NURSING HOMES: Problems on All Sides
While the pressures placed on nursing homes by the Balanced Budget Act of 1997 have been widely catalogued, some of their fiscal woes may be traced to other sources -- some even the fault of the companies themselves. Modern Healthcare reports that the majority of the nation's 17,000 nursing homes "draw only a small percentage of revenues from Medicare" -- 12.3% on average. More telling may be new pressures from "regulatory and anti-fraud crackdowns," declining occupancy in traditional nursing homes, due chiefly to the proliferation of assisted living facilities, and large amounts of debt held by many companies with overly ambitious expansion plans. Salomon Smith Barney's Debra Lawson said the shift toward assisted living hits nursing homes twice -- "first because lower occupancy means lower revenues to cover fixed costs, and second because patients who move to assisted living are more likely to have been paying higher out-of-pocket costs" (Saphir, 7/26 issue). Joan Johnson, campus administrator for the Amethyst assisted-living community in Peoria, AZ, said, "Nursing-home style services are essential for some people. But when people have a choice, they would rather live in an apartment with their own belongings around them than in a sterile institutional setting where they have to sleep in a hospital bed" (West, Arizona Republic, 7/25). Still, many analysts say some "publicly traded companies are to blame for their problems," as some have, for example, borrowed to finance expansion plans without anticipating government payment reforms and other revenue-reducing factors. John Ransom, an analyst for Raymond James Financial, said, "A lot of these companies are sitting on a pile of debt they can't manage. ... [T]he train wreck hit their balance sheets." Many, however, feel that the industry's problems will sort themselves out over time. Ransom said, "Everybody will eventually learn to deal with the system. The industry will go back to (one) where guys who keep their nose clean and run a clean business can expect cash flows in the 5% to 8% range" (Modern Healthcare, 7/26). Ann Lindeman of the Arizona Governor's Advisory Council on Aging added, "If you believe in the marketplace, it eventually takes care of it" (Republic, 7/25). Also see the Arizona Republic for a history of Sun Healthcare and its financial woes (7/26).
In a Modern Healthcare editorial, Managing Editor Neil McLaughlin writes that the BBA "is rapidly becoming the 'weather excuse,' the all-purpose alibi, for the healthcare industry." While he admits that the "restraints on Medicare spending imposed by the budget law are undeniably severe," providers' constant citing of "the law as the reason for every problem is cavalier and embarrassing." He writes: "If the people covering their posteriors with the Balanced Budget Act were hurting only themselves, no one should care. They hurt the national healthcare debate, however, diverting public attention from more-important issues and possible long-term solutions. Unfortunately, the industry seems inclined to cry along in the hope that Uncle Sam will loosen the Medicare purse strings for everyone" (7/26 issue).