How Government Created and Shaped the U.S. Nursing Home Industry

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How Government Created and Shaped the U.S. Nursing Home How Government Created and Shaped the U.S. Nursing Home

Industry Industry

Leslie King

Smith College

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https://doi.org/10.1177/0896920519853020

Critical Sociology

2020, Vol. 46(6) 881 –897

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DOI: 10.1177/0896920519853020

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How Government Created

and Shaped the U.S. Nursing

Home Industry

Leslie King

Smith College, USA

Abstract

Beginning in the 1960s, U.S. government policy largely created, and subsequently facilitated the

corporatization of, a powerful, multi-billion dollar nursing home industry. Using data from trade

publications, government agency reports, Congressional hearings, newspaper reports and existing

scholarly research, I chart the relationship between the state and the U.S. nursing home industry

over four time periods to reveal how, at different moments, government policy contributed to

first the creation, then the corporatization and consolidation of the industry. I argue that the

trajectory of Medicare and Medicaid policy is not wholly neoliberal but neither should it be

considered progressive.

Keywords

corporations, health care, Medicaid, Medicare, neoliberalism, nursing home industry, political

economy

Introduction

Beginning in the 1960s, U.S. government policy largely created, and subsequently facilitated the

corporatization of, a powerful, multi-billion dollar nursing home industry. The history of govern-

ment health care for the low-income elderly is a partial counter example to neoliberal program cuts

and outsourcing that began in the 1980s. Neoliberalism typically refers to both an ideological

stance and a set of policy initiatives emphasizing market solutions and deregulation that gained

serious traction during the Reagan/Thatcher years and intensified with the fall of the Soviet Union

(see Cahill and Konings, 2017; Flew, 2014). Overall, corporate power expanded, as governments

sold off formerly public-owned enterprises, such as rail systems, to large firms and/or contracted

with private companies for services once provided by government (Crouch, 2011). Neoliberal-

inspired policies weakened the “post-WWII compromise” between business and labor that had

provided a social safety net for large numbers of people (Duménil and Lévy, 2011).

Corresponding author:

Leslie King, Department of Sociology, Smith College, Wright Hall, Northampton, MA 01063, USA.

Email: [email protected]

853020CRS

0010.1177/0896920519853020Critical SociologyKing

research-article2019

Article

882 Critical Sociology 46(6)

In many ways, government health insurance for low-income elderly runs counter to both

neoliberal and progressive agendas. Medicare and Medicaid coverage of care for low-income

elderly, which one might expect to be subject to neoliberal cuts or outsourcing, has not only

persisted but vastly expanded. Following David Harvey (2005: 19), who contends that neolib-

eral ideology is primarily a “project to re-establish the conditions for capital accumulation and

to restore the power of economic elites,” I suggest that specific Medicare and Medicaid pro-

gram expansions are partially explained by the fact that a large industry benefitted from the

status quo.

The case of U.S. Medicare and, especially, Medicaid policy also raises questions about pro-

grams typically considered antithetical to neoliberalism, namely the provision of social welfare

and regulation of industry. I suggest that U.S. government provision of health care for the low-

income elderly via Medicaid (and, to some extent, Medicare) has the paradoxical effect of facilitat-

ing capital accumulation and thus, by extension, exacerbates some of the very social and economic

inequalities the program is meant to alleviate.

Academic work on Medicare and Medicaid is abundant; but sociological research on the nurs-

ing home industry is surprisingly limited, especially considering the enormity of its social and

economic significance. Writing about the U.S. health care system as a whole, Fennell and Adams

(2011: 207) explain that “the multiplicity of forms confuses not only practitioners and patients

who directly interact with the system but also scholars who are left unable to develop conceptual

schemes that capture its diversity.” A related question is how, under what types of sociological

categories, we should think about nursing homes. Ethnographies of nursing homes examine the

routines of non-physician workers, as well as the experiences of patients and family; such work

documents how nursing homes extract profit by exploiting low-wage workers (Diamond, 1992;

Rodriguez, 2014). Researchers consider nursing homes in the context of social welfare (Harrington

Meyer and Bellas, 1995), as a part of the health care system (Harrington et al., 2015), and/or as a

component part of a broad set of institutions dealing with aging (Estes and Associates, 2001). A

number of scholars (e.g. Harrington et al., 2014) examine the effects of regulations on the quality

of patient care or staffing levels; others ask whether quality of care varies depending on type of

ownership (Grabowski et al., 2016; Stevenson and Grabowski, 2008). Charlene Harrington, a

scholar-expert on the industry, argues that private, for-profit ownership of nursing homes is asso-

ciated with deficiencies in services, including insufficient staffing (see Harrington et al., 2017).

