The Folly of Fee-For-Service Nursing Home Care

The Institute of Medicine recently published Dying in America, a sweeping report arguing that the health care system does not match the needs of people as they near the end of life. The dying process, the report explained, is too medicalized and too costly. Such outcomes are predictable consequences of the “perverse financial incentives” embedded in Medicare and Medicaid’s fee-for-service reimbursement formulas.

As much as fee-for-service shapes hospital care, it shapes nursing home care even more profoundly. Nursing home care is expensive and insurance coverage is terribly inadequate. The average daily charge for a night in a nursing home is about $225 per day, or $7,000 monthly and $84,000 annually. Although Medicare is the insurance program for people over the age of 65, it does not cover long-term nursing home care. Medicaid covers those costs, but only after residents’ life savings have been depleted. People in nursing homes who outlive their savings default to Medicaid, which provides insurance coverage until the end of life.

Medicaid pays for about 70% of all nursing home days, and its fee-for-service reimbursement model pays nursing homes substantially less per day than all other forms of payment. Nursing homes make up for the lost revenue after a resident runs out of personal savings by gaming Medicaid to make residents seem incapable and dependent, because it generates more reimbursement money. This runs counter to the policy framework enacted in the 1987 Nursing Home Reform Act, under which nursing homes are to help residents be as independent as possible and treat residents with occupational, physical, and speech therapy to restore capabilities they may have lost. Medicaid incentives run in the opposite direction: if a nursing home succeeds in helping a resident achieve continence, or restores the ability to eat independently, it receives fewer dollars to pay for that resident’s care.

Medicaid undermines nursing homes’ interest in keeping residents as independent as possible. Few people know this better than nursing home managers. In the course of my research on how finances and regulation shape nursing home care, one manager explained, “I always say their loss is our gain,” meaning that residents physical and mental declines financially benefit nursing homes. Another manager noted the irony upon learning that a speech therapist had restored a residents’ ability to eat independently. “Oh great,” she said, “we’ve done such a good job that we get paid less!”

Seeking relief from low Medicaid reimbursement, nursing homes have moved into the rehabilitation business for access to Medicare reimbursement. Medicare reimburses nursing homes for up to 100 days of physical, occupational, or speech therapy after a qualifying three-night hospital stay. Nursing homes seek out these individuals because their reimbursements often exceed $500 per day and the bed can be flipped to a new Medicare beneficiary every few weeks.

That dynamic promotes discrimination against individuals on Medicaid in favor of higher reimbursing Medicare. As the Director of Nursing at a nursing home I researched explained, “I’m not going to [put] a custodial person into a Medicare, high-paying bed and have them sit there for the next ten years when I could roll the bed over every three or four weeks.”

What is perhaps most concerning is that about 10,000 Americans turn 65 years old everyday from now until the year 2030. Many of them will need round-the-clock care, and the country is not adequately prepared to meet their needs. Right now more than 5 million people over age sixty-five use long-term care services, and about 1.8 million of them live in nursing homes. The Department of Health and Human Services projects that, if nursing home residency rates remain stable, the number of people living in them will double by 2030 and triple among people over age eighty-five. Even if residency rates decline as more people get 24-hour care at home, which is likely, the nursing home population remains poised to increase by nearly one million.

To prepare for these changes, caring for older people must become a more attractive job option. Many people would consider this work, which can be emotionally rewarding, but stay away because of the low pay, autonomy, and prestige. The steep vertical hierarchy in nursing homes, for instance, gives nursing assistants at the point-of-care virtually no role in care planning, let alone organizational decision-making. Empowering front-line care workers would help, but so would better pay and benefits, since nursing assistants make about $11 per hour.

The nursing home industry has begun to focus on changing the culture of nursing homes to make them more like homes and less like hospitals. But there will be no broad-based culture change without major structural changes. The Institute of Medicine report argues as much, calling for “a major reorienting and restructuring” of reimbursement incentives to better treat people at the end of life. The same should be true for people living in nursing homes.

What if nursing homes were reimbursed more, not less, after they successfully restored a person’s ability to use the bathroom independently? What if they were reimbursed for cultivating extensive volunteer networks? What if they were reimbursed for maintaining an above average staff-resident ratio? Nursing home financing must be reformed if we are going to provide better, dignified care during life’s twilight.

Jason Rodriquez is assistant professor of sociology at the University of Missouri and author of Labors of Love: Nursing Homes and the Structures of Care Work (2014) NYU Press