SIC 8051
SKILLED NURSING CARE FACILITIES



This industry contains establishments primarily engaged in providing inpatient nursing and rehabilitative services to patients who require continuous health care but not hospital services. Care must be ordered by and under the direction of a physician. The staff must include a licensed nurse on duty continuously with a minimum of one full-time registered nurse on duty during each day shift. Included are establishments certified to deliver skilled nursing care under Medicare and Medicaid programs. Skilled care facilities include the following: convalescent homes with continuous nursing care, extended care facilities, mental retardation hospitals, and skilled nursing homes.

NAICS Code(s)

623311 (Continuing Care Retirement Communities)

623210 (Residential Mental Retardation Facilities)

623110 (Nursing Care Facilities)

Industry Snapshot

According to the Centers for Medicare and Medicaid Services (previously known as the Health Care Financing Administration), U.S. citizens spent $92.2 billion on nursing home care in 2001.

Skilled nursing care facilities serve the nation's fastest growing population segment—those 65 years and older. An estimated 1.5 million people resided in nursing facilities in 2000. The most common reason the elderly enter a residential facility is circulatory problems (22 percent). Injuries and respiratory diseases account for 14 percent and 11 percent of admissions, respectively. In 2001, 13 percent of the U.S. population was over 65, a number that was expected to increase to 20 percent by 2020. An estimated 5.8 percent of all persons aged 65 and over resided in nursing homes in 1999. This number is also expected to increase, reaching approximately 8.4 percent, or 6.6 million people, by 2050.

In 2000, at the age of 65, men were expected to live an additional 16.3 years; women, an additional 19.2 years. Life expectancy was projected to continue to rise, with life expectancy at age 65 reaching 17 years and 20 years for men and women, respectively, by 2020. In other words by 2020, a 65-year-old man could be expected to live to the age of 82 and a woman could be expected to live to the age of 85. For those over the age of 65, there is a 41 percent chance that they will spend an average of 2.5 years in a skilled nursing facility. A one-year stay in a nursing home can cost between $30,000 and $80,000.

Longer life spans, coupled with the trend toward smaller families with fewer children to share responsibilities for the aged, will mean a greater need for medical health companies. As a result, the nursing home and long-term care industry will continue to grow, but it is unlikely that it will be able to keep pace with the growing demand for quality skilled nursing care. Funding will also be a dilemma as reduced or stagnated government spending is a widespread concern.

Essentially, these figures sketch the scope and populations served by the skilled care nursing industry. Over the course of the past decade, innovative reallocation of resources has expanded options for long-term care, but few, however, match the optimum level of skilled nursing care provided for populations with chronic and multiple disablement. Skilled nursing care, similar to custodial or convalescent care conceptually, represents a long-term vehicle for meeting the comprehensive medical, personal, and social service needs of chronically disabled persons.

Skilled nursing care services differ in terms of the levels of services provided, patient admission criteria, staffing, and reimbursement mechanisms. Each aspect of the skilled nursing care environment reflects the high level of intensive care. All skilled care facilities provide continuous 24-hour care that is prescribed, directed, and executed under the supervision of a medical doctor. Professional performance and supervision by licensed personnel also apply to the provision of ancillary services such as physical therapy and other such prescribed services.

One of the trends affecting health care is integration or integrated delivery systems—a system that tracks patients over time and spans all levels of care and fosters alliances among the various care givers. Nursing home regulations, the need for new managers, standards, and managed care contracts are among some of the challenges facing the industry.

Organization and Structure

Skilled nursing care facilities primarily operate under three categories of ownership: for-profit, nonprofit, and government. For-profit skilled care nursing encompasses tax-paying structures operating under proprietary or investor/shareholder ownership by licensed administrators or as a subsidiary of a corporation. Nonprofit ownership includes non-secular, church-related nonprofit organizations and secular, fraternal or other membership group, ownership. Government, or public ownership, includes establishments operated by city, state, or federal governments.

In 1999 and 2000, 67 percent of nursing home facilities were for-profit; 26 percent, nonprofit; and 7 percent, government-owned. Fifty-five percent were owned by a multifacility chain, and the remainder was under single ownership. Nearly 80 percent of all facilities were dually certified for Medicaid and Medicare, with 7 percent Medicare-only certified and 13 percent Medicaid-only certified.

