P&C the October 2023 issue

America’s Nursing Home Crisis

As the federal government mulls ways to address a labor shortage in caring for long-term residents, the industry and nursing home advocates square off. Can insurers help?
By Russ Banham Posted on September 27, 2023

By November 2020, long-term-care residents accounted for roughly 40% of COVID-19 fatalities.

Experts expect a 75% increase in the number of Americans over 65 needing nursing home care by 2030.

One of the major problems affecting quality of care in nursing homes is chronic understaffing and high turnover.

There, the Life Care Center of Kirkland was the source of the first major outbreak of the coronavirus. Two thirds of residents and 47 staff members, 129 people altogether, were infected. Of those, 39 residents died. Federal inspectors found a variety of noncompliance deficiencies at the nursing home, whose parent company operates more than 200 facilities across the country.

It wasn’t the first time the parent company, Life Care Centers of America, was caught in the crosshairs. In 2015, to resolve allegations of overbilling for unnecessary or unreasonable rehabilitation therapy services, the company agreed to pay $145 million to the federal government, the largest settlement between a chain of nursing facilities and the U.S. Department of Justice.

Nursing homes have been much in the news since the Kirkland disaster. Although shrinking profit margins, nursing staff turnover, and extremely stressful and dangerous work conditions have been an issue for decades, the pandemic revealed alarming levels of unpreparedness and the lack of basic personal protective equipment like gloves and masks. By November 2020, a study by Brown University found, long-term-care residents accounted for roughly 40% of COVID-19 fatalities. “While data showed that mortality rates from the virus in the general population have declined overall, there was no evidence that nursing homes had similarly turned a corner,” the researchers reported.

By February 2022, more than 200,000 nursing home residents and staff died from COVID-19, according to an analysis by the Kaiser Family Foundation.

At the time, more than 1.2 million people lived in over 15,000 nursing homes certified by Medicare and Medicaid, according to the U.S. Department of Health and Human Services. These numbers are expected to increase significantly as members of the baby boom generation enter their 70s and 80s. A recent report by the Population Reference Bureau projects a 75% increase in the number of Americans aged 65 and older needing nursing home care, equating to about 2.3 million residents in 2030.

While many nursing homes are responsibly and humanely operated, many others are not, President Joe Biden asserted in his 2023 State of the Union address. Despite tens of billions of federal taxpayer dollars annually provided to nursing homes, many nursing homes “continue to provide poor, substandard care that leads to avoidable resident harm,” the president said.

And that harm leads to lawsuits and liability claims that drive up costs for insurers. Property and liability insurers, bearing the financial brunt of these settlements, have responded with 45% to 60% premium increases from 2020 through the recent policy renewal period. While some say rates are settling, the systemic issues facing this industry remain.

High Turnover Means More Risk

One of the major problems affecting quality of care in nursing homes is chronic understaffing and high turnover. The median rate of nursing staff turnover nationwide is 53.3%; for registered nurses it’s 51.9%, according to the Long-Term Care Community Coalition. The American Health Care Association (AHCA), a nursing home trade group, maintains that more than 200,000 staff positions at nursing homes were lost during the pandemic, although the federal Bureau of Labor Statistics posited that the number of workers in nursing homes and other care facilities fell by 410,000 nationally between February 2020 and November 2021. As of January 2023, staffing rebounded by about 103,000.

Nevertheless, a December 2022 survey by AHCA found that 86% of nursing homes are experiencing moderate to severe staff shortages, with only 3% fully staffed. “The staffing issue is largely a retention problem,” says Toby Edelman, senior policy attorney at the nonprofit Center for Medicare Advocacy. Workers often leave nursing homes because of bad working conditions, Edelman says. “More staff means better care, especially since nursing home care is hands-on care.”

Lori Smetanka, the executive director of the nonprofit National Consumer Voice for Quality Long-Term Care, attributes the high turnover rate to a combination of poor wages and benefits, lack of training, poor management, lack of career advancement, and an impossible workload that is emotionally and physically demanding. “Many people have to work multiple jobs to make ends meet,” Smetanka says. “Certified nurse assistants (CNAs) should have about seven or eight residents to care for, and that number should decrease as resident needs increase. However, we are regularly hearing from residents and CNAs themselves that CNAs are responsible for 20 residents each, sometimes more.”

Dan Gilhooly, managing director of Gallagher’s senior living practice, says every one of the brokerage’s nursing home prospects and clients maintain that staffing and turnover are the biggest challenges in providing quality care. “The problem is so acute that third-party staffing companies are called upon to fill the void, but these are people who have not come up through your culture, who need to be trained in appropriate policies and procedures,” Gilhooly says. “They’re also expensive, often exponentially so.”

Filling the massive void in job applicants in a post-pandemic world will not be easy, said Randall Fearnow, a partner specializing in health law at law firm Quarles & Brady. “Employment has always been a problem, but once so many residents and staff died during the pandemic, few people want the job,” Fearnow says.

