The Nursing Home Industry and Health Care Spending

(2/24/16)- In a recent report from the New York State Comptrollerís office, the data showed that from January 2014 to July 2015 the New York State Health Department has collected less than one-fourth of the fines levied in 2011.

In addition to not collecting fines that had been imposed on nursing homes, the Department of Health failed to even impose fines in cases that clearly warranted such action.

(1/26/14)-Authorities have now confirmed the deaths of 8 people, with about 30 still missing in the nursing home tragedy that we mentioned in our item dated 1/25/14 below. Many of the 50 or so residents of the home were 85 or older.

(1/25/14)- Five people were confirmed dead and 20 were missing after a fire destroyed much of a nursing home in LíIsle-Verte, Quebec, on January 23rd. All the victims were believed to be over 80 and were residents of the home, which is in a village about 1,400 miles east of the city of Quebec.

The fire destroyed most of the three-story wooden structure, LaResidence du Havre, which opened in 1997. A newer wing of the building that was equipped with sprinklers remained standing.

(8/27/12)- As is true for most of corporate America, consolidation and merger seems to be the watchword, as the big corporations get bigger through acquisitions. This was true in the prescription benefits managers area as the merger of Express Script and Medco Health was allowed to proceed to consummation even though the merged company is now the largest one in the field.

In the nursing home industry, the latest development along these lines is the announced buyout of Sunrise Senior Living by Health Care REIT for $644.6 million in cash. The deal will create one of the largest nursing home owners in this country, but as its name implies, it would not come as any great surprise if the deal turns out to be mainly for the real estate value of Sunrise.

(8/25/10)- Jewish Home Lifecare, a non-profit owner or nursing homes in the Bronx, Westchester and Manhattan is moving forward with its plan to exchange its property on 106th St in Manhattan for property on West 100th St plus a cash payment of several millions of dollars.

The property on 106th St between Columbus Avenue and Amsterdam Ave is where the 508-bed Jewish Home and Hospital is presently situated. The new building on 100th St would become the site for a 408-bed so called "Green House" nursing home.

"Green House" nursing homes are the brainchild of Dr. Bill Thomas, who wants to make nursing homes that are more like the home environment that the patients come from, rather than an "institutionalized" setting

The Jewish Home and Hospital now consists of 4 buildings built in the early 1960s in the classical "hospital mode", along with a 125-year-old building on West 105th St.

The developers involved in the exchange are the Chetritt Group, which is headed by Joseph Chetritt and Stellar Management, the owner and operator of residential and commercial real estate throughout the country.

Jewish Home Lifecare said they have the necessary approval, known as a "certificate of need" from the state health department. Opponents of the exchange point out that the certificate was granted to the home for its original plans to build on W 106th St., and not for a "modification" to build on 100th St.

There is a police station and a fire house on the 100th St block where the proposed new home is to be built that creates a lot of noise and commotion that would be very upsetting to the residents of a nursing home on this type of block.

Union Local 1199 has not given its approval for the move, since the new structure would mean fewer jobs being available for its members.

Residency rates in the new home would be more expensive than it would be in the present facility. It is not clear yet if the proposed new home would consist solely of long term custodial care residents, or if acute care patients would also be part of the mix, as is the case in the present facility.

(7/8/07)- ManorCare Inc. of Toledo Ohio has accepted a deal valued at $6.3 billion including assumption of debt to go private from the Carlyle Group. In the last few years, this is the latest of many of these type deals in the nursing-home industry. What made ManorCare so attractive is its extensive real estate holdings.

The company owns about 500 nursing homes, hospice and home-care agencies, assisted-living facilities and rehab centers in 30 states. The company employs almost 60,000 employees, and almost 73% of its revenue come from Medicare and private-pay patients, compared with as low as 53% at some of its competitors. It owns most of its properties rather than leasing the real estate.

Genesis HealthCare Corp., based in Kennett Square, Pa. shareholders voted to go private in a deal with Formation Capital LLC and JER Partners in May. In November 2006 Beverly Enterprises of Fort Smith, Ark., was taken private by Fillmore Strategic Investors LLC, and Mariner Health Care Inc., was taken private by National Senior Care Inc., of Sparks Md.