In the mid-1990s, nonprofit nursing homes, which were either self-financed via retained earnings or through tax-exempt debt, began facing a bigger challenge from the for-profit sector. For-profit organizations could raise funds through stock offerings and retain managers through stock option plans. The non-profit sector was challenged to manage as efficiently and effectively as the for-profit group. Seventy-three percent of nursing homes were investor-owned in the early 1990s. Although the nonprofit sector was relatively stable, larger companies continued to acquire smaller long-term care facilities.

At the same time, there were 296 associations concerned with nursing homes and 59 associations devoted to nursing home administration. The Association of Health Facility Survey Agencies was concerned with facility licensing and certification programs. The American College of Health Care Administrators certified members' ability to meet and maintain standards of competence. Its affiliated Foundation of American College of Health Care Administrators was concerned with scholarship to improve long-term care and nursing home administration. The National Association of Boards of Examiners for Nursing Home Administrators produced the competence testing exam. Another relevant association was the National Subacute Care Association.

Sources of Skilled Care Revenue. According to the American Health Care Society, of the nearly $88 billion spent nationally for private sector nursing home care in 1998 (up to over $92 billion by 2001), 46.3 percent of nursing home care was covered by Medicaid, 11.9 percent by Medicare, and 32.5 percent by out-of-pocket. The remaining 9.3 percent came from other sources such as private health insurance, Veterans Administration, and private philanthropy. Analysis of revenue trends based on facility ownership also reveals that, for government and for-profit homes, Medicaid accounted for more than 60 percent of revenues. Private pay revenue was highest for church-related and secular homes.

Medicaid. Medicaid is the largest insurer of long-term care for all Americans. Medicaid payments for skilled nursing facility care totaled almost 24 percent, or $44.4 billion, of the entire Medicaid budget in 2000, down from 25 percent in 1997.

Medicaid is a federal/state funded program administered by individual states. Originally designed for poverty-level women, children, and the elderly, increased utilization by the elderly has converted long-term care to a majority component of Medicaid. All long-term care patients, however, are not automatically eligible for Medicaid assistance. Ineligibility may be decided either because a prospective patient's assets exceed the normal $2,000 limit or the patient's monthly income exceeds state limitations.

Several legislative changes in Medicaid reimbursements have created tensions between the state government officials and nursing home providers. Specifically, the Boren Amendment enacted in 1980 and the broad nursing home reform provisions mandated by the Omnibus Budget Reconciliation Act (OBRA) of 1987 have been problematic for providers.

Prior to the Boren Amendment, nursing homes were reimbursed on the basis of reasonable, cost-based expenses. The Boren Amendment changed the system by granting the states greater freedom and latitude in determining the amount of Medicaid reimbursements considered to be "reasonable and adequate." Because of budgetary and other fiscal problems, the amount of Medicaid reimbursement paid by states to nursing home providers frequently did not cover basic costs of patient care. Understandably, nursing home operators objected.

Nursing home operators were also concerned with the effects of OBRA. Among other things, OBRA regulated the purpose, nature, and use of restraints in long-term care facilities to ensure they were for the patient's benefit and not the provider's convenience. Nursing homes, however, did receive some relief from governmental actions. A 1990 Supreme Court ruling gave providers the right to challenge states regarding reimbursement levels. As a result of this ruling, states had to adjust Medicaid payments sufficiently to assist providers to meet compliance costs associated with OBRA.

Still another integrity issue surrounding Medicaid emerged from a U.S. Census Bureau report that claimed Medicaid, as the principal payer for almost two-thirds of nursing facility resident days, was plagued by fraudulent claims from ineligible applicants who did not meet poverty guidelines. To curb these practices, which potentially threaten Medicaid's fiscal base, the American Health Care Association (AHCA) called for action designed to enforce existing statutory prohibitions against transferring or otherwise disposing of assets used in determining Medicaid eligibility and identify and amend statutory provisions encouraging implementation of Medicaid Estate Planning.

Medicare. Only 7.3 percent of facilities are solely certified by Medicare, and this number accounts for only 3.4 percent of all available beds. The late 1990s trend was for Medicaid-certified facilities to become dually certified. In 2000, nearly 80 percent of all skilled care facilities were certified for both Medicare and Medicaid, up from 63 percent in 1993.