Carroll Estes (1979, 2014) considers nursing homes as part of a larger “aging enterprise,” which

“assures that the needs of older adults will be processed and treated as a commodity (e.g., medical

services) and sold for a profit” (Estes, 2014: 94). In examining how government policy facilitated

the corporatization and consolidation of the nursing home industry, I build on Harrington’s and

Estes’ critical research on the political economy of elder care.

Nursing homes are a central component of a multi-billion dollar elder-care industry; the approx-

imately 15,600 nursing homes in the United States employ about 1.7 million people (IBIS World,

2017) and typically care for about 1.4 million residents at any given time (one-third of whom are

permanent residents).

More than $160 billion is spent annually on care in nursing homes and

continuing-care retirement communities (Centers for Medicare and Medicaid Services (CMS)

2016). Medicaid payments for long-term services and supports (which include both institutional

and home- and community-based services) reached $158 billion in 2015 (Eiken et al., 2017). The

lion’s share of this government funding finds its way to private, for-profit, companies. One of the

largest U.S. nursing home companies, Genesis, reported earnings of $5.7 billion in 2016 from nurs-

ing homes and other eldercare services (Yahoo Finance, 2017). The Health Care Association

(AHCA), the powerful trade organization representing the industry, has close ties to lawmakers

and regularly lobbies in the interest of its member institutions (see Viebeck, 2013).

King 883

The nursing home industry evolved and vastly expanded as a result of government funding and

industry dependence on government programs persists (Harrington et al., 2016; Kaffenberger, 1998;

Vladeck, 1980). In Unloving Care, social insurance advocate and industry expert Bruce Vladeck

(1980: 4) wrote: “The existing nursing home industry is almost entirely a creation of public policy.”

Harrington (1984: 481) echoes this assessment, explaining that “Nursing homes were a cottage indus-

try until the early 1960s when they began to expand with the infusion of public funds from Medicaid

and Medicare.” More recently, an administrator for a state nursing home trade association explained:

“We sink and swim based on government funding” (Interview, 21 March 2017).

Over half of nursing home revenues derive from government-funded Medicare (national health

insurance for the elderly) and Medicaid (national- and state-funded health insurance for low-

income citizens) (Harrington et al., 2016). In 2012 Medicare spent $62 billion on “nursing and

therapy for patients in rehabilitation facilities, nursing homes, long-term care hospitals and in their

own homes” (Rau, 2013). Medicaid spent $43.8 billion on long-term care in nursing facilities in

2016 (Kaiser Family Foundation, 2017). Almost 63% of long-term care users in nursing homes pay

with Medicaid (Harris-Kojetin et al., 2016).

To analyze and document the evolving government–nursing home relationship, I draw from

trade publications, government agency reports, Congressional testimony, newspaper reports, and

existing scholarly research. Initial information on current trends derive from approximately 20

hours of interviews (recorded and transcribed) with a primary informant, who is a skilled-nursing

facility-specialist physician, as well as hour-long informational interviews with a nursing home

trade association administrator and a physicians’ group administrator. Interviews were initially

coded, following Strauss and Corbin (1998), as were notes from government reports and trade

publications, to identify, among other things, important organizational actors and policy develop-

ments. Through an iterative process, I revisited and revised the categories, and identified four time

periods, each characterized by specific policy structures and trends. Though these four time peri-

ods are not completely distinct, they are useful to illuminate policy and industry trends and reveal

how policy initiatives align (and fail to align) with neoliberal chronologies.

First, in the early part of the 20th century, care occurred largely in people’s homes, often paid for

with government stipends to low-income elderly. Second, in creating government-funded – but mostly

privately operated – health and custodial services for the elderly in 1965, the U.S. state set the stage for

the growth of large for-profit nursing homes chains (Vladeck, 1980). This industry, in turn, subse-

quently worked to influence regulations and ensure continued government funding (see Kaffenberger,

1998). Third, the period from the late 1980s to 2010 was one of both increased regulation as well as

governmental belt tightening. Finally, today, the nursing home industry is increasingly integrated into

the larger health care system and is experiencing further consolidation. In addition, a home health care

industry is rapidly expanding in conjunction with the same government funding sources.