Randy Stimmell, a senior vice president and a founding member of the WTW senior living group, notes the stressful conditions in which nursing home caregivers work. “Helping people in the last stages of life is a tough and very demanding physical job that requires utmost respect and dignity,” Stimmell says. But caregivers, he says, “are not adequately paid for what they do.”

Increases in state Medicare and Medicaid reimbursement rates are a means towards solving the staffing issue, Stimmell says, citing actions taken in Florida, Illinois, Kentucky, North Carolina, Pennsylvania and Texas to increase their reimbursement rates.

Gilhooly offers a similar view. “Solving staff recruitment and turnover is the million-dollar question” he says, “but a step in the right direction is for owners and operators of nursing homes to partner with local high schools, colleges and certified nursing programs in an apprenticeship model designed to find people … invested in improving the quality of life and well-being of the aging population.”

In the meantime, high staff turnover is linked to an increase in resident abuse and related litigation, an issue of importance to insurance brokers and carriers focused on the market. According to an analysis by National Consumer Voice, nursing homes with a turnover rate from 50% to 59% are cited for abuse at a rate 1.5 times higher than those with lower turnover rates. “The percentage of nursing homes cited for abuse declines precipitously as the rate of nursing staff turnover declines,” Smetanka explains.

Attorney Eric Carlson, director of long-term services and support advocacy at Justice in Aging, a nonprofit that advocates on behalf of low-income older adults, says issues regarding emotional abuse of nursing home residents are often associated with understaffing. He points to claims made by nursing home staff to residents that certain types of care are not covered under Medicaid. “I’ve seen situations where the staff tells a resident they cannot receive care like physical therapy, one-on-one attention and even hands-on assistance with eating, all of them incorrect assertions,” Carlson says.

Early in his career, the wife of a nursing home resident contacted Carlson because she was told her husband had to leave the facility within 48 hours because his Medicare coverage had expired. “I looked at the law regarding proper notice for an eviction, in addition to the transfer discharge protections and the right to an appeal hearing, and what the facility told her simply did not reconcile with the law,” he says. The resident remained in place.

Across his 22 years with Justice in Aging, Carlson has unearthed so many disturbing practices that he compiled them in a report titled “25 Common Nursing Home Problems & How to Resolve Them.” The problems range from a failure to provide necessary services to the improper use of physical restraints and behavior-modifying drugs. “Many nursing homes have standard procedures that in a variety of instances are contrary to what the law provides,” he says.

The staffing issue is largely a retention problem. More staff means better care, especially since nursing home care is hands-on care.
Toby Edelman, senior policy attorney, Center for Medicare advocacy

Ownership in Question

Some also attribute poor quality of nursing home care to the ownership. In the early 2000s, private equity firms entered the nursing home market, often acquiring financially troubled facilities. According to the White House, investments in nursing homes by private equity firms catapulted from $5 billion in 2000 to approximately $100 billion in 2020. In 2021, 70% of the industry was owned by for-profit entities, 11% by private equity firms and the remainder by nonprofit and charitable organizations, according to a 2020 Medicare Payment Advisory Commission report to Congress.

The AHCA, however, disputes the accuracy of the figures. According to the organization, only 4.7% of nursing homes in 2020 were owned by private equity. The association also claims the $95 billion increase attributed to private equity investments in nursing homes in fact reflects the firms’ investments in all of healthcare.

What seems not to be in dispute is a joint National Bureau of Economic Research study in 2021, “Owner Incentives and Performance in Healthcare,” which found that deaths among residents of private-equity owned nursing homes increased by 10% following their acquisition. Asked to respond to the 10% figure, AHCA demurred. In a prepared statement, the association said: “We need to focus on the real issues like Medicaid underfunding and workforce shortages, and meaningful solutions that impact the majority of providers, residents, and staff.”

The joint study further noted that the prescription of antipsychotic drugs for residents at private-equity owned nursing homes increased 50%, hours of frontline nursing staffing declined by 3%, and taxpayer spending per resident rose by 11%. Another 2021 study, “Association of Private Equity Investment in US Nursing Homes with the Quality and Cost of Care for Long-Stay Residents,” suggests that nursing homes owned by private equity are 11.1% more likely to have a preventable emergency department visit and 8.7% are more likely to experience a preventable hospitalization compared to residents of for-profit nursing homes.

In particular, the advocates maintain that private equity firms’ aggressive profit-enhancement tactics are ill-suited to a business focused on the care of elderly and infirm people. “In other industries where private equity looks to make a profit, slashing expenses and cutting the payroll, they’re not dealing with people’s lives and health,” says Smetanka.

Other industry observers say it would be irrational for private equity owners and operators of nursing homes to deliberately provide substandard care simply to improve profit margins. “Private equity firms have just as much a stake in keeping patients safe as other nursing home operators,” says Lynette Perkins, underwriting specialist and director of risk management at Liberty Mutual/Ironshore. “If they have a planned exit in three to five years to sell the business,” Perkins says, “they can’t do that with a slate of pending lawsuits and a house that isn’t in order.”