Medicare Hospital Insurance, under Part A, assists in covering costs for skilled nursing home care, excluding convalescent or custodial homes. Skilled nursing facilities generally are reluctant to utilize Medicare reimbursement for several reasons. First, complexities associated with Medicare reporting guidelines frequently result in losses because of disallowance of patient and patient-related skilled care costs. Second, under the reimbursement system, hospitals received a higher rate of compensation than nursing facilities for providing the same type of skilled care nursing services. As a result of this inequitable system, the higher rates allowed hospitals a significant competitive edge. One proposed solution for payment equity called for hospitals and nursing facilities to receive the same rate for providing the same type of skilled nursing care.

Another contentious issue between skilled nursing facilities and Medicare focused on the three-day hospital stay requirement for admission to skilled care facilities. Though it was intended to function as a measure to protect against unnecessary admissions, skilled nursing care facilities argued that the ruling led to unnecessary hospital stays resulting in further delays of essentially needed skilled nursing care for patients. Providers preferred total elimination of a pre-hospital stay admission requirement. Based on the government's analysis, elimination of this requirement would increase Medicare spending by an estimated $3 billion over five years. Based on the AHCA's analysis, however, elimination of the three-day requirement would save $1 billion over five years because savings in Medicare hospital expenditures would more than offset expenditures of skilled nursing facilities.

In the 1990s, the conversion of beds into "subacute" care beds emerged as one trend in the nursing home industry, in part because the latter offered much greater levels of Medicare revenue. For example, the average Medicare payment per diem in the nursing home setting was $98 in 1990, as compared to $249 in 1998, about half the cost of daily expenses, which averaged $508.

Under this payment system for skilled nursing facilities, Medicare would pay for up to 100 days of nursing home care, subsequent to an acute care hospital stay of at least three days. Rates were determined in terms of "reasonable" costs, which fall into three categories: routine costs (including daily expenses that a skilled nursing facility incurs); ancillary service costs (including rehabilitation therapy, nonroutine medical care, and radiology services); and capital costs (including depreciation, amortization, and interest).

Over 90 percent of all nursing home facilities depend on Medicaid for at least part of their revenues. The Kassenbaum-Kennedy health insurance portability law makes long-term care expenses and premiums tax deductible. State governments were concerned about their one-third share of spending on Medicaid, which they felt was going to the middle class rather than the poor.

Respiratory therapy was provided in approximately 35 to 40 percent of all nursing homes but was not a reimbursable cost in skilled care facilities unless certain conditions were met. One condition for Medicare reimbursement for respiratory therapy required a transfer agreement that specified that the hospital provide respiratory care personnel to the skilled nursing facility. As it was, patients transferring from hospitals to skilled nursing facilities were likely to discover Medicare disallowance of respiratory therapy payment.

Reimbursement for Medicare and Medicaid required certification of nursing facilities by the funding agencies. The certification process, normally accomplished via inspection, assessed the total spectrum of the facility's capacity to provide optimum skilled care. The certification process represented a challenge for nursing facilities and proved to be a significant hurdle for a significant number of facilities. The 1987 Omnibus Budget Reconciliation Act's (OBRA) impact changed the course of nursing home enforcement. This federal law created in response to increasing concern about the industry in the 1980s that arose out of a series of well-publicized accounts of neglect and ill treatment at nursing care facilities. As a committee of the Institute of Medicine noted, "a stronger federal leadership is essential because not all state governments have been willing to regulate nursing homes adequately unless required to do so by the federal government." OBRA provided new federal regulations that were implemented "to improve nursing home conditions by giving patients a stronger voice in their care, requiring facilities to document treatment and specifying how surveyors should inspect nursing homes to see whether the new standards are being met," according to the New York Times.