1930s to the mid-1960s

Care for the frail and infirm elderly, like care for children, represents a dilemma in capitalist socie-

ties where people – especially women – work away from home. Early solutions consisted of alms

houses and also payment to other community members to house and/or care for the frail elderly. A

provision of the 1935 Social Security Act that provided funds to low-income elderly led to the crea-

tion of a fledgling nursing home “industry,” consisting mainly of small home-based businesses.

Hawes and Phillips (1986: 495) explain that,

the new flow of income to older people allowed private homes to provide some health services or

supervision for those in need—rather than just board and care. In addition, the economic problems

884 Critical Sociology 46(6)

engendered by the depression encouraged many individuals […] to enter the business of providing

“nursing” care in their homes.

In the post-WWII era, additional changes in public policy and in the health care sector contributed

to the growth of both small-scale nursing facilities as well as free-standing nursing homes. Among

other things, amendments to the Social Security Act allowed states to use public assistance funds to

pay for health care. States were allowed to reimburse nursing homes or other providers directly;

however, if they did so, states were required to license institutional providers. State licensing regula-

tions had the effect of making nursing homes more hospital-like and institutional (Watson, 2010).

Nonetheless, most nursing home care was still paid for by individuals out-of-pocket.

1960s to 1980s – Rapid Expansion

In 1965 additional amendments to the Social Security Act created Medicare and Medicaid.

Medicare, a federal program, provided health insurance for all elderly citizens. Medicaid, designed

for low-income citizens, was funded by both the federal and state governments and administered

by states. Medicare does not provide long-term care but Medicaid always has, so long as the recipi-

ent is low-income (specific requirements have always varied by state). Though this was to change,

Medicaid initially covered long-term care only if it was received in an institution; home care was

not covered. This emphasis on institutionalized care facilitated the rapid growth of a new nursing

home industry that profited from Medicaid dollars (Vladeck, 1980). As of 1960 only about 20

percent of nursing home funding was public; by 1982 that had risen to 56 percent, largely due to

the establishment of Medicaid (Harrington et al., 1988).

Industry Growth

The availability of funding, the methods of reimbursing facilities, growing demand, and lax health

and safety regulations caused the supply of nursing home beds to increase rapidly and large nursing

home chains quickly established themselves (Hawes and Phillips, 1986). From the time Medicare

and Medicaid were established until the early 1980s, federal government actions expanded both

eligibility and coverage; the nursing home industry likewise expanded. A 1974 U.S. Senate sub-

committee report stated:

The growth of the industry has been impressive. Between 1960 and 1970 nursing home facilities increased

by 140 percent, beds by 232 percent, employees by 405 percent, and expenditures for care by 465 percent.

Measured from 1960 through 1973, expenditures increased by almost 1,400 percent. (U.S. Congress,

Senate Subcommittee, 1974: XII)

This growth in the number of nursing facilities resulted both from the availability of funds from

Medicaid coupled with the rapid growth of the elderly population due to increased life expectancy.

The number of people over 65 grew from 16,560,000 (9.2 percent of the total population) in 1960

to 25,549,000 (11.3 percent of the total population) in 1980 (U.S. Census Bureau, 2014). Projections

showed that the number and percentage of the elderly would continue to increase rapidly.

These projections, together with continued government funding, led more large-scale investors

into the nursing home business. In pre-Medicaid days, a free-standing nursing home would likely

have been financed by a local bank but after Medicaid was introduced companies increasingly

raised capital on the stock market (Kaffenberger, 1998). In 1966, only a few companies owning

nursing homes were registered with the Securities and Exchange Commission but that number

King 885

reached 90 by 1970 (Hawes and Phillips, 1986). As of 1972, “106 publicly traded corporations

controlled 18 percent of the industry’s beds and accounted for one-third of the industry’s 3.2 billion

in revenue” (U.S. Congress, Senate Subcommittee, 1974: XVI). An additional boon for corporate-

owned chains was a Federal Housing Administration bond guarantee, which allowed companies to

combine loans for facilities and sell them as bonds (Kaffenberger, 1998). With access to capital

from the sale of bonds and the stock market, the industry quickly consolidated. The three leading

chains dramatically increased their control of nursing home beds and facilities.

