Three States Impose Profit Limits on Nursing Homes
New York, New Jersey, and Massachusetts have just sent a clear message to nursing home operators: patient care must be prioritized over profits. Each state is introducing rules requiring nursing homes to spend a specific portion of their total revenue on direct patient care. In New York, it will be at least 70%, in Massachusetts at least 75%, and in New Jersey at least 90%. The three states are also limiting what nursing homes can do with the balance, including limiting profits. The move is a win for patients and a thorn in the side of the multi-billion dollar nursing home industry.
Taxpayers fund the vast majority of nursing home care. Nationwide, about 60% of nursing home revenue comes from Medicaid and 16% from Medicare. Medicare alone paid nursing homes $27.8 billion in the fiscal year 2019. Fundamentally, it makes sense that taxpayers should have a greater say in how that revenue is allocated, with more going toward patient care than an owner’s bottom line.
The new state rules are a direct response to the devastating toll COVID-19 has taken on nursing home residents. More than 130,000 residents have died of COVID-19 since the beginning of the pandemic—about 20% of the nation’s COVID-19 deaths—and both patient advocates and regulators believe many deaths were preventable. In August 2020, then-administrator of CMS Seema Verma pleaded with facilities to improve care, blaming “significant deficiencies in infection control practices” for increased COVID deaths. Other experts have blamed low-staffing levels.
But the two are connected and neither deficient staffing nor poor infection controls began during the pandemic; the pandemic merely called attention to them. Last year, a Government Accountability Office study revealed that well before the onset of the pandemic the most common violation cited by nursing home inspectors was poor infection control practices caused by inadequate staffing. By requiring nursing homes to spend more money on patient care, state lawmakers are taking an important step to improve outcomes for patients.
Nursing home operators are of course crying foul, complaining that the new rules will only further erode their purportedly low-profit margins. But the new legislation follows on the heels of the Trump Administration’s efforts to deregulate nursing homes—the result of intense lobbying by an industry with the type of power that belies the complaints of paltry profits.
In 2017, CMS did an about-face on national nursing home policy, limiting fines that could be imposed on facilities for safety and other violations. The policy reversal effectively neutered a key enforcement mechanism of the federal Nursing Home Reform Act of 1987, which allows states to recommend to CMS that a facility pay penalties for each day that a violation persists. After intense lobbying by the industry, CMS suddenly announced in July 2017 that it would impose a penalty only “per instance” of a violation, rather than per day, so long as a facility fixed the issue before the state performed an inspection. This effectively lowered fines from hundreds of thousands of dollars to a maximum penalty of $22,320. It also meant that nursing homes could continue to knowingly violate safety standards and put patients at risk for months, cleaning up their act the day before the state showed up to inspect.
Although the Biden Administration reversed the prior administration’s lax policy, concerns rightfully remain that profits will take precedence over patient care. The federal government has provided nursing homes with billions of dollars in COVID relief funding since the pandemic began, making nursing homes an even more attractive “investment” for the profit-minded. Indeed, in recent years nursing homes have seen a major influx of private equity money, the latest trend in an industry that is dominated by for-profit facilities with limited to non-existent transparency. As private equity firms buy up nursing homes, a new study shows that staffing levels shrink and patient care declines as owners look to cut costs and grow profits. Shockingly, the study even indicates that mortality rates increase by 10% when a patient is discharged from a hospital to a private equity-owned nursing facility.
In New York, New Jersey, and Massachusetts, lawmakers are making plain that companies looking to maximize their ROI with taxpayer’s dollars on the backs of the most vulnerable are not welcome in their states. Enforcing the new rules will require not only government oversight, but also the assistance of conscientious industry insiders, who for years have been instrumental in blowing the whistle on shady practices and safety violations in nursing homes. In tandem, tougher laws and brave whistleblowers will provide better protection for nursing home residents.
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