One major change affected by OBRA was the survey inspection procedure. Pursuant to OBRA, the Department of Health and Human Services was directed to enter agreements with state survey agencies for assessing nursing facilities' compliance with OBRA's requirements. The results of on-site inspections subsequently determined whether to enter into, deny, renew, or terminate a facility's Medicare/Medicaid participation agreement. To implement this requirement, the Health Care Financing Administration (HFCA), Medicare's operational arm, called a meeting of nursing home industry representatives; they agreed to use an inspection rating instrument featuring a "scope and severity scale." HCFA later revised the plan, deleted the scale, and added fines of as much as $10,000 per day for inspection violations endangering a patient's life. A ruling was also added allowing state takeover of facilities judged as repeat offenders. The industry objected to HCFA's new regulations. Though infrequently applied, ouster from the Medicare program could cripple a facility. An even more punitive aspect of the measures, however, in the nursing industry's opinion, was the absence in HCFA revisions of a dispute resolution process whereby providers could explain, clarify, or contest a survey finding. In 1995, HCFA implemented the 1987 Omnibus Budget Reconciliation Act by providing sanctions for nursing home violations. Support surfaces that were previously considered routine costs, such as mattress replacements, became considered ancillary costs.

OBRA also granted nursing homes funds for correcting inspection violations. Rectification of inspection deficiencies would be completed in adherence to a state designed timetable. If facilities did not rectify deficiencies, then federal law required the state to repay the federal government the amount of funds given to the nursing facility. Rather than be saddled with such repayment obligations, states sometimes chose to decertify facilities deemed incompliant.

While the other 49 states implemented the 1987 Omnibus Budget Reconciliation Act, California openly and blatantly rebelled. California refused to adhere to federal guidelines for inspections on the basis that federal requirements would impose an additional $500 million annual cost to the Medicaid program. Tit-for-tat actions ensued. California sued the federal government. The government withheld $24 million of $5 billion in Medicaid contributions. After a few months of bitter controversy, a satisfactory resolution was finally reached when the federal government attributed problems to a misunderstanding and accepted California's proposed inspection changes. Several other issues regarding compliance with OBRA remained in various discussion stages. Some felt that OBRA was an overregulation that harmed those it was intended to protect.

Nursing homes were also governed by Occupational Safety and Health Administration (OSHA) regulations, with fines of up to $2,000 per violation. Most frequent violations were lack of a written program, lack of employee training, lack of proper labels for containers, and failure to make material safety data sheets available.

Rehabilitation Skilled Nursing Homes. Patients in these homes include accident victims who enter for shorter extended stays needing care and rehabilitation services connected to head injuries, strokes, spinal cord injuries, amputation, orthopedic and neurological impairment, arthritis, or war-related trauma. The proliferation of highly specialized trauma centers concentrated on services for single injury-related rehabilitation such as head, spinal cord, or other types of disablement. Growth of the rehabilitation industry could in part be attributed to medical science advances. Because of these advances, the potential of rehabilitation expanded options for all ages of patients.

Skilled Nursing Care Facilities for AIDS Patients. AIDS morbidity, as with escalating group of nursing home patients, created yet another challenge for the nursing home industry. Skilled care needs of AIDS patients differ from those of other nursing home patients. Provision of optimum care means comprehensive reallocation of nursing home staffing and other resources. One study found that 20 percent of AIDS patients experienced difficulty with placement in skilled nursing facilities. A survey of 54 Illinois homes related the most salient reasons for this difficulty related to cost, staff abilities, or resistance due to concerns regarding mixing AIDS patients with other patients.

Skilled Nursing Care Facilities for Children. Children under the age of six who are victims of traumatic accidents, congenital defects, and chronic diseases such as cystic fibrosis and other ailments, were a fast-growing long-term care group in the United States. The combined total of children's facilities in the United States included 47 freestanding or independently operated children's hospitals, with the remainder affiliated with other types of institutions. Although many children's facilities were backed by large endowments, several conditions contributed to extreme financial conditions. Because these facilities often cared for seriously ill patients, about one-third of their beds were allocated for intensive care, comparable to skilled nursing care. Many admissions consist of transfers from community hospitals that were unable to provide the prescribed level of intensive care. Despite the fact that Medicaid reimbursement covered an average of more than 80 percent of the care cost and disproportionate share payments covered the difference, children's facilities frequently faced financial crises. One reason stemmed from frequent delays of Medicaid reimbursements. This state of affairs could impose significant financial strain and conceivably threaten the survival of children's facilities. More problems could be anticipated if future payment rate allowances failed to consider the high numbers of Medicaid and uninsured patients served by children's hospitals.

