With five of the largest seven for-profit nursing home chains currently operating in Chapter 11 bankruptcy, and with virtually all publicly traded skill nursing facility (SNF) stocks at an all-time low, we are witnessing the virtual collapse of an industry that has, for all practical purposes, been in existence for less than twenty years.

What happened? And what does it mean for Tennessee?

During the early 1980s, hospital beds began overflowing with patients in need of rehabilitative care. As a result, the medical community and HCFA developed a system to move many rehab patients into skilled nursing facilities. With generous Medicare reimbursements, the growth in SNF’s skyrocketed. We went from a system of non-profit and faith-based “rest homes” to large corporate-owned nursing home chains. For example, the GAO reports that the Medicare spending for SNF’s grew from $578 million in 1986 to $13.6 billion in 1998.

Unfortunately, along with this incredible growth came widespread mismanagement and fraud. This endemic corruption among for-profit nursing home owners was first made public in a 1995 GAO Report entitled “MEDICARE: Tighter Rules Needed to Curtail Overcharges for Therapy in Nursing Homes“. Since that report, SEC filings of the for-profit chains document widespread allegations of:

• Medicare fraud;
• Insider trading and securities fraud;
• False claims;
• Breach of Fiduciary duty; and
• Unjust enrichment.

Earlier this year, for example, Beverly Enterprises, a publicly traded chain that operates 11 homes in Tennessee, pleaded guilty to fraud and agreed to pay a settlement of $175 million after the government claimed that they stole more than $460 million. Unfortunately, Beverly’s actions are not isolated. Charges of corruption, false claims and Medicare fraud continue to surface throughout the country.

The U.S. Congress attempted to slow runaway spending and industry-wide malfeasance by changing the method of reimbursement with the all too familiar Balanced Budget Act (BBA) of 1997. While the BBA was sweeping in its effect on the entire health care industry, the provisions that were put into place for SNFs came largely as a result of the 1995 GAO report. The new rules ­– written with significant industry input – were set up to pay homes a fair wage for care they were to provide while making it more difficult for homes to systematically charge for unnecessary or overpriced care.

The BBA failed however to account for the overwhelming debt of the for-profit chains. According to virtually every health policy analyst, the 1990s was a period of virtually unchecked growth and a systematic disregard for sound monetary policies. The chains, unable to handle their debt, had no option but to throw in the towel. For example, Vencor Inc., which operates 15 homes in Tennessee, was $1 billion in debt prior to declaring bankruptcy late last year.

Tennessee residents are especially at risk due to the fact that for-profit owners run 67% of the homes with many being run by the very chains that are now in bankruptcy. Additionally, as pockets of Tennessee remain low-income, many residents are Medicaid-eligible. Our experience shows that Medicaid patients in poor rural areas tend to be over-represented as an at-risk class.

So what does this mean for doctors caring for those in need of nursing home or custodial care?

First and foremost, be wary of large SNFs operated by for-profit chains. Our experience shows that the for-profit chains are more likely to have staffing shortages and are therefore unable to provide the hands-on care that treating physicians require – this has proven to be especially true in larger homes. For example, simple custodial tasks such as assistance with feeding and repositioning can often be missed. As a result, malnutrition, bedsores and concurrent infections will occur with more frequency.

Second, monitor the financial status of the home. A chain with excessive debt will have enormous pressure to put the financial needs of the corporation ahead of the needs of the residents. Not only do treating doctors need to worry about shortages of adequate supplies and staff but should also be alert to the possibility of false or inadequate charting. Also consider that the financial status of a home’s owner may be a better guidepost that state surveys as both the Office of the Inspector General of HHS (March 1999) and the University of California, San Francisco (February 1998) have raised serious concerns about the efficiency and accuracy of state surveys.

Finally, explore other options and alternatives when a troubled home is your only SNF option. Perhaps a daycare or respite facility might be a more attractive choice – as long as there is adequate family support. While a nursing home may be the only option for many families, it is important that other opportunities are not overlooked.

We are at a critical crossroad in long-term care. The decisions made by industry operators, regulators, and lawmakers during the next 12 months will be crucial in determining the future of long-term care in America for decades to come. As resident advocates, we must be aware of these changes and be prepared to offer the best we can for our most frail and vulnerable citizens.

Jim Wilkes is a founder of the law firm Wilkes & McHugh, P.A. The firm represents nursing home residents in Florida, Georgia, Alabama, Mississippi Tennessee, and Texas. Jim is also the founder of the nationwide elder advocacy group, The Coalition to Protect America’s Elders.

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