In 1973, the largest

three chains owned just over two percent of all beds; 10 years later, the top three chains owned

almost 10 percent of beds – a 54% increase (Hawes and Phillips, 1986).

Regulation

As the industry grew and consolidated during the 1960s and 1970s, news reports revealed patterns

of negligence and abuse in many nursing homes, including over-use of drugs, unsanitary condi-

tions, unnecessary use of restraints, poor food, and inadequate fire protection. The 1974 Senate

sub-committee report concluded that over 50% of nursing homes were substandard and that

the United States has no consistent policy with respect to treatment of the infirm elderly. In addition, State

public assistance formulas contain financial incentives which guarantee poor care; doctors avoid nursing

homes; the enforcement system is not working; and 80 to 90 percent of patient care in nursing homes is

being given by untrained aides and orderlies. (U.S. Congress, Senate Subcommittee, 1974: 205)

Some standards and regulations existed since Medicaid began funding nursing home stays;

enforcement, however, had been almost universally lax. As a result of increased scrutiny (including

the Senate Subcommittee investigation), by the mid- to late-1970s states began to enforce existing

standards more strictly and adopted new regulations to improve quality of care. These changes,

including enforcement of building and fire safety standards, had the effect of pushing the small

nursing homes out. Hawes and Phillips (1986: 504) explain that

through enforcement of building and fire safety standards, government policy contributed to the demise of

the “mom and pop” nursing home. However, the nursing home chains, particularly those that sold stock on

the open market, had entered the business with Medicare, and most of their facilities were newly built. So,

enforcement of new building and fire safety code standards did not represent a serious problem for most

of them. Indeed, enforcement of these standards helped the chains by eliminating some competitors

(closing from 10 to 20 percent of the homes from state to state) and giving them an opportunity to construct

new, larger facilities.

Such an interpretation is in line with social historian Gabriel Kolko’s (1963) argument that large

firms may welcome or even seek government regulations, which solidify their power relative to

small firms.

Kolko explained that in the early 20th century, the large meat packing firms wel-

comed government regulations rather than wishing to avoid them; such regulations served the

interest of large firms while pushing out smaller competitors.

To summarize, Medicare and Medicaid are most often categorized as social welfare programs that

expanded health care coverage to those in need. Critical scholars contrast the post-WWII era as a time

of increased social welfare programs and regulatory expansion that ended with the advent of neolib-

eralism in the 1980s and 1990s (e.g., Duménil and Lévy, 2011; Mercille, 2016). In the U.S., however,

Medicare and Medicaid – government provision of health care to the elderly – largely created the

nursing home industry, then contributed to its consolidation. The augmentation of benefits and

accompanying availability of investment capital sparked the growth of a nursing home industry that

886 Critical Sociology 46(6)

quickly became largely corporatized. Initial lax regulation of nursing homes allowed for a variety of

players; yet increasing regulation and enforcement permitted the larger companies to consolidate

their power in the field. Though it has always been somewhat volatile, once the industry initially

consolidated, it was comparatively stable until the 1990s (Zinn et al. 2000).

Late 1980s to 2010 – Slower growth

The third phase I identify spans the late 1980s up to the passage of the Affordable Care Act in 2010.

This period saw the institution of new and important government rules and oversight, while the

industry experienced slower growth, increased consolidation and volatility. Between 1987 and

2010, three specific governmental actions

reshaped the nursing home industry: 1) the Omnibus

Reconciliation Act of 1987 (OBRA 1987); 2) changes in the Medicare payment system in 1997;

and 3) a Supreme Court decision in 1999.

OBRA 1987 established new quality standards and revamped inspection and enforcement pro-

cesses (Wiener et al., 2007). This law resulted from years of reports of abuse and scandals in nursing

homes. OBRA 1987 significantly increased staffing regulations, requiring nursing homes to have a

registered nurse as director of nursing, and it instituted training and competency exam requirements

for certified nursing assistants. In order to be Medicaid or Medicare certified, facilities had to demon-

strate compliance on a range of issues, including the formulation of a comprehensive care plan for

each resident and regular periodic assessments of each resident. Facilities were also required to pro-

vide dietary, rehabilitation, and social work services. The Act mandated states to inspect nursing

homes (unannounced) and subjected non-compliant facilities to sanctions. Although OBRA 1987

resulted in many real improvements in the lives of residents, by 1998–99 between 25 and 33 percent

of all facilities still had “serious or potentially life threatening problems in delivering care and were

harming patients” (Harrington, 2001: 507).