(11/3/06)- In 2005, Medicaid spent $38 billion on institutional care for the elderly, which represented 82% of its long-term care budget. It spent $8 billion, or 18% of the total, for home or community-based care. In 2002, 87% went to institutional care, while 13% went for home or community care. Many new programs are being instituted to see if there is a better way for caring for the elderly than through nursing home care.

In July of this year the Centers for Medicare and Medicaid Services announced grants totaling $1.75 billion to states to encourage them to find alternative methods for caring for the elderly.

Vermont has been one of the first states to get federal approval to offer home care as an option equal to nursing-home care for the poor under Medicaid. Vermont is calling home care an "entitlement," under it "Choices for Care" program. Medicaid sets a budget limit for the state to care for seniors and people with disabilities. The state then uses a combination of federal and state money to reimburse in-home caregivers.

In a study done for the state of Vermont in 2002, it was determined that the state pays $122 a day for a senior to be institutionalized versus $80 a day to receive home care. Under the state's program elderly receive 25 to 30 hours of care a week. The caregiver under the program is paid $10 per hour. If the caregiver lives with an elder relative the payment covers only the 25 to 30 hour limit set by the state according to certain rules.

Innovative solutions are needed to find the best way to handle the issues associated with the aging of our population. In our society, where we have both members of the household working, it is often very difficult for a family member to take care of an elderly relative. In addition there is often the complicating factor of living far away from where a loved one lives.

There has to be better solutions to the problem of our aging society than the ones that we have been using up till now.

(6/2/04)- Omnicare, the nation's largest provider of drugs and pharmacy services to nursing homes and other health care facilities, made an unsolicited $1.35 billion bid for NeighborCare, one of its largest rivals. Omnicare already controls 40% of the market. Omnicare already services about 1 million beds in 47 states and the District of Columbia. The company has been one of the most active acquitters in the last 15 years, having been involved in almost 100 deals in this period of time.

NeighborCare is based in Baltimore, Md., but is incorporated in Pennsylvania. It has indicated that it will resist the takeover attempt, since it hired Goldman, Sachs & Company and Wachtell, Lipton, Rosen & Company to pursue other investment banking alternatives. We will await further details on this matter since it is of key interest to those who are worried about the rising costs associated with health care spending in this country.

Richard Forster, the chief actuary for Medicare, has been in the news because of his estimates of the future costs for Medicare and the new drug program associated with Medicare (Part D). In developing his estimates, he has to take into account certain data that is readily available to any interested party. This is the type of information that anyone who is interested in Medicare issues should have. Keep in mind that these figures are from the year 2001, the latest figures available to us. (We would appreciate hearing from our viewers if there is any later data than what is stated below.)

There are 5794 hospitals in the United States; of these 4927 are community hospitals defined as nonfederal, short term general and special hospitals including academic medical centers, with 2178 being rural community hospitals and 2749 urban community hospitals. For-profit hospitals total 766, and not-for-profit hospitals total 3025 and local governments own another 1136 community hospitals. A further breakdown indicates that there are 240 Federal government hospitals and that the number of nonfederal psychiatric hospitals is 477, while long term care hospitals number 128 and that the number of institutional hospitals (prison hospitals, college infirmaries, etc.) is 22.

This all adds up to a total of 975,962 total beds in United States hospitals, with total admissions of 36,325,693. The expenses for all hospitals in the United States came to $462 billion. The aggregate hospital profit margin was 4.3% in 2002 compared with 4.1% in 2001. Admissions rose 2%, while total aggregate of inpatient days grew 2%. Emergency room visits increased 4% to 110 million. The average length of stay remained unchanged at 5.1 days.

Ever wonder what the average yearly admission rate is for acute-care hospitals in the United States? It was 33.1 million in 2000, which 6 years earlier was 30.7 million. Many readers may have noted the growth of outpatient surgery centers in their areas. In 1996 there were 2425 such centers. In the year 2002, there were over 3500.

Health care spending in 2001 reached $1.4 trillion, which results in an average of $5,035 per person, up from $4,672 in 2000. The health-care share of gross domestic product (GDP) increased from 13.3% in 2000 to 14.1% in 2001. An 8.3% rise in health care spending accounted for 30% of the health spending increase in 2001. The category that grew the most was prescription drug spending which grew by 15.7% in 2001. Spending for physician services accelerated to 8.6% in 2001 from 6.9% in 2000.