Subacute Skilled Care Nursing Facilities. For the most fragile patients, many long-term care facilities developed a subacute level of care, described by the American Health Care Association as intensive, licensed, skilled nursing care provided in a distinct part/skilled nursing facility. Many subacute level patients are "heavy care" elderly with respiratory ailments requiring ventilator or intravenous therapy. Because of inadequate Medicare reimbursement for this type of treatment, nursing homes were unwilling to accept these patients.

Background and Development

The cost of one year of care in a nursing home in 2001 was between $30,000 and $80,000 annually. Although costs were expected to continue increasing at about 7.5 percent per year, the industry's fiscal status was regarded as somewhat flat. While expansion capital might not be readily available to the industry, neither was the concept of expansion an overwhelming objective for most of the industry. Nursing home chains recalled the heady conditions of an expansive period during the 1980s. Ballooning profits and expansions contributed to an enthusiastic appraisal of the industry's future.

As companies felt the impact of Medicare price changes, however, members of the industry scaled back expectations. Precariously slim profit margins, due in part to an overload of unprofitable and unnecessary relics from the expansion period, forced companies to scale back to survive. What followed was an austerity phase characterized by budget cutting and dumping of unprofitable entities. Many of the innovative strategies of restructuring, diversification, and other cost-saving measures continued as industry foundations into the early 2000s. Humana, one of the larger chains, added an insurance entity that proved to be a profitable strategy. Other organizations diversified by adding specialized services as well, and a 1995 association—The Health Resources Alliance—was established to act as a contact point for long-term care clients needing a variety of specialized care facilities.

Although nursing homes may be designated as skilled care nursing care facilities, occupancy patterns for most facilities combined a mix of patients needing skilled and unskilled care. To meet federal and state requirements for skilled nursing care, facilities thus maintained distinctly separate beds, staffing, records, and other services. Statistically, this organizational pattern, in addition to other factors, determined the demographic approach for documenting the skilled nursing care industry. First, more accurate indicators regarding the skilled care nursing industry emerged from enumeration of the number of beds rather than the number of facilities. Second, because Medicare or Medicaid reimbursement of skilled nursing care depended on certification by these mechanisms, this method allowed still another means of documentation. Finally, while the predominant elderly population of skilled care nursing homes formulated a valid sample, the universe of skilled care nursing included all ages of adults, children, and even infants suffering from chronic illness. The National Governors' Association approved a compromise in nursing home coverage for the poor and disabled elderly that would give states greater authority of payments and eligibility.

Non-profit nursing homes, self-financed via retained earnings or tax exempt debt, faced challenges from the forprofit sector, which could raise funds via stock offerings or use stock-option plans to retain managers or staff. This created a growing challenge to manage effectively and efficiently. Small providers were banding together to compete for managed care business. The for-profit sector threatened to provide nursing facilities at lower costs and with more services, including assisted living and home care, than nonprofit sectors. According to the National Center for Assisted Living, in the late 1990s, about 13 percent of all assisted living residents were in nursing facilities.

Continuing Care Retirement Communities (CCRCs) nursing homes sometimes lose residents to HMOs when they are discharged from the hospital and told they must go to an HMO provider. In the middle and late 1990s, CCRCs were seeking their own contracts with HMOs.

The under-age-65 nursing home population totaled about 173,100 in the mid-1990s, with admissions due to disablement by reason of mental retardation, chronic disease, or illness incidental to congenital defects, trauma, or accident. With the exception of purely age-related conditions, manifestations of chronic illness and disability are practically the same for both the elderly and younger groups.

Future nursing homes resources will need to be expanded to accommodate the projected volume increase of elderly patients presenting these manifestations. Advances in medical science have enabled people to live longer, but higher costs trail longevity. U.S. Census reports projected that by the year 2025, the number of people over age 85 would climb to seven million—nearly double the 3.4 million in the mid-1990s. Because frailty and deterioration intensify with age, future nursing homes will find a majority of patients in need of more intensive care. Preparing to offer no less than optimum care for this patient segment means expansion of industry resources with accentuation on intensive care exclusively offered by skilled nursing systems.

There is a growing interest in substituting skilled nursing facilities for extended hospital care among the managed care plans. In 1996, 12 percent of all Medicare beneficiaries, 4.5 million persons, were enrolled in managed care plans. Major cost savings were achieved by switching patients from hospitals to skilled nursing facilities for convalescing.