Thus, while no panacea for improving patient care,

OBRA 1987 did significantly alter the regulatory environment of nursing homes.

The price of regulation, though difficult to quantify, was high for federal and state governments

and for the industry. The Centers for Medicare and Medicaid Services, together with state agencies,

spent $382.2 million in 2000 on licensing and certification, about $22,000 per nursing home or $208

per bed (Walshe, 2001). And though it is not possible to know how much nursing home companies

themselves spend, it is clear that the stricter regulations are costly for the industry (Walshe, 2001). It

is possible that, just as initial regulations in the 1970s hastened the demise of many small nursing

homes, OBRA 1987 contributed to greater consolidation, as small businesses were bought by larger

ones better equipped to handle the changes called for by the new regulations (Walshe, 2001). During

the 1990s the percentage of corporate, chain-owned facilities grew from 39 to 54 percent of the total

number of approximately 16,500 nursing homes. Most nursing home chains had been fairly small but

in the 1990s they consolidated rapidly. In 1997 there were 4,770 chains, 89 percent of which had only

two to 10 facilities; only 2.6 percent owned 51 or more nursing homes. By 2001, almost 20 percent

of beds were controlled by the eight largest chains (Kitchener at al., 2008).

Second, the Balanced Budget Act of 1997 altered the way Medicare paid for services in nursing

homes (CMS, 2017). While in in the 1960s and 1970s most nursing home revenues came from

Medicaid, beginning in the 1980s, nursing homes expanded their services to provide post-acute

care, which was covered by Medicare. The Balanced Budget Act of 1997 resulted in lower pay-

ments for these post-acute services, which were now a larger portion of nursing homes’ revenues.

This change in Medicare reimbursement may have contributed to increased industry volatility

(Kitchener et al., 2005).

The industry saw an increase in mergers and also in bankruptcies

(Kitchener, O’Neill and Harrington, 2005; Kitchener, O’Meara, et al., 2008). Zinn et al. (2009)

identified the new Medicare payment system as one important reason why numerous nursing

King 887

facilities failed between 1996–2005. They explain that as a result of the new payment system “a

number of firms sustained major losses. For example, Genesis Health Ventures, a major nursing

home chain, reported a 25% drop in average daily payments” (Zinn et al., 2009: 933).

A study of

nursing home bankruptcies in California (Kitchener et al., 2005) found that chains were more

likely than independently-owned facilities to enter bankruptcy. Bankrupt chain facilities rarely

closed but rather continued to operate, often with quality-of-care problems, or were sold. Failing

facilities were often those serving vulnerable and low-income populations and an unintended con-

sequence of the Medicare policy change may have been to reduce nursing facility access to those

who needed it most (Zinn et al., 2009).

A third important event to shape the trajectory of the industry was the 1999 Supreme Court

decision in Olmstead v. L.C., which held that when possible “public entities must provide com-

munity-based services to persons with disabilities” (ADA.gov, 2018). In response, some state

Medicaid programs began offering, and even encouraging, “aging in place” by funding in-home

nursing and other types of in-home and community-based care. This trend, which had begun

slowly in the 1980s, accelerated after the 1999 Olmstead decision. Home-based care allows

patients who might have spent time in nursing homes (or longer stretches of time in nursing

homes) to be cared for at home, which states usually prefer, as home care is typically less expen-

sive (Musumeci, 2014). Between 1997 and 2007, the number of nursing home residents per 1,000

people aged 75 and older decreased by 19.9 percent (Wiener et al., 2009). In 2002, the percentage

of Medicaid payments for long-term care going to institutional care was 68 percent, compared

with 32 percent to home- and community-based care (Musumeci, 2014). By 2015, home- and

community-based care had grown to 55 percent of Medicaid spending (about $87 billion) for

long-term services and supports (Eiken et al., 2017).

