Corporate Welfare, Waste, Deceit and Mismanagement: The Nursing Home Industry

Neglect, abuse and gruesome death top the list of reasons why Americans do not want to live in nursing homes. A recently released article by US News, however, highlights another grim side of institutional long-term care: deceit, mismanagement and illegitimate corporate profit. The nursing home lobby, the American Health Care Association (AHCA), admits that the nursing home industry is nearly totally dependent on federal and state corporate welfare. Alan Defend, AHCA spokesman, told the Durham Herald-Sun that the government currently pays for nine out of 10 nursing home patients with Medicare and Medicaid.

Laguna Honda Nursing Home - The huge facility has wards of over 15 people, yet is an example of the waste of tax money

The Nursing Home Industry has an unfair advantage built into the federal regulations that requires institutional long-term care in state programs while more desirable and less costly home and community based services are offered only as an option in state programs. Nationally, the huge nursing home lobby grabs two-thirds of the funding for long-term care and works to keep funding undermine inspections and block competition.

In Tennessee, where the nursing home industry acquires over 85 percent of the federal money for long-term care, the state lobby uses funding intended for the long-term care of citizens for their lobby efforts. “Unlike most other states,” wrote Tom Humphrey in the Commercial Appeal, “Tennessee authorizes nursing homes to be reimbursed through its Medicaid system for the dues they pay to an industry association.” [May 14, 2001. p. B1]

Studying recent data, US News concluded that:

• The nursing home industry is profitable and growing, with operators spinning a far brighter tale for Wall Street than for Capitol Hill. Many nursing homes are earning exceptionally healthy profit margins, often 20 and 30 percent.
• There is no strong evidence, as the industry claims, that inadequate federal payments for care of the elderly poor are dragging down profits. Likewise, there is no evidence that patients are markedly sicker today.
• Even as they report tough financial times in their official government filings, many nursing home operators steer big chunks of their revenues to themselves or related businesses before they calculate the bottom line.
• The government funding cuts the nursing home industry has described as catastrophic actually amount to about 1 percent of current revenue. (US News Health & Medicine. The New Math of Old Age Why the nursing home industry's cries of poverty don't add up. By Christopher H. Schmitt. 9/30/02)

The main justification for increased money to nursing homes is to expand staffing. Although nursing homes generally label themselves as providing 24 hour care, the US Department of Health and Human Services found that residents received an average of less than 3 hours of direct service a day in a nursing home. A University of California study found that nursing homes with only Medicare beds decreased the time spent with residents when the payments were higher.

US News found that one fifth of nursing homes spent 20 percent or more on administrative costs. The Government Accounting Office reports that nursing homes in general spent increases on administration and financing rather than on nursing care.

Additionally, the magazine reported about shady dealing called “related-party” transactions or “self-dealing”. Basically, self-dealing is a business buying things from itself so that profits are concealed or masked as management expenses. US News found that 70 percent of nursing homes engaged in these type transactions that figured significantly in the Enron Corporation fiasco. Moreover, U.S. News found in thousands of cases the calculations provided by nursing homes were incorrect or the amount of related-party dealing reported was inconsistent.

Since 1998 Medicare reimbursement has allowed nursing homes to estimate the amount of therapy they expect to provide. GAO investigators, however, found that one in four nursing home residents never got the therapy estimated that was paid for by taxpayers.

It is time for Medicaid reform. It is time that the money for long-term care followed the individual, rather than bolstering the corrupt and wasteful nursing home industry. It is time for MiCASSA.

- Tim Wheat