The never-ending scandal of America's nursing homes

Overworked and underpaid staff; inadequate reimbursement; private equity predation. The Biden administration's proposed staffing and transparency rules are just a beginning.

The 1.2 million Americans living out their twilight years in the nation’s nursing homes need help. More than 200,000 seniors and caregivers died in congregate settings during the first year of the COVID pandemic, when infection rates reached 75% or more at many facilities.

In the wake of that disaster, the Biden administration made a priority of improving the living and working conditions at the nation’s 15,000 skilled nursing facilities (the Centers for Medicare and Medicaid Services’ preferred name for nursing homes). Earlier this year, CMS proposed two rules to further that objective.

The first proposal, issued in February, would increase financial transparency at nursing homes, over 70% of which are privately owned. The second proposal, issued in the beginning of September, would set minimum staffing ratios in an industry long marred by low pay, difficult working conditions, and high turnover.

The proposed standard calls for hiring sufficient nurse aides to provide each resident with 2.45 hours of personal care per day. The rule also would require sufficient registered nurses on staff to provide at least 0.55 hours of care per resident each day with at least one registered nurse on site 24 hours a day, seven days a week.

Advocacy organizations and nursing home employee unions say the proposals don’t go far enough. The nursing home industry, pleading poverty, is mounting a lobbying blitz against the changes.

Allow me to make a personal observation about the staffing levels called for in the proposals. Over the past two decades, I have had several members of my immediate family wind up in nursing homes. Each required help with dressing, bathing, toileting, eating, and medication adherence, not to mention hands-on aid getting out of bed for those activities.

Two-and-a-half hours of personal attention per day, the proposed standard for nurse aides, is not sufficient for such residents, most of whom wound up in nursing homes precisely because of their inability to perform those daily tasks at home, even with a family caregiver’s assistance. A CMS commissioned study released earlier this year, which advocacy groups blasted as inadequate, said residents need a minimum of 2.8 to 3.6 hours per day of nurse aide attention before 90% of their care needs could be met.

Yet, according to the noisy opposition campaign now being mounted by nursing home operators, CMS is imposing impossible-to-meet standards. They say adoption of minimum staffing rules will lead to widespread partial closures (reductions in staffed beds) in an industry already in long-term decline (see chart). They blame inadequate reimbursement by state Medicaid agencies, which are the single largest payors for nursing home care, for the short staffing, low pay and high turnover rates at most homes.

“This proposed rule is deeply flawed, and the Biden Administration has woefully underestimated the feasibility and cost of this unfunded mandate,” said Mark Parkinson, CEO of the American Health Care Association, the industry trade group. “When nearly every nursing home in the country would be considered out of compliance if this went into effect today, it demonstrates how out of touch Washington bureaucrats are with reality.”  

A recent Kaiser Family Foundation analysis confirms just one in five homes currently meet the proposed standards. But, as an Axiox Vitals analysis noted, the majority of homes are already near the proposed staffing levels, and will have three to five years to comply with the new rule.

CMS estimated meeting the standards will cost nursing homes $40.6 billion over the next decade, or about $6 billion a year once the rule goes into effect. While that sounds like a lot, it represents less than 4% of annual revenue in an industry that takes in anywhere from $150 billion to $180 billion a year. The industry’s own cost estimate, which it bills as “a disaster, insanity, catastrophic,” is not much different. Its study showed the proposal will cost $6.8 billion a year to hire the slightly more than 100,000 registered nurses and certified nurse aides needed to be fully compliant.

"For a lot of nursing homes, the standards don't strike me as unreachable," David Grabowski, a health policy professor at Harvard who has closely followed the industry for decades, told Axios. “This is a pretty middle-of-the-road requirement. I think it will guard against those truly bad nursing homes that are staffing at really low levels.”

Untransparent financing

Which brings us to the issues behind the first proposal, which called for greater transparency in nursing home finances. We know a lot about where the money for nursing homes comes from. The 59% of residents on Medicaid generate just 30% of industry revenue since state Medicaid agencies pay the lowest rates. The 22% of residents on Medicare, which only pays for short-term stays after hospitalization, generate 22% of revenue. Medicare will not pay for stays longer than 100 days and requires a $200 daily co-pay between 21 and 100 days.