The new trend toward expansion was expected to require new financing that was becoming increasingly easier to obtain because of the excellent profit potential. It served the fastest growing segment of the population. Nursing homes were among the most cost-effective providers of health care services. Honesty and accuracy in reporting fiscal, regulatory, management, and marketing portions of a home would improve loan approval.

As of 2000, about 1,500 of the 17,000 nursing homes were financed or owned by real estate investment trusts (REITs). Thirteen REITs invested exclusively in health care, with Meditrust's 1.8 billion portfolio being the largest. Advantages of REIT financing included long-term loans, better rates than banks, and the potential for operators to have a sales/leaseback option.

Late 1990s Changes. The Balanced Budget Act of 1997 (BBA) mandated the phase-in of a prospective payment system (PPS) for nursing homes over a four-year period starting on January 1, 1999. Under PPS, which went into effect in July 1998, Medicare paid nursing homes a fixed per patient-day based on the acuity level of the patient. Traditionally, the "cost-plus" reimbursement approach reimbursed nursing homes for actual service cost, in addition to a percentage based on capital expenditures and other operating expenses.

In this transitional period, the nursing home industry faced many difficulties in coping with the new changes. Small nursing homes, in particular, suffered because attempts to control costs below the per-diem rates resulted in operating margin erosion. Generally, nursing facilities with relatively more numerous, sicker residents operated less profitably, a situation that potentially threatened their ability to provide patients with adequate care.

The nursing home PPS legislation contributed to a significant decline in many service areas, especially rehabilitation and respiratory therapies and pharmaceutical services.

Consolidated revenues and profits did not rebound in the late 1990s and were not anticipated to do so in the early 2000s. Reflecting these changes, the Standard & Poor's Health Care (Long-Term Care) Index decreased 31 percent in the first four months of 1999, following a 54 percent freefall in 1998.

Current Conditions

In 2002 over 17,000 skilled care facilities were in operation in the United States. Over the course of one year, an estimated 3.5 million of the nation's elderly would spend some amount of time in a nursing home, meaning that 15 percent of the nation's population would have a relative who was living in a long-term care facility.

Despite a relative boon in government spending and potential customer base, the nursing home industry had growing concerns over the gradual, yet significant, shift in the makeup of its residents. With the advent of assisted-living facilities, which provide support services but not extensive medical services and attract the more able elderly, nursing homes were finding that their residents were in poorer health and in need of more advanced, expensive medical care. This situation was aggravated by hospitals, which in their own attempt to cut costs, discharged patients quicker and sicker than ever before.

Concerns also remained regarding the ongoing quality of nursing home care. Despite short-term increased government funding in the late 1990s, staffing did not increase. In fact, the total daily interaction time between staff and patients fell since 1998. A study by researchers at the University of California reported the most significant decrease was among nurse assistants, which fell 16 percent, from 3.1 hours per patient per day to 2.6 hours. Staffing remained a problem for the nursing home industry, which continued to struggle with high rates of turnover and poor pay, particularly for its nursing assistants. This situation, in turn, tied into the ongoing struggle to ensure quality of care.

An estimated 78 million Americans will need skilled care or assisted living arrangements in the early 2000s. Because government funding will not be able to keep pace with the influx of baby boomers into the long-term care system, nursing homes face a future of a rapidly increasing customer base but a decreasing amount of financial support per resident from the federal government. During 2002 the bulk of increase in federal assistance came in the form of temporary payment add-ons that, when expired, would decrease governmental funds for skilled nursing facilities by over $1 billion.

Industry Leaders

For-Profit Homes. Approximately two-thirds of nursing homes operated for profit. About 55 percent of those for-profit homes were part of a chain. Beverly Enterprises, which operated its Arkansas-based, forprofit nursing home chain under its subsidiary Beverly Healthcare, was the industry leader in ownership of about 500 facilities in 30 states and the District of Columbia. In 2002 Beverly Enterprises, including all its business interests, reported a net loss of $146.1 million on revenues of $2.4 billion. Long-term care providers were experiencing pressure to revamp the delivery of services and broaden their range of services. Beverly Enterprises was one of seven nursing home chains to receive a multistate contract for veterans care as part of the Veterans Affairs' (VA) attempt to cut administrative costs. Other chains receiving contracts were Kindred Healthcare (then known as Vencor), Sun Healthcare Group, Genesis Health Ventures, Integrated Health Services, Unicare Health Finances, and Harmony.

