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Are Nursing Homes Paid Enough? It Can Be Hard to Tell

nursing home care-cost-MassHealth-Margolis-Bloom-D'agostino

According to Genworth Financial, nursing homes in Massachusetts cost on average $12,623 a month for a shared room and $13,533 for a private room. That adds up to more than $150,000 a year or $445 a day. While that’s more than most individuals or families can afford, to put it in perspective, many hotels charge as much or more without providing any food or care.

These are the private-pay rates. MassHealth pays different rates for each resident and each facility based on very complex regulations. Depending on various factors, the payments can range from about $150 to $375 per day, substantially less than the private-pay rates for most residents. The Medicare reimbursement rate for skilled nursing facilities is somewhat higher, but pays for only up to 100 days following a hospitalization.

The Kaiser Family Foundation reported in 2017 that 62% of nursing home residents were covered by Medicaid. The nursing home industry claims that it loses money on these residents. The state disagrees. Which is right?

Creative Accounting

In a new report by the National Consumer Voice for Quality Long-Term Care, “Where Do the Billions of Dollars Go? A Look at Nursing Home Related Transactions,” argues that the nursing home industry’s claim of financial hardship is based on creative accounting. Essentially what they do is to break up their businesses into separate entities with each providing services to, and billing, the nursing home. The nursing home may pay rent to the company owning the building, for nursing services to a staffing agency, and even for administrative services to a management company. Based on the costs of the services, the nursing home may appear to be just breaking even or losing money, but the underlying companies may be quite profitable.

The report describes one large nursing home chain, Life Care Centers that owns more than 200 nursing homes, paying companies with shared ownership $386 million in 2018. It reports that nationwide three quarters of nursing homes participate in this practice and paid themselves $11 billion in 2015.

While Medicare requires that these and other payments be “reasonable and prudent” and that the nursing homes be “prudent buyers,” payments to related parties are neither transparent nor based on market competition. Consumer Voice concludes that “[t]his practice allows nursing home owners to
portray their nursing homes are operating at a financial loss or making small profits, when in reality they are making money.”

Further, it argues that public money meant to make sure nursing home employees receive fair pay is instead diverted into corporate coffers. As a result, “[r]esidents go without care and workers are permanently underpaid and overburdened, leading to staff turnover rates at over 50% per year.”

How to Fix the Problem

Consumer Voice makes the following recommendations:

  • That the Centers for Medicare & Medicaid Services (CMS) do better auditing of cost reports by nursing facilities, including information for all related parties.
  • Implement a minimum staffing standard. Currently CMS only requires that the level of staffing be “sufficient,” which is a nebulous amount. It recommends 4.1 hours per resident per day as a minimum.
  • Impose a minimum standard for the percentage of Medicare and Medicaid payments that must go to patient care.

What About Massachusetts?

The report does not break down how prevalent this related-party practice is for each state, so it may or may not be common in Massachusetts. But we can be pretty certain that it’s more likely to occur with for-profit than non-profit facilities. That doesn’t necessarily mean that all non-profit facilities provide better care than all for-profit ones, since the former can be badly run and the latter well managed. But non-profit facilities by definition don’t divert funds owners that could be used to pay for staff and facilities.

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