Overall, from the late-1980s to 2010 the nursing home industry entered a phase of much slower

growth and, by the early 2000s, a number of facilities and companies were in financial trouble (see

Zinn et al., 2009). While the 1960s, 1970s and early 1980s saw persistent expansion, growth

slowed in the 1990s. The number of beds available in U.S. nursing homes totaled 1,624,200 in

1985, peaked around 1995 at 1,770,900 and by 2000 was going down. Occupancy rates (the num-

ber of beds occupied) declined from 91.8 percent in 1985 to 87.4 percent in 1995 and down to 86.3

percent in 2004 (Centers for Disease Control, 2016a, 2016b).

While consumer demand for nursing homes waned as home- and community-based alternatives

grew, there was also less interest on the part of nursing homes in caring for long-term Medicaid

patients, as financially strapped states offered relatively low Medicaid payments for long-term

residential care. Nursing facilities thus turned their attention to Medicare. Medicare payments for

post-acute care grew at an average yearly rate of 25 percent between 1988 and 1997 and post-acute

care, much of which occurs in nursing homes, became the fastest growing category of Medicare

spending. As they took on more Medicare-funded, post-acute care, nursing facilities integrated into

the larger health care system and moved from being primarily providers of custodial care to being

providers of health care.

During this time period, new regulations improved care of residents but also increased expenses

for the federal government, states, and nursing homes. As neoliberal policies and practices –

including deregulation in certain sectors (such as energy and banking/finance) – took hold in

other arenas during the 1980s and 1990s, the nursing home industry instead saw increased regula-

tion.

Meanwhile, state budgets increasingly limited Medicaid payments and state programs

encouraged aging-in-place as an alternative to institutional care. The nursing home industry

responded by consolidating even more than previously and by diversifying – purchasing home-

care services and assisted living facilities and seeking more short-term, post-acute Medicare

(rather than Medicaid) patients.

888 Critical Sociology 46(6)

To summarize, changes in government policy led the nursing home industry to recreate itself,

following government funding streams. The industry that had initially focused almost exclusively

on long-term custodial care diversified into post-acute care and home care, continued to consoli-

date and was increasingly dominated by large, for-profit chains.

ACA (2010) to Present – Nursing Facilities Become “Mini-

Hospitals”

The time period since the passage of the Affordable Care Act (ACA) has witnessed the ongoing

integration of nursing facilities into the larger health care system and can be characterized by two

important trends. First, from the industry perspective, the financial importance of long-term, custo-

dial care in nursing facilities continued to decrease. The reduction of Medicaid payments by finan-

cially-strapped states made care for custodial residents less lucrative and funding for home-based

care allowed an expansion of home-based opportunities. Home health care, 77% of which is paid for

by Medicare and Medicaid, has now grown to a multi-billion dollar industry.

Second, as nursing

facilities have become central to short-term, post-acute care funded by Medicare, the importance of

short-term post-acute care for nursing facilities’ bottom lines has continued to increase.

The director of a state nursing home trade association discussed the transition away from custo-

dial care and toward post-acute services, explaining that

continued pressures of the reimbursement system that really is budget-driven as opposed to quality-driven

or staff-driven has put immense pressure on providers’, our members’,

ability to make sure that we can

provide high quality services. … [Medicaid], which pays for the care of 68% of long-term care residents

in [this state], has … had an awful decade of underfunding nursing facility care … [M]any facilities did try

to be very efficient by seeing what they could do by trying to squeeze costs out of their budget, but they

also needed to look at other payers and another source of revenue. And that’s really when the facilities saw

the opportunity to take care of Medicare rehab patients. (Interview, 21 March 2017)

Medicare pays $500 to $600-a-day for a post-acute care, while Medicaid pays an average of about

$125 a day for a long-term care resident (Gleckman, 2013). Thus, following a trend that began in

the 1990s, nursing facilities continue to provide more post-acute and rehabilitation services, which

are paid for by Medicare. Between 2008 and 2012, the number of Medicaid-only facilities (those

that do not provide rehab or post-acute care) dropped by 25.9 percent, to 536 (CMS, 2013). In

essence, nursing facilities are becoming hospital-like, handling more complicated medical condi-

tions than they did in the past and increasingly providing ancillary care, such as wound manage-

ment and respiratory therapy.

