With five of the largest seven for-profit nursing home chains currently operating in Chapter 11 bankruptcy, and with virtually all nursing home stocks at an all-time low, we are witnessing the virtual collapse of an industry that has been in existence (for all practical purposes) for fewer than twenty years. What happened? And what does it mean for Mississippi?

During the early 1980s, hospital beds began overflowing with patients in need of rehabilitative care. As a result, the medical community, along with federal regulators, developed a system to move most of them into skilled nursing facilities (SNFs). With generous Medicare reimbursements, the growth in SNFs skyrocketed. We went from a system of non-profit and faith-based “rest homes” to large corporate-owned nursing home chains. The General Accounting Office (GAO) reports that Medicare spending for SNFs 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 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 publicly traded 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 19 homes in Mississippi, 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.

Congress attempted to slow the runaway spending and industry-wide malfeasance by changing the method of reimbursement with the all too familiar Balanced Budget Act (BBA) of 1997. 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 them to systematically overcharge for unnecessary or undelivered 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 money management policies. The chains, unable to handle their debt, had no option but to throw in the towel. For example, Integrated Health Services, which operates 5 homes in Mississippi, was $3 billion in debt prior to declaring bankruptcy earlier this year.

Mississippi residents are especially at risk due to the fact that for-profit owners run 68% of the homes with many being run by the very chains that are now in bankruptcy. A study released earlier this month by the federal Health Care Financing Administration (HCFA) found that more than 54% of all nursing homes are dangerously understaffed – with these same publicly traded chains being the worst offenders!

Additionally, as Mississippi remains a low-income state, many residents are Medicaid-eligible. Our experience shows that Medicaid recipients in poor rural areas tend to be over-represented as an at-risk class. This was borne out by a recent analysis of data compiled by the University of California, San Francisco which revealed that nearly one-third of Mississippi nursing homes have been given deficiency citations for accidents and are twice as likely to be cited for improper resident assessment or housekeeping deficiencies than the national average.

Isn’t it time we accept the fact that warehousing the elderly in institutional settings is a failed experiment?

The answer is NOT, as many have suggested, simply providing more money for increased staffing; we must also begin the process of moving away from the singular dependence on skilled nursing facilities. The long-term solution is for the government to allow families real options when it comes to long-term care. We need to shift away from institutional settings as the primary option and towards community based care systems: small group homes, adult foster care, home help programs and other such proven concepts. We can save taxpayers money, allow seniors to age with dignity, and make institutionalized nursing care an option of last resort.

Jim Wilkes is the co-founder of the law firm Wilkes & McHugh, P.A. The firm represents nursing home residents in Mississippi, Florida, Georgia, Alabama, Arkansas, Tennessee, and Texas. Jim is also the founder of the nationwide elder advocacy group, The Coalition to Protect America’s Elders. He can be reached at 1-800-255-5070.

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