Liability Rate Increases

Regardless of the source, the quality of resident care factors into liability litigation trends, government enforcement actions, and related insurance costs. The staffing and turnover issues engulfing most nursing homes are linked to a higher probability of resident falls, injuries and death, which could lead to litigation alleging negligent care or abuse. Nursing home lawsuit settlements vary, but some exceed $1 million, according to the Nursing Home Abuse Center.

In New York state and Illinois, families of nursing home residents who died from COVID-19 have filed more than 100 negligence and wrongful death lawsuits, The Wall Street Journal reported.

Already more than a dozen nursing home providers that received federal pandemic funding to cover their expenses and budget shortfalls have settled a variety of civil lawsuits brought by the Justice Department for improper Medicare billing, forged documents and substandard care, The Washington Post reported. The companies have since repaid more than $260 million.

The spate of recent lawsuits filed against nursing homes resulted in soaring professional liability insurance premium increases. “Rates jumped 35% to 40% in 2020 across most of the carriers dedicated to the space,” Gilhooly says. “In 2021, rates increased another 15 to 20%, and in 2022 about 8 to 10%.”

“Prior to March 2020,” he says, “there were dozens of different markets locally and London-based with an insurmountable amount of insurance capacity dedicated to this space. When COVID hit, many carriers exited the market or put moratoriums on new business.”

Only a small pool of carriers loyal to the space remained open for business, until the end of September 2022, when the doors opened again. “For the most part this year, rates have flattened from carriers that truly understand the risks and the competency of [nursing home] leadership,” Gilhooly says.

Although the premium increases eased in the most recent policy renewal period, 52% of nursing home owners and operators in a survey by the National Investment Center for Seniors Housing & Care said they experienced a significant or slight increase in their professional liability insurance premiums from May 2022 to April 2023.

Focused on Risk Mitigation

Insurance brokers and carriers emphasize the importance of proactive risk management to reduce the risk of resident injuries and abuse. “We try to tailor our risk management approach to individual account needs,” says Lynette Perkins, an underwriting specialist and director of risk management at Liberty Mutual/Ironshore. “A forward-thinking, innovative account may look for proactive improvements to move from good to great, whereas a low-performing account with a recent increase in claims activity might be struggling with staffing and turnover.”

The insurer has a two-pronged approach—offering professional liability and workers compensation insurance products along with a range of risk management and loss control services. Drawing from these resources, Perkins cites the value of proper resident handling when lifting and walking to reduce the risk of fall-related injuries for nurses and residents alike. Maintaining clean and dry floors, wearing slip-resistant footwear, clearing work areas of clutter, securing loose cords and wires, and providing adequate lighting are a few suggestions to decrease these injury risks.

Another tactic is to design a work schedule expressly linked to factors causing accidents, errors and lapses in performance, such as sleep deprivation, fatigue and circadian misalignment. It’s important to educate staff on the need to get a good night’s sleep and to consider all aspects of the employee’s job and home situation when changing work schedules, Perkins says.

Philadelphia Insurance Companies also has a value-added risk management team that makes site visits to provide opinions on how to reduce property-related risks like flooding, fire and mold contamination. “If a facility is clean, there are no cracks in the wall or missing ceiling tiles, and the staff is knowledgeable and personable,” says Jim Ferriero, product manager for nursing homes and assisted living at Philadelphia, “that’s considered a good risk. For me personally, I want to feel comfortable that this is a place I would put my father or mother in.”

Moving On

The varied stressors on the nursing home industry have taken a toll, resulting in the closures of more than 1,000 nursing homes since 2015, with one third closing since the pandemic began, according to the AHCA. The fact that many problems in the industry have existed for decades defies easy solutions.

Stimmell notes that finances are squeezed not just in the for-profit sector but also among nonprofit care facilities. “We live in a capitalist society, where it is not wrong to make a profit,” Stimmell says, “but if you look at the statistics on nonprofits like religious and benevolent organizations, they’re also having trouble making the numbers work and are saying no mas.”

An example is the nation’s largest nonprofit provider of skilled nursing beds, Good Samaritan Society, which announced plans in January 2023 to exit 15 states and reduce its resident count by roughly 30% and its employee base by about 5,000.

Meanwhile, the ownership structure is evolving. More than one in five nursing homes changed owners between 2016 and 2022; hospital ownership, by comparison, changed less than 6%. In its statement to Leader’s Edge, AHCA commented that private equity investors “have since moved on from the nursing home industry to more lucrative, health care sectors. Now less than five percent of nursing homes are owned by private equity firms, making it a moot point.”

An April 2022 article in Forbes magazine confirmed what it called an “unmistakable” trend of private equity firms exiting nursing home ownership and investing in home health businesses instead. “The business prospects have lost their luster,” Fearnow says. “Everything looked kind of rosy with projections of a ‘silver tsunami’ arriving and needing skilled nursing home care. Then the pandemic hit and washed everything away.”

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