As insurers call upon hospitals to reduce patient stays, post-acute care, required by patients

unable to care for themselves while recovering from a major illness or accident, increasingly occurs

in nursing homes. In 2012, Medicare spent $62 billion for post-acute care, a large percentage of

which ($27 billion – over 40 percent in 2013) went for services in nursing facilities (Mechanic,

2014). Post-acute care spending has grown faster in recent years than other categories of payments

(Mechanic, 2014). The CEO of a major skilled nursing company, explained “if you’re an operator

continuing to take care of custodial patients, you’re going to get killed” (quoted in Spanko, 2018).

According to the American Health Care Association (n.d.), the powerful national trade association

of long term and post-acute care providers,

the integration of post-acute care services in America’s skilled nursing and rehabilitation facilities has

changed the healthcare delivery system. Without a doubt, the state of post-acute care in nursing facilities

King 889

is evolving as facilities continue to treat more short-stay patients and provide intensive medical care for

patients requiring a greater variety of complex care services.

The post-acute care and rehabilitation that nursing facilities now provide necessitate higher-

level staffing and often call for facility upgrades, both of which are costly investments. The need

for such investments may disadvantage small, locally-owned nursing homes, which have less

access to capital. The shift may similarly be problematic for non-profit homes. Skilled Nursing

News, a trade publication, reports that “non-profits have felt particularly squeezed by recent skilled

nursing pressures on multiple fronts, prompting them to sell off their skilled facilities — typically

to for-profit entities” (Flynn, 2018).

Indeed, the industry not only continues to consolidate but, like other parts of the economy, is

undergoing important changes in ownership structure. As of 2014, about 70 percent of skilled nurs-

ing facilities were for-profit and about three-fifths were chain-affiliated (Government Accountability

Office, 2016). While the total number of beds remained about the same, this reflects change in

control over those beds. In 2009, the biggest company, HCR ManorCare, owned 277 facilities with

38,140 beds. By 2016, the largest company, Genesis HealthCare, had 512 facilities and 56,575

beds (Provider Magazine, 2016). Thus, as usage trends and reimbursement levels changed, the

nursing home industry adapted in order to continue profiting from government-funded programs.

The Affordable Care Act, meanwhile, called for two innovations in health care payments with

serious implications for nursing homes: bundled payments and accountable care organizations

(ACOs). Both of these are designed as cost-saving measures and both are organizationally com-

plex. Bundled payments entail paying one fee for a “health episode” (for example, a hip replace-

ment). Rather than reimbursing separate fees for each test, procedure, physician consultation, etc.,

Medicare would pay one fee that would then be divided among providers (see Shay and Mick,

2013).

Accountable care organizations are groups of providers who together agree to provide care

to a group of patients over time for a set cost. Both of these new structures require large amounts

of data collection and sharing. Upgrades in IT and staff training are expensive and also necessary

for the new types of relationships called for by these structures.

As the economic incentives change around them, nursing facility executives look for new finan-

cial streams. One profit-enhancing mechanism involves the creation of complex, often labyrin-

thine, ownership and management structures, which create tax advantages and/or allow companies

to move capital from one entity to another. Nursing home owners often outsource goods and ser-

vices to multiple entities in which they also have an ownership or financial interest. According to

a Kaiser News Service report, “Nearly three-quarters of nursing homes in the United States – more

than 11,000 – have such business dealings, known as related party transactions” (Rau, 2017).

These “related” companies provide physical therapy, food service, management, drugs, or other

services. According to the Kaiser report, “owners can establish highly favorable contracts in which

their nursing homes pay more than they might in a competitive market. Owners then siphon off

higher profits, which are not recorded on the nursing home’s accounts” (Rau, 2017). In 2015, nurs-

ing homes paid related companies $11 billion (Rau, 2017). As nursing facilities increase the num-

ber and types of post-acute therapies and services they provide, the ability to engage in related-party

transactions expands.

In addition, buildings may be owned by real estate trusts, then rented or leased back to the nurs-

ing home by a management company. Complex ownership and management structures exist in

other sectors of the economy but the separation of real estate from operations is particularly marked

in the nursing home/assisted living sector. Ownership may be decentralized “across distinct sub-

companies.” Many nursing facilities have been converted into real estate investment trusts, further

complicating ownership structure (Blankenhorn, 2013). This complexity is purposeful. Since the

890 Critical Sociology 46(6)

1990s, lawsuits are routinely brought against nursing homes, often by children of residents, claim-

ing injury or/and negligence (Stevenson and Studdert, 2003). Rau (2017) explains that

... at a 2012 Nashville conference for executives in the long-term health care industry, a presentation slide

from nursing home attorneys titled “Pros of Complex Corporate Structure” stated: “Many plaintiffs’

attorneys will never conduct corporate structure discovery because it’s too expensive and time consuming.”

