nursing home bankruptcies

SENATE AGING COMMITTEE HOLDS HEARING
ON NURSING HOME BANKRUPTCIES

Other than the industry representative, witnesses at the Senate Aging Committee=s September 5 hearing, ANursing Home Bankruptcies: What Caused Them?,@ testified that Medicare=s new prospective payment system is not the cause of recent bankruptcies in the nursing home industry.

The General Accounting Office, the Office of Inspector General, and the Health Care Financing Administration testified that Medicare payments under the prospective payment system are adequate and appropriate and that access to care and quality of care have not been affected by the bankruptcies. The GAO and OIG updated their prior reports on PPS and affirmed their earlier findings. The GAO said that the Balanced Budget Act was working as intended in changing the delivery, cost, and use of Medicare and that the Medicare program continues to provide Asufficient, even generous, compensation.@

The surprising witness was John Ransom, an equity analyst for the health care industry, who vividly described how reimbursement incentives changed in the Medicare program when PPS was implemented. In the early 1990's, under the prior cost-based system when investors enjoyed 30% annual increases in Medicare payments for skilled nursing facility care, chains converted beds from Medicaid to Medicare. Debt-financed consolidations led to a transactional debt of $5 billion in the industry. With PPS, the growth in Medicare declined, the daily rate declined, and the labor shortage and liability issues contributed to the weakening of the industry. The result was capital flight and bankruptcy. Later in the hearing, Mr. Ransom testified that public investors had an expectation of 15% profit, an expectation not shared by other parts of the industry. He said that the nursing home industry Awon=t be a growth industry for public investors@ and Ashouldn=t be.@

In contrast to the other witnesses, Dr. Charles H. Roadman, II, President and Chief Executive Office of the American Health Care Association, argued that market failures are the direct consequence of public policy. Providers had anticipated Medicare cuts of one in six dollars but have faced actual cuts of one in three dollars.

The second surprise of the hearing was Dr. Roadman=s statement that the hearing was too narrowly focused. Since the bankruptcies first began, AHCA has been arguing that PPS was the cause. This Spring, AHCA created a website tying the bankruptcies to PPS and urging restoration of Medicare cuts made by the Balanced Budget Act, keepthepromise.com. At the hearing, however, Dr. Roadman testified that the economic viability of the skilled nursing profession (his term for the nursing home industry) was at issue. In addition to deeper-than-expected Medicare cuts, he blamed the crisis on the repeal of the Boren Amendment (the federal statutory provision that governed Medicaid reimbursement), an adversarial survey and enforcement system, a liability crisis, and a staffing crisis.

All three Senators at the hearing seemed somewhat skeptical. Senator Reed (D, RI) noted that only six of 106 facilities in Rhode Island have filed for bankruptcy and that the state does not have large chains. He said he was struck by how different components of the industry reacted differently to PPS. As he closed the hearing, Senator Grassley (R, IA), Chairman of the Committee, identified many reasons for the bankruptcy filings: corporations= business decisions, the overuse of therapy that led to inflated costs, heavy debt burdens, litigation and insurance costs, and additional reasons not fully explored at the hearing, including HMO contracts, competition from the assisted living industry, and decreasing revenues because of fraud, waste, and abuse.

The statements of the witnesses are available at the Senate Aging Committee=s webpage, http://www.senate.gov/comm/aging/general/hr57.htm. The GAO=s testimony, ANursing Homes: Aggregate Medicare Payments Are Adequate Despite Bankruptcies,@ GAO/T-HEHS-00-192 (Sep. 5, 2000), is at http://www.gao.gov/. The OIG=s testimony, AAccess to Skilled Nursing Facilities under Prospective Payment,@ is at http://www.hhs.gov/oig/oei/whatsnew.html. Senator Grassley=s News Release, ABankrupt Nursing Home Chains Must Justify Funding Requests,@ is at http://www.senate.gov/comm/aging/general/nr000905.htm.

Click here to view the statement of the Center for Medicare Advocacy.