Kindred Healthcare operated approximately 300 nursing homes as well as 55 long-term, acute care hospitals. In 2001 Kindred reported a net income of $56.1 million on $2.3 billion in revenues. The company, which employed 52,800, filed Chapter 11 bankruptcy in 2002 and underwent restructuring. Manor Care, which operated approximately 300 nursing homes under the names of Heartland and ManorCare, reported a net profit of $130.6 million on $2.9 billion in sales in 2002. Sun HealthCare Group, another industry leader, also went through Chapter 11 bankruptcy in 2002 after posting a net loss of $69.1 million in 2001. The company owned and operated 240 long-term and subacute care facilities.

Non-Profit Nursing Homes. According to an Agency for Health Care Policy and Research (AHCPR) survey, nonprofit nursing homes were more apt than for-profit homes to be affiliated with non-nursing units, such as personal care or independent living. Nonprofit nursing homes were more likely to be hospital-based than forprofit nursing homes.

Rehabilitation Skilled Nursing Homes. Rehabilitation facilities, similar to other industries, faced the usual cost strategies involving restructuring, takeovers, and other measures. Although rehabilitation operations enjoyed a lucrative investor status in the 1990s, public officials viewed its growth status with less enthusiasm. Public health officials charged that these facilities shunned the indigent and made treatment decisions in deference to the patient's ability to pay. Several other problems surrounding rehabilitation facilities have dented the industry's integrity.

Public or Government Owned/Leased Skilled Care Facilities. Sixty-seven percent of nursing homes were operated for profit, about 26 percent were nonprofit facilities, and the remaining 7 percent were government owned. Nonprofit and government-owned nursing facilities were more apt to be a part of a hospital-based nursing home than were for-profit nursing homes. The United States Department of Veterans Affairs was the largest of the government-owned facilities. In some instances, Veterans Affairs delivered long-term care services via service contracts with other nursing homes, as mentioned previously.

Workforce

According to the U.S. Department of Labor, Bureau of Labor Statistics, there were 1,861,800 workers employed by nursing and personal care facilities in 2001. Healthcare support occupations, including nursing aides, orderlies, and attendants, accounted for nearly 40 percent of all jobs, with a mean annual salary of $19,440. Healthcare practitioners and technicians accounted for nearly 23 percent of the workforce, with the largest single in-category groups being registered nurses (8 percent, mean annual salary, $43,920) and licensed nurse practitioners (11 percent, mean annual salary, $31,850). Food preparation and serving occupations accounted for 12 percent of jobs, with a mean annual salary of $19,790. On the high end of the category, head chefs made a mean annual salary $33,550; on the low end, dishwashers made $15,360.

Statistically, the highest number of employees per set-up beds characterized nonprofit, Medicare-certified facilities. For-profit homes consistently maintained the fewest number of employees per bed.

Compared to other industries, nursing homes bore an unusually weighted portion of labor problems emanating from high turnover, staff shortages, and volumes of unskilled workers. Scattered stories of physical and sexual abuse, fraud, injuries, drug abuse, mistreatment of patients, and incompetence in the 1980s and 1990s marred the image of nursing homes as havens of care and security for the disabled. Through the late 1990s, particularly post-OBRA, labor conditions were beginning to change. In addition to mandating reimbursement changes, OBRA also mandated comprehensive changes in staff training. Evidence of these changes stimulated a work environment that, proponents say, encouraged more creative recruitment and retention strategies. Most of the more than two-thirds of all nursing homes with OBRA violations in July 1995 had complied by October 1995. In 1996, a seven-state initiative to help 1.6 million nursing home workers in over 5,000 nursing homes reduce injuries and illnesses through focusing on common hazards was initiated by then-Labor Secretary Robert Reich.

Skilled nursing home staffing patterns primarily divide into three categories: administrative, nursing, and patient and facility maintenance. All skilled nursing care was supervised or under the direction of a medical director. Patients had the option of selecting their primary physician. Most nursing home patients, however, chose their personal physician rather than the medical director as a primary physician.