Who pays the rest? The 19% of nursing home residents who pay out of pocket or with long-term care insurance generate fully 48% of industry revenue. They pay the highest rates. That’s why the nursing homes in wealthier communities with more private pay patients generally have the highest quality scores and the highest staff-to-patient ratios.

We know much less about where the money goes. Skilled nursing facilities, like hospitals, file cost reports with Medicare. But they are virtually useless in determining where SNFs spend their money. Operators report a total wage bill, but do not reveal how much is spent on frontline personnel and how much on executive salaries. They report a total amount for overhead, but nothing on how much is spent on rent or for outside contractors (the outsourcing of management consulting, medical, food and laundry services, often at inflated rates, is common).

Without those breakdowns, CMS and outside analysts cannot analyze where the 70% of Medicare-certificated SNFs that are privately-owned, for-profit enterprises spend their money. This analysis is especially needed for the increasing number of SNFs owned by private equity firms (now over 5%) and real estate investment trusts (now over 12%).

Their business models rely on PE-purchased operating companies selling their real estate to a REIT in exchange for a bolus of cash. In turn, the operating company signs a long-term rental contract for a property it once owned, usually with an expensive escalator clause. The PE firm then uses some or all the cash infusion to pay off the debt taken on to make the acquisition and award dividends to its owners. Many of the new operators also set up outside firms to provide overpriced contractual services to the SNFs. Those inflated rates becomes another way for PE owners to drain cash from nursing homes.

Not enough transparency

Maximizing profits from an underfunded social service had predictable results. A study published by the National Bureau of Economic Research in 2021 showed PE ownership increased mortality among Medicare patients by 10%, a loss of over 20,000 lives in nursing homes over the 12 years of the study. Costs per patient rose by 11%. A November 2021 study in JAMA showed PE acquisition of nursing homes led to higher costs, increased emergency room visits and more hospitalizations for residents.

Not every private nursing home operates this way, of course. But many do, especially those owned by PE firms, many of which are small and operate below the radar of federal financial oversight agencies.

Unfortunately, the Biden administration’s proposed transparency rule fails to provide sufficient information to expose those that engage in financial shenanigans. Operators will only have to report the names of their owners, changes in ownership, and the names of individuals or entities that provide administrative or clinical services to nursing homes. There is nothing in the rule that requires reporting the amounts spent on rents or individual outside contractual services.    

The industry has been fighting financial transparency for decades. A limited requirement was included in the 2010 Affordable Care Act, but the Obama administration’s proposed rule was scuttled in 2011 after the industry mounted a fierce lobbying campaign in Congress, which had just been taken over by Republicans.

It is mounting a similar campaign now. Rep. Michelle Fischbach (R-MN) recently introduced the misnamed Protecting Rural Seniors’ Access to Care Act (it would prohibit CMS from setting minimum staffing ratios at any nursing home) with eight Republican co-sponsors. Meanwhile, more than 5,000 comments have poured into CMS about the staffing rule, many from nursing home operators protesting the rule and warning of cutbacks should it pass. The comment period runs until November 6.

If Congress really wants to get serious about improving nursing home care, it should take a hard look at why their state Medicaid agencies are underfunding their local nursing homes, especially in Republican-dominated states that have a higher proportion of homes in rural areas. The median payment across the U.S. covers just 86% of costs, according to the latest Medicaid and CHIP Payment and Access Commission report.

Thirty-eight states have already enacted some type of nursing home staffing standard. Most are less than the proposed federal standard. Given the disaster that unfolded in the nation’s nursing homes during COVID, it is long past time for CMS to act.

The agency should toughen its final financial transparency rule to expand the categories of spending in SNF cost reports to include rents and contractual services, and the names of the firms and the amounts paid. It should increase the staffing requirements for nurse aides to at least 3 ½ hours per day for every resident. It should include a standard for licensed practical nurses, and allow their use in meeting the 24/7 nurse staffing requirement. Someone with some medical training always needs to be around to handle emergencies that inevitably occur in the institutions that so many seniors and disabled Americans call home.