The data are derived from cost reports submitted to the Ohio Department of Public Welfare by 579 (77 percent) of the nursing homes participating in the Ohio Medicaid program in 1977.
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From page 536... ...
Profits and patient care quality in nursing homes: Are they compatible? The Gerontologist 21~5~:532-538.
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From page 537... ...
Structure and operational factors affecting quality of patient care in nursing homes. Public Policy 29:399415.
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From page 538... ...
The Cost of Operating Nursing Homes An In-dep~ Financial Analysis of the Nursing Home Industry. Merrick, N.Y.: Morton Research Company.
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From page 539... ...
Case mix, quality, and cost relationships in Colorado nursing homes. Health Care Financing Review.
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From page 540... ...
(1969) Nursing Homes and Public Policy: Drift and Decision in New York State.
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From page 541... ...
(1974) Analysis of selected characteristics of a matched sample of nonprofit and proprietary nursing homes in the State of Washington.
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