Skilled Nursing Home Administrators. Management of daily facility operations was directed by the skilled home administrator. According to the Bureau of Labor Statistics, the median annual base salary of full-time general and operational managers was $65,640.

One study constructed a profile of a typical long-term administrator by sampling 226 administrators in Oklahoma. Given that the administrator probably functioned as owner, president, or director of nursing, of the total sample, the study indicated that the 19 administrators of skilled and intermediate care nursing homes earned the highest salaries, ranging from $28,000 to $80,000 with a mean of $43,000. Although a majority of skilled care administrators were college graduates, 111 of the total sample had only a high school education, and only 66 had a bachelor or master's. Implementation of OBRA would address the educational needs of administrators through development of standards of education, additional training requirements, and licensure.

Skilled Care Nursing Staff. Within the nursing staff, turnover rates remained relatively stable in the early and middle 1990s. Turnover rates for RNs and LPNs remained at a constant low rate of around 21 percent in the mid-1990s. The industry did suffer from tremendously high turnover rates for nursing aides, particularly in church-related and Medicare-certified facilities.

Starting salaries for nurses in this industry vary a great deal geographically. For example, in 1995, the median salary of a registered nurse in Atlanta, Georgia, with little or no experience was about $27,560; whereas one in similar circumstances in New York was about $38,584. A much dimmer picture characterized nurses' aides' starting salaries, which were often less those of half of their RN and LPN colleagues.

Prior to OBRA, little attention was given to the training or career needs of nurses' aides. For the first time ever, OBRA introduced a requirement for newly-hired nurse assistants in long-term care facilities to receive at least 75 hours of state-approved training and competency testing. The statute also required that Medicare and/or Medicaid reimburse nursing facilities for the costs of conducting nurses' aide training programs. The American Health Care Association went a step further in proposing legislation that would create and fund career ladders for nurses' aides under a "pay back system."

America and the World

In 2000, national health expenditures nearly reached $1.3 trillion, with per capita spending of approximately $4,480. In this context, most major countries such as Sweden, Canada, France, and the United Kingdom, had a higher ratio of government to private spending.

In Canada, public and private health care spending totaled about $55 billion in 1996, with an additional $1 billion used to purchase health care services in the United States. With the Canadian government depending more on the private sector for health care needs, there were more opportunities for U.S. firms specializing in medical matters.

Latin America provided more opportunities for U.S. health care businesses. Many Latin American companies in the late 1990s were beginning to incorporate parts of a managed care system, including capitation and salaried medical specialists. Such Latin American countries as Columbia demonstrated the desire for better health care; in 1993, health care spending there represented about 2 percent of the gross domestic product (GDP), and in 1998 it was 5 percent.

Research and Technology

The health industry embraced computerized health care systems at a rapid rate. The estimated market in the early 2000s of $15 billion for health care systems was expected to grow to $50 billion by the year 2000. Computerization would facilitate quantification of data and comparison of nursing home services. Health Outcomes Management, Inc. began developing a shared database for it—Assurance Long-Term Care System software.

Further Reading

Addleman, Robert B. Advance Care Plans 1999, 1999. Available from http://www.penpages.psu.edu .

American Health Care Association. 2001 Facts & Trends: The Nursing Facility Sourcebook, 2001. Available from http://www.ahca.org .

Centers for Medicare and Medicaid Services. 2002 Data Compendium, September 2002. Available from http://www.cms.hhs.gov .

"Healthcare: Facilities." Standard & Poor's Industry Profile, June 1999.

"Healthcare: Managed Care." Standard & Poor's Industry Profile, June 1999.

"Industry Figures." McKnight's Long Term Care News, 2002. Available from http://www.mcknightsonline.com .

Klitch, Beth A. "Guest Perspective on Long-term Care." Nursing Homes, January 2001.

"Long Term Staff Problems for Long Term Care?" Medicine & Health, 14 May 2001.

Market Watch: Nursing Home Trends 1999, 1999. Available from http://www.demko.com .

"New Resource Available for Nursing Home Data." Press Release, 28 June 1999. Agency for Health Care and Policy and Research. Available from http://www.ahcpr.gov .

"Nursing Homes Expect $1 Billion Less in 2003." Healthcare Financial Management, September 2002.

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