A second crisis looms for US nursing homes

The vaccines are in, but prevention efforts must continue.
The vaccines are in, but prevention efforts must continue.
Image: Reuters/Yuki Iwamura
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After a year of enduring trauma and loss on the frontlines of the Covid-19 pandemic, US nursing home operators face another crisis: They’re running out of money. A recent industry survey found that 65% of the country’s more than 15,000 nursing homes are operating at a loss, and 34% believe they will need to close within a year.

Lobbying groups are calling on the Biden administration to earmark $20 billion for nursing homes in a new Covid-19 relief bill, arguing that the first $20 billion injection from last year’s CARES Act has not been sufficient to rescue institutions drowning in unexpected pandemic-related costs.

But those familiar with this much-maligned segment of the US healthcare system are also aware that everything about nursing homes, and how Americans collectively pay for older people in residential care, should be redesigned. And for that to happen, nursing homes and the people who rely on them will need the same passionate attention that’s given to student loan debt and the push for federal paid parental leave—topics that more directly impact younger adults and are routinely front-and-center in the public conversation. Progress for nursing homes will require both public pressure and political will.

The cost of nursing home care

To understand why the industry is struggling, it’s helpful to know how skilled nursing facilities, more commonly known as nursing homes, stay afloat in non-pandemic years.

Unlike assisted living accommodations, which are paid for out of pocket, about two-thirds of Americans staying in nursing homes are covered by Medicaid, a federal program to subsidize healthcare costs for those with limited resources, including costs not covered by Medicare, the country’s health insurance program for seniors. Those who do not qualify for coverage because they earn too much or hold too many assets can be charged on average $8,365 per month for a private room, and they are often advised to spend down their assets and apply again.

Yes, this sounds unsustainable and unjust, but it is the bizarre system that a sizable portion of older Americans and their families are forced to contend with every year.

The companies that operate these homes—of which 70% are for-profit businesses, sometimes with complicated ownership structures involving real estate investment trusts (REITs) and private equity firms—say that paying for proper care is also a trial for them, because Medicaid does not adequately cover the full cost of looking after people with highly complex needs. “Research has shown that Medicaid does not reimburse fully for the cost of care, and this has been going on for a really long time,” says Lisa Sanders, a spokesperson for LeadingAge, an association representing non-profit senior care providers.

To subsidize care for long-term residents, nursing homes rely on the much more significant Medicare payouts earned from short-term clients who move into a facility while recovering from surgery. Compared to Medicaid, which pays roughly $200 per day per resident (though the exact number varies by state), Medicare provides about $500 per day.

Except income from hip replacement patients and others has slowed to a trickle since the pandemic began. And, of course, the already insufficient Medicaid reimbursements are down, too, since far fewer people have moved into nursing homes over the past year. More than 170,000 people who lived in nursing homes, where social distancing is often impossible, have died from Covid-19 during the pandemic. Many thousands more went months without in-person visits from a family member, and during outbreaks suffered from long periods of isolation in their rooms, except when staff brought meals or assisted with their care. Demand has understandably dropped off as fearful families look for alternative options.

Nursing homes have meanwhile faced enormous expenses over the past year. They had to hire caregivers from pricey temp agencies when staff members fell ill or left their jobs, causing severe staff shortages. They provided extra pandemic pay, and stockpiled gowns, masks, gloves, and face shields. Last spring, one nonprofit nursing home group in Minnesota estimated that a 72-bed nursing home was spending $2,265 per day on personal protective gear and $1,500 a day on extra staff. LeadingAge has found that antigen testing alone in a 150-bed home can cost $3,750-$15,000 per week, depending on staffing levels and infection rates in the surrounding community.

Before the pandemic, nursing homes were already running on thin margins. Between 2015 and 2020, more than 550 locations closed their doors, according to a report from LeadingAge issued last February, the same month that the first Covid-19 outbreak in a US nursing home was reported. One year later, the vast majority of nursing homes are losing money every day, according to the American Health Care Association (AHCA), a lobby group that represents for-profit providers. Its recent survey found that 90% of US nursing homes are now operating at a loss or with profit margins of less than 3%.

The CARES Act passed by the Trump administration included $21 billion in grants, loans, and advanced Medicare payments for nursing homes, and providers have been able to apply for PPP loans. Some nursing homes have managed to negotiate rent relief with their landlords, too. But those measures have not been enough to cover past and ongoing costs, says Sanders. Even though vaccines are arriving at last, frontline workers still require a steady supply of masks and gowns, while residents and staff alike are still being routinely tested.

“All nursing homes, regardless of tax status, were grappling with chronic underfunding prior to the pandemic and are now having to dedicate extensive resources to fight the virus,” the AHCA told Quartz in a statement.

Nursing home spending should be transparent

Critics of for-profit homes would like to ensure that any additional taxpayer dollars that flow to nursing homes do not enrich the REITs that include the homes in their portfolios, or other investors and top executives, when the money should be tied to improving infection control, or to hiring more staff and compensating personal support staff—often immigrants and disproportionately women of color—fairly.

Many argue that for-profits don’t belong in this business at all, and that their focus on cutting costs while awarding CEOs multimillion-dollar bonuses is among the many reasons older people who live in nursing homes, less than 1% of the US population, account for more than one-third of the country’s Covid-19 deaths. A new study that examined pre-pandemic data found that nursing homes owned by private equity firms have higher death rates in general.

Charlene Harrington, professor emerita and a nursing home researcher at the University of California, San Francisco, told AARP magazine that she believes nursing homes should be regulated like a utility, so that spending is transparent. But that kind of reform won’t happen fast enough to protect the 1.3 million people currently living in these facilities from the potential havoc of widespread closures.

When a nursing home shuts down, operators do their best to find new places for residents to live, Sanders says, which might mean some are moved to facilities in distant locations, separated from spouses and others. Perhaps a daughter, niece, or daughter-in-law will find herself needing to cut down on work or quit a job to care for a loved one, because that kind of unpaid family caregiving work tends to fall to women. In short, LeadingAge argues that both immediate rescuing and long-term reforms are justifiable and necessary.

What will become of nursing homes?

Once the pandemic has passed, nursing homes may still see less demand. The in-home care business is booming, and more middle-aged adults are building coach houses, or accessory dwelling units, in their backyards as homes for aging parents. New technology is also making aging at home safer and easier to monitor from a remote location. However, industry experts say there will always be people who need constant personal assistance to eat, stay groomed and dressed, take medications on schedule and remain safe, not to mention to stave off loneliness and the dangers of isolation. Congregate settings make delivering all of that care more economically feasible.

There is already discussion about how public insurance laws and nursing home business models need to be overhauled to make the homes safer and more affordable for older adults, and better employers of frontline caregivers. (Today’s low Medicaid reimbursements have also capped wages for support staff at low levels while creating an industry benchmark that influences the salaries of in-home caregivers and assisted living employees.) But what Americans need, Sanders says, is a greater, broader understanding “that we have an aging population, and they’re going to need care, and care costs money. No question about it, care costs money.”

Because of Covid-19, she adds hopefully, “perhaps there will be a reconsideration of our former approach of being concerned with long-term care only in times of crisis.”