Our primary reliance on skilled nursing facilities is a failed experiment,
Jim Wilkes, Family Policy-a Family Research Council publication, 8/14/01
Given the task of designing a long-term care system from scratch, would Americans choose to create a model that puts the economics of providers first while placing the lives of those in need last? Would we create a system that puts the most expensive option as the primary choice in the face of proven alternatives that empower families while saving taxpayers money? While the answer should be obvious, this however, is exactly the system currently in place in the United States today. The current long-term care delivery system makes skilled nursing facilities as the primary and, for many families, the only viable option, while essentially ignoring less-expensive and more desirable alternatives.
Understanding how the country developed this less-desirable system is the first step toward building a better system of long-term care. Lyndon Johnson's Great Society created, among other things, an expanded entitlement system for long-term care that precipitated a shift away from family-centered and home-based care to a system largely dependent on institutional care. Additionally, government funds were channeled primarily into institutional settings while families were offered incentives to impoverish themselves and become available for expanded Medicaid coverage. When Medicare and Medicaid started, most homes were either Mom-and-Pop operations or were owned by faith-based charities. While these providers remained largely in place, the incentives of federalized care for the elderly favored the development of the larger, commercially operated nursing home chains.
The incentives for corporate-owned facilities increased dramatically since the late 1980s, when Congress correctly recognized that with the advent of more and better life-extending technologies, caring for the elderly in hospitals for extended periods would quickly bankrupt both the federal and state governments. Beginning with Omnibus Budget Reconciliation Act of 1987, Congress created financial incentives for hospitals to discharge Medicare patients much quicker than they had in the past, thereby creating a huge demand in long-term care and rehabilitative services outside of hospital settings. Medicare also began reimbursing skilled nursing facilities for their expenses under a cost reimbursement system that encouraged increases in the cost of providing care and did little to either encourage efficiency or put the needs of residents first. As the per diem cost in a nursing home is substantially less than that of a hospital, the problem was solved--at least for the short term.
As a result, the nursing home industry essentially exploded overnight in the early 1990s, as large, publicly traded corporations bought up the Mom and Pop operations as well as nonprofit homes. They expanded with the belief that the government largesse would continue.
And it did.
Medicare spending for nursing-home care increased by 30 percent annually, while home healthcare and diversionary programs saw a net decline during the same period. Consequently, the newly expanded corporations began to dominate the market and squeeze out competitors, including alternative and community-based care programs. Families in the meantime were beginning to see fewer and fewer alternatives.
Much of this runaway expansion changed with the Balanced Budget Act of 1997. Under the 1997 legislation, nursing homes were no longer paid under a cost-reimbursement system but would be paid by what is known as a Prospective Payment System. Under the new rules, homes were paid a flat rate based on the how sick residents were and not based upon actual costs. This new methodology was designed to control costs by reducing the industry-wide overcharges identified in Medicare: Tighter Rules Needed to Curtail Overcharges for Therapy in Nursing Homes (Government Accounting Office, 1995).
Despite two separate findings by the Government Accounting Office that the new reimbursement system was "generous," "adequate," and "in some cases, even excessive," the debt-heavy industry could not withstand the change. Within two years, five of the seven industry giants declared bankruptcy and within three years, the federal government recovered hundreds of millions of dollars in fraudulent overcharges. While industry leaders almost exclusively blamed the 1997 legislation, observers blamed the excessive debt and poor management. Forbes, for example, named the CEO of one such corporation, Integrated Health Services (IHS), Robert Elkins, as the most overpaid executive in America.
In the years following the implementation of the act, the Federal Government recovered hundreds of millions of dollars in fines and penalties from several of the largest chains. But perhaps what is most astounding of these hundred million dollar suits is that they were settled for pennies on the dollar. For example, Vencor was the target of a billion dollar fraud investigation "for intentionally defrauding the government" that resulted in a payment of less than $100 million. It is also important to recognize that most of the fraud charges were for incidents where a corporation claimed to have provided care and simply did not. For example, operators would fraudulently seek reimbursement for staff that did not work at the facility. This is a clear case of putting profits above the safekeeping of the residents they were supposed to be caring for.
Experimenting with More Options
As policy leaders at both the state and federal levels consider repairing this broken system, they must address the entire delivery of long-term care services and not just find a way to "fix" nursing homes. Consider this: A family struggles with an ailing grandmother. She is relatively healthy, for example, but may be a danger to herself if left alone during the day. Under the current system, the only reimbursable option is, almost without exception, a nursing home. The law encourages the family to have a loved-one become impoverished--thus making them eligible for Medicaid--while discouraging viable alternatives.
What if this family had real choices? What if the family could choose an adult daycare program where the grandmother could be attended to during the day and returned home at night? Combine this with either a respite program (to give caregivers short-term breaks) or in-home assistance and many families would be able to choose a program that better suits their particular needs. Avoiding a nursing home solves several problems at the same time. Families are able to provide care in a loving home environment while nursing home occupancy and related costs decline. Taxpayers are at least somewhat relieved of the burden of higher cost care, while families are given freedom to choose alternatives that best suit their needs.
Proponents of this type of program envision a voucher of sorts for families who might otherwise be in need or qualify for a nursing home. Families would be allowed to choose from a host of options known as "home and community-based care" programs as well as nursing homes. These options might include in-home assistance, adult daycare, respite care, foster care, small group homes, as well as a variety of informal care programs which each cost significantly less than institutional care. Under this model, competition would be fierce among providers because people are able to select among a host of options. If a family finds that one type of service is inappropriate or unworkable, it would be able to select from other viable alternatives. As a by-product, families would be less dependent on government services while overall government expenditures would be reduced.
Are these ideas workable?
While most states have tinkered with pilot programs, a few have actually implemented them on a grand scale. Oregon, unlike any other state, has implemented a Medicaid waiver program specifically designed to put these ideas in practice. In spite of a 50 percent increase in the number of elderly since 1990, Oregon has experienced a net decline in the number of nursing home beds and according to Centers for Medicare and Medicaid Services (formerly the Health Care Financing Administration) data, has one of the lowest occupancy rates of any state. Oregon families are choosing these alternatives and, according to the General Accounting Office, are saving an estimated $20 million per year.
While other states have yet to push this type of initiative to the same degree, Colorado, Wisconsin, and Washington have also moved beyond the pilot project level and have met with similar successes. According to a review of relevant studies by the Florida Policy Exchange Center on Aging, each of these participating states have dramatically decreased costs while improving access to tens of thousands of families. In fact, according to a 1994 Government Accounting Office report, the most notable problem with these systems is that the demand for alternatives to nursing homes often exceeds the ability of the market to provide them. Additionally, one study taken from a 1995 issue of the Journal of Gerontology found that, if this model were to be put to its best use, nursing home occupancy could be cut in half.
While important to understanding the issue, these studies cannot measure the non-economic benefits to families who are better able to remain as a unit, nor can they measure the "value" of allowing someone to age with dignity. No economic model can place a price tag on teaching children the virtue of caring for an aging loved one. Nor can the full social impact be measured of treating the elderly and disabled as if they belong in our homes and not discarded the moment their care becomes difficult. But these studies nevertheless suggest that the crisis in long-term care is a window of opportunity to begin moving away from dependence on skilled nursing facilities and to community-based care systems, including small group homes, adult foster care, and home help programs. That shift towards proven family-centered concepts will not only empower families and save taxpayers money, but will allow seniors to age with dignity.
Mr. Wilkes, founding partner of the law firm, Wilkes & McHugh, P.A., is a nationally recognized advocate on behalf of nursing home residents and a strong voice for alternatives to nursing home care.