Motivations and Management Mazes: Growth of For-Profit Nursing Homes a Public Health Problem in the Making

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June 25, 2016:The Enquirer Daily News

Founded by Quakers in 1978, Cadbury Nursing & Rehabilitation Center, in Pennsylvania, has agreed to sell its facilities with 5000 beds to a for-profit organization. If that sale goes through, it will further skew the balance of the proportion of for-profit to nonprofit nursing homes. In 2010, around 49 percent of the Philadelphia Region’s nursing homes were for-profit; if the sale goes through, that number will rise to 69%. Does it matter?

“The not-for-profits spend more money on staffing, which is the single most critical predictor of quality of care,” Toby Edelman, a senior policy attorney at the Center for Medicare Advocacy, said. “Having enough registered nurses, in particular, determines quality.”

But Jon Dolan, chief executive of the Health Care Association of New Jersey, a trade group for for-profit nursing homes, said it’s not that simple. “It doesn’t mean we’re just drastically cutting staffing, and somebody’s running away with the money,” he declared.

National studies have repeatedly found real differences in staffing between for-profits and nonprofits, with one recent study finding that nonprofits provide 99% of expected registered-nursing hours per resident, per day, while for-profits provide 73%—and Charlene Harrington, a professor emeritus at the University of California-San Francisco, suggests that the quoted 73% is probably even inflated “They staff up before the survey, so it looks like they have plenty of staff,” said Harrington, who researches the impact of for-profit companies on the nursing-home industry. Soon, however, federal regulators will require electronically reported quarterly payroll data from nursing homes. That should provide a more consistent accounting of staffing levels, so the response is likely to change from out and out deception to a more sophisticated kind of dissembling.

Lisa Sofia, the CEO of Premier Healthcare Management L.L.C.—a Long Island company that owns the formerly nonprofit Deer Meadows Retirement Community in Northeast Philadelphia—now says the lower staffing levels at for-profits are “much more reasonable” than they were when the facilities were nonprofits. “You can still operate a very well-run business, with good outcomes.” Philly.com reports that Deer Meadows provided 69% of the registered nursing hours expected by the Centers for Medicare & Medicaid Services (CMS), according to survey data. Sofia points to the benefits of the recapitalization that a for-profit sale might provide. And, indeed, this appears to be part of the motivation behind the sale of Cadbury. Megan Nessell, chief human resources officer for Cadbury, said the Cherry Hill facility “needs a lot of capital improvements that we do not have the funds for.” Nessell also said that the sale would bring enough to pay off the facility’s $12.8 million in bond debt. (Cadbury’s Cherry Hill facility had $12.8 million in bond debt on March 31, 2016.)

One of the more disturbing elements of the for-profit business model of nursing homes is the way that many of them hide ownership and business relationships behind complicated organizational structures, and this article points out that this makes it hard—at least in Pennsylvania and New Jersey—to ensure that quality-of-care standards are likely to be protected through a sale. As reported by NPQ, the Boston Globe recently did an exposé on the same problem in Massachusetts:

“These homes are making money on every single angle, they are hiding their profits, padding all their administrative costs, upping executive salaries,” said the Globe.

Examining 2014 data, the Globe found that in Massachusetts:

  • For-profit nursing homes typically spent about 76 cents less a day on food for each patient than nonprofit nursing homes—an estimated 10 percent difference.
  • For-profit nursing homes spent $11 a day less on nursing care for each patient than nonprofit facilities.
  • For-profit nursing homes were 60 percent more likely to be cited by state inspectors for health and safety violations than nonprofits.

But confounding all of the financial dynamics are other issues. For instance, among for-profit nursing homes, 163 paid rental fees to themselves or a related company, as compared to 11 nonprofit homes. In fact, 80 Massachusetts nursing homes each paid more than $1 million in such fees, and the health and safety problems found by state inspectors in those facilities were 42% higher than for the facilities that spent less than $1 million. All but one of these were for-profit.

In one Everett-based nursing home, city inspectors found that the company was using unlicensed contractors for electrical, plumbing, and fire sprinkler system work. That work remains uncorrected despite the efforts of the city. As Everett building inspector George Lane wrote in a memo last October, a full year after the original 2014 inspection, “If I had the power to shut this facility down, I would have a long time ago, as I have a feeling the owners do not care about the safety of the occupants.”

Diane Menio, executive director of the Philadelphia-based Center for Advocacy for the Rights & Interests of the Elderly (CARIE), said she shares in the skepticism toward for-profits—but she also said, “I don’t think that it’s ever fair to say, ‘don’t ever go to a for-profit because they are bad,’ but consumers need to look very carefully at these things regardless of who owns it.”—Ruth McCambridge