Growing need for nursing homes pushes up against state limits

Prospects of a growing elderly population should be making nursing homes more competitive and abundant. But that isn't happening.

Despite a demand for beds that is rising at a consistent rate of 5 percent every year, the number of nursing homes is growing at a much slower rate, says Roberta Walter, a group consultant on health-care capital markets at Thomson McKinnon Securities Inc. in New York. Already, nationwide occupancy hovers at 95 percent, according to the American Health Care Association.

If no new facilities are built, occupancy is likely to reach 100 percent very shortly.

Another million beds will be needed by the year 2000. At that time, over 2.5 million of the nation's 35 million people aged 65 and older - 13 percent of the population - are expected to require long-term care, according to the United States Census Bureau. And the number of people over 85 will more than double, from 2 million to 5 million.

Yet what some would-be nursing home owners and investors see as an opportunity for profit is regarded by both states and patients as an extraordinary burden.

Not only are relatively few individual institutions good investments, their expense is a surprise to a majority of Americans, many of whom never plan for long-term nursing care, a 1984 survey by the American Association of Retired Persons reports.

In 1973, Americans spent $2.1 billion on nursing care. Today, that figure exceeds $40 billion, and medicaid supports more than 41 percent of that, according to a recent industry report by Thomson McKinnon.

Who or what paid the other 59 percent?

A mixture of personal and family resources came up with about 50 percent, followed by medicare at 5 percent and private insurance at less than 1 percent.

Although direct payments from nursing home patients and their families became the primary source of nursing home revenues as of 1985, the US Department of Health and Human Resources estimates that nearly half of private-pay nursing home patients ``spend down,'' or use up, their own resources within two years, at which point they convert to medicaid. About 60 to 65 percent of nursing home clients are already medicaid patients - with half the bill paid by the federal government and half by states.

That ratio varies widely among individual nursing homes, though.

This ``spending down'' is happening even as the elderly become more affluent, having better company-funded pensions and retirement plans.

``It's not just poor people, but middle-class people, who have to liquidate their estates and use up a whole lifetime of savings in a couple of years,'' adds Ms. Walter at Thomson McKinnon.

``On paper, medicaid is supposed to meet costs, but in reality it's not enough,'' says Rod Turner, a nursing care industry specialist and partner at Laventhol & Horvath, an accounting firm in Philadelphia. ``[Nursing homes] have to charge the private-paying census more to make up the cost.''

One day at an average institution costs a resident $62, and one year $22,000, says a report by the United States House Select Committee on Aging. ``That's incredible when you look at what hotels charge,'' says Linda Keegan at the American Health Care Association.

``Very few people can support that level of expenditure for long,'' Ms. Walter acknowledges.

Part of the problem is that many people simply don't realize that medicaid, medicare, and even private health-care plans do not cover long-term nursing needs, Mr. Turner explains. Starting in their 50s and 60s, he says, people ``need to understand what they're covered for.''

Some homes say they have no complaints about medicaid. At the Jamaica Towers Nursing Home in Boston, 75 percent of the residents are subsidized by the program, but an official says that ``medicaid does very well, considering what it has.''

But reimbursing homes for this many patients is a burden to most states. Because more residents qualify for medicaid today, additional beds are more likely to be filled by these patients, putting more pressure on states' budgets. So they try to keep their medicaid payments down by limiting the number of beds available.

In 39 states, this is done by requiring an operator to obtain a ``certificate of need'' before opening a new facility.

States contend that certificates of need keep occupancy rates high and maintain maximum efficiency. But advocates for the elderly say it hurts the industry and shuts out less affluent residents.

In major urban areas, like New Jersey, waiting lists tend to be long, says Ms. Keegan at the American Health Care Association.

Medicaid's reimbursement system has ``prevented homes from doing a lot of things they'd like to do, and they suffer a shortage of workers,'' she adds.

Restrictions also make it difficult to find people willing to build nursing homes. Operators ``often have to give personal guarantees,'' says Lawrence Cummings, president of Common Goal Mortgage Company in Baltimore, a firm that lends exclusively to the private nursing home industry. ``But banks aren't crazy about lending to new institutions,'' Mr. Cummings says, because they are afraid the supply of beds will exceed the demand, forcing many to close down.

After Arizona, which has about 500 nursing homes, dropped its certificate-of-need requirement, ``everyone went out and built homes and occupancy rates fell,'' Cummings says. Within the last few years, the state has had eight foreosures.

But these extra facilities could soon fill up, Keegan says, because demand is steadily rising.

Because of recent changes in the medicare system, acute-care hospitals now have incentives to discharge patients earlier. As a result, many nursing home residents require more acute care. Yet ``there is a shortage of nurses across the board,'' says a social worker at the Jamaica Towers Nursing Home.

Long-term care insurance is being explored as a possible solution to this financing gap. It constitutes only 1 percent of nursing home revenues, however, and is very limited compared with the number of people who need it, Turner says.