According to The Henry J. Kaiser Family Foundation Medicare Fact Sheet (March 2004), "Medicare benefit payments accounted for 19% of total spending for personal health services in the US in 2002. Medicare also financed 31% of the nation hospital services and 21% of physician and clinical services. Medicare spending on benefits is projected to grow 8.2% in 2004, totaling $296.7 billion (CBO, 2004). Medicare spending growth has generally been slower than the rise in private health care spending." They also reported that according to the Congressional Budget Office report in 2003 that Medicare had lower administrative costs than private plans and accounted for less than 2% of the total Medicare spending in 2002 compared to 13% for private insurers.

Medicare spending rose by 3.6% in 2000 and 8.6% in 2001. Legislation added 7.5 billion to Medicare spending in 2001, with $2.6 billion alone benefiting inpatient hospital spending.

Since the end product of the "Health Care Industry" is health, it would seem helpful to look at certain statistics that may give a clue to the effectiveness of all this expenditure. These figures do not indicate a cause and effect result, but do reveal trends in the health of the nation. This information was obtained from a study ("Health Benefits Worth Up to Three Times More Than Money Invested") by The Value Group, a coalition of seven health organizations, released on January 28, 2004, (contact: Rachael Lille at 202-778-1096). The report stated: "over the past 20 years each additional dollars spent on health care services produced $2.40 to $3.00 in tangible gains in health care."

A series of tables in the report indicated the following data. The annual death rate declined to 872 from 1039 per 100,000 persons from 1980 to 2000, a decline of 16%. Life expectancy from birth increased 3.2 years or 4%. Disability rates for people over 65 years declined 25% to 19.7 from 26.2 per 100 persons. The number of days in the hospital, a measure of population health, fell 56% to 56.6 per 100 persons from 129.7 per 100 persons.

What is health? The concept can refer to any end point ranging from absence of disease to quality of life. Orthodox medicine places emphasis on the treatment of disease and less on the prevention of disease. "In 2000, the most common actual causes of death in the United States were tobacco (435,000); poor diet and physical inactivity (400,000); alcohol consumption (85,000); microbial agents (e.g., influenza and pneumonia, 75,000); toxic agents (e.g., pollutants and asbestos, 55,000); motor vehicle accidents (43,000); firearms (29,000); sexual behavior (20,000) and illicit use of drugs (17,000). (CDC report from the National Center for Chronic Disease Prevention and Health Promotion at )

"Actual causes of death are defined as lifestyle and behavioral such as smoking and physical inactivity that contributes to this nation's leading killers including heart disease, cancer, and stroke." (CDC report from the National Center for Chronic Disease Prevention and Health Promotion at ).

Public trust demands that participants be informed of any limits imposed on benefits and services, on provider selection, and on access to market information necessary for them to make informed choices about available diagnostic and treatment options. It is public interest that should determine provider and purchaser access to the who and how of criteria and standard development, to the actual criteria and standards and to the rules governing how they will be used in making decisions that pertain to patient procedures, practice settings and providers. Public interest also demands that the patient and the provider have access to data on patterns of care, treatment outcome and patient satisfaction.

Much of the data on hospital performance comes out in the form of "report cards" using various end points as measures of competence of doctors or hospital in general. One such recent report card is the survey by a firm called Health Grades located in Lakewood Colorado. (See: The surveyors found that 40% of consumers consider a hospital's quality rating in making their hospital choice. Based on Health Grades evaluation, they developed a Distinguished Hospital Award for Clinical Excellence based on hospitals risk-adjusted mortality and complications rates of Medicare patients as reported to the federal government. Hospitals with an average of 504 beds or higher tended to get a distinguished award, while those with less than 181 did not receive such distinction.

The survey indicated that 73% of "distinguished" hospitals are part of a larger hospital system ad 77.44% are in the eastern third of the United States. These hospitals have mortality rates that are 19.9% lower than those who did not qualify for the award. Results indicated that in 'distinguished" hospitals, complication rates were 5.38% lower.


Harold Rubin, MS, ABD, CRC, Guest Lecturer
update February 24, 2016

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