Nonprofits Losing Ground in the Nursing Home Sector

New Yorkers are growing older and living longer, which is bound to add to the state’s already burdened long-term care system in the coming decades. By 2030, the over-85 population of New York could account for 3.2 percent of the total population—a 60 percent spike in a span of 20 years. Some 105,000 New Yorkers already reside in nursing homes, the largest population of any state. For-profit providers have, for years, been gaining market share in that sector, and now operate the majority of the state’s 625 facilities. In 2010, nonprofits constituted 42 percent of the sector, and government-run facilities another 9.5 percent. In just five years, however, the share of nonprofit providers has dropped to 38 percent, and a mere 6 percent of facilities continue to be publicly run.

Over the past decade, numerous studies have concluded that nonprofit nursing homes outperform their for-profit peers with higher levels of staffing, lower prevalence of pressure ulcers (bedsores) and fewer government-cited deficiencies. One recent report by the Kaiser Family Foundation found that for-profit nursing homes received on average fewer stars from Nursing Home Compare, Medicare’s national rating system. The study found that 42 percent of for-profit facilities were assigned the lowest star ratings of 1 and 2—double the rate of nonprofits.

Most experts agree that the foremost determinant of nursing home quality is staffing. And advocates for the elderly claim that happens to be the primary area from which for-profit facilities—and particularly multistate chains—cut corners to bolster their bottom line.

“The for-profits don’t have enough staff,” said Toby Edelman, a senior policy attorney at the Center for Medicare Advocacy. “Neither do the nonprofits, but overall they staff at a higher level, and that’s why their care is generally better.”

Inadequate staffing can result in any number of negative outcomes, from dehydration to pressure ulcers to hospitalizations. The Nursing Home Reform Act, which Congress passed as part of the Omnibus Reconciliation Act of 1987, intended to establish industrywide standards. Staffing levels, it mandated, had to be “sufficient” to guarantee certain levels of well-being among nursing home residents. The legislation stopped short of requiring a numerical standard, however. In response to inadequate enforcement, many states have adopted more measurable staffing requirements of their own; New York is not among them.

“It really gets to the failure of the state and federal regulators to enforce the standards that protect nursing home residents, as well as the use of many billions of dollars in public funds here in New York alone,” said Richard J. Mollot, executive director of the Long Term Care Community Coalition.

In the United States, taxpayers sponsor the vast majority of nursing home stays. In 2010, Medicaid paid for 74.1 percent of nursing home residents in New York, with Medicare covering an additional 13.2 percent. Medicare can only reimburse nursing home stays of up to 100 days; Medicaid imposes no such restriction. Because its reimbursement rates are substantially higher, providers of every stripe covet Medicare patients.

According to the 2015 Genworth Cost of Care Survey, the median daily rate of a private nursing home room in New York is $374; the median annual rate is $136,437. Only a small fraction of New Yorkers hold private long-term care policies and, since 1970, the population of nursing home residents who pay out of pocket has dwindled as enrollment in entitlement programs has risen.

“Ease of access to Medicaid after long-term care is needed has crowded out potential sources of private financing, such as asset spend down, home equity conversion, estate recovery, and long-term care insurance,” according to a 2011 study commissioned by the Empire Center for New York State Policy. The report’s author goes on to argue that “Medicaid management,” a legally complex practice in which individuals strategically divest assets in order to qualify for the entitlement program, strains government resources as well as nursing home finances. The report does note however, that a disproportionate share of older New Yorkers lives in poverty. (Advocates argue that, due to the exorbitant cost of long-term care, the elderly are often left with no recourse but to spend down their assets in nursing homes until they qualify for Medicaid.)

“Private pay is a lot more advantageous for facilities to receive,” said David V. Pomeranz, the chief operating officer at RiverSpring Health, a nonprofit that offers a spectrum of long-term care services, including 835 beds in its Hebrew Home nursing facility. “The Medicaid dollars we get are not sufficient to care for the residents we care for.”

Pomeranz, who also serves as board president of LiveOn NY, an advocacy organization for senior centers, argues that nursing facilities need Medicare dollars to offset Medicaid’s low reimbursement rates. His own organization, he says, relies on surpluses generated from the other elderly housing and services it offers—in addition to private fundraising—to make ends meet. Pomeranz cited unionized labor as another strain on the nonprofit business model.

“Not-for-profits are disappearing rapidly and being replaced by for-profit entities, which have a different model of care that they provide,” Pomeranz said.

A 2013 Center for Governmental Research study found that in 2010, 92 percent of county nursing homes—New York City was excluded from the study—lost money. Employee benefits represented a major financial burden, the report concluded. It also predicted that the trend of counties selling off facilities to for-profit entities could accelerate in the near future. In some cases, the study found, quality of care declined following privatization.

Public nursing homes, however, often admit individuals who are difficult to place in other facilities, such as immigrants living in the U.S. illegally, who are ineligible for Medicaid. And many advocates are not convinced by the industry’s cries of indigence.

“If they were losing so much money on Medicaid, how would they be in business?” Edelman said. “It doesn’t exactly make sense to me.”

Advocates see the proliferation of for-profit facilities—particularly the chains, some of which are owned by private equity firms—as a clear indication that the sector is offering attractive financial returns. Many believe profits in the politically influential nursing home industry should be capped, and denounce the practice of nursing home chains siphoning profits into office management and other related companies.

“The money is drained out of the facilities and some of the profit margins are very, very high,” said Charlene Harrington, a professor emeritus at the University of California, San Francisco School of Nursing. “Sometimes they can make 25-30 percent profit margins.”

Publicly traded nursing homes are not allowed to set up shop in New York, though chains do operate facilities throughout the state.

In an effort to reel in Medicaid expenditures, and place a greater emphasis on home- and community-based services, New York has recently adopted mandatory managed long-term care. The new system assigns Medicaid enrollees, who often have no family or guardian, their own care manager—which has the potential, advocates say, to increase accountability in the long-term care sector.

“The big problem is that neither Medicare nor Medicaid are making nursing homes financially accountable,” Harrington said. “Most states don’t even know how much they are making, let alone regulate it.”

A spokesperson for the state Department of Health did not immediately respond when asked when the last state financial audit of the nursing home industry occurred.