The presentation noted another advantage: “Financial statement in punitive damages phase shows less

income and assets.”

The Affordable Care Act incorporated the Nursing Home Transparency and Improvement Act

of 2009, which called for increased transparency and reporting “because complex ownership, man-

agement, and financing structures were inhibiting regulators’ ability to hold providers accountable

for compliance with federal requirements” (Kaiser Family Foundation, 2013: 4). Transparency and

accountability have, however, proved elusive, in part because “knowing the proprietary status of a

nursing home provider is insufficient to discern how organizational assets are structured and the

operational approach of the company managing the delivery of nursing home services” (Stevenson

et al., 2013: 30). Finally, the private equity purchases of nursing home companies as well as large-

scale mergers can render the system even more obscure. Industry observers stated that “2017 ended

with a flurry of blockbuster [merger and acquisition] activity, including insurer Humana acquiring

a stake in the home health, hospice, and community-care operations of Kindred Healthcare (NYSE:

KND) for $4.1 billion” (Spanko, 2018).

To summarize, partially as a result of the ACA and partially due to trends underway prior to

2010, nursing homes are rapidly integrating into the larger health care system; they provide more

short-term rehabilitation and post-acute services than in the past and they are less focused on long-

term residential care, though they remain key providers of long-term care for people with dementia

(a rapidly growing population). The industry has transformed in order to continue to take advan-

tage of government funding streams. A for-profit home-care industry is expanding rapidly, based

largely on the same funding sources (Medicare and Medicaid). And, in its for-profit form, home

care similarly provokes complaints of fraud and abuse (see Nelson, 2016). Meanwhile, ownership

structures and use of subsidiaries maximize profits but are complex and often difficult to trace.

Complicated arrangements allow companies to hide assets and shield owners from liability. Private

equity companies, whose reporting requirements are limited compared with publicly-traded equi-

ties, buy nursing homes and nursing-related firms to profit, ultimately, from government dollars.

Discussion/Conclusion

The for-profit nursing home industry (now connected with assisted living and home health care

sectors) that was born with the institution of Medicare and Medicaid has shape-shifted numerous

times in relation to government policy, always in the interest of extracting profit. This policy evolu-

tion differs in terms of timing and content from what neoliberal ideology would suggest. Yet U.S.

policy vis-à-vis health care for the elderly should also not be considered progressive. While social

welfare provision is typically viewed as a means of decreasing insecurity and inequality, the case

presented here points to the simultaneous potential of such programs to produce inequalities.

Policy changes subsequent to the institution of Medicare and Medicaid run counter to neoliberal

tenets of deregulation and privatization. First, the nursing home industry has seen increased regula-

tion, rather than less. In the 1960s and 1970s, nursing homes were loosely regulated. Regulations

were instituted and strengthened from the late 1980s to the present, an era that often saw weakening

of regulations in other sectors, such as banking and energy. Nursing home regulation resulted from

King 891

truly horrific conditions and was much needed. At the same time, increased regulation may have

benefited large companies, which disproportionately have the human and capital resources to imple-

ment new rules, at the expense of smaller companies and non-profits. Second, the primary neolib-

eral justification for promoting privatized solutions for institutions such as schools, prisons or health

care is cost savings for taxpayers. In these cases, governments supposedly award contracts to the

most attractive bidder. In the case of schools or prisons, companies lobby lawmakers in favor of

privatization; in the case of nursing homes, companies typically support the current system, which

is already privatized in the sense that government funds private, for-profit entities to provide nursing

care rather than providing that care directly. The result may be higher profits for industry and higher

costs for taxpayers.

The fact that the nursing home industry has historically benefitted from the

status quo may be one reason Medicare and Medicaid have survived certain neoliberal-inspired cuts.

By contrast, Medicaid’s related program, Aid to Families with Dependent Children (AFCS), with no

corporate lobby to advocate for Congressional support, was ultimately dismantled.

The evolution

of the nursing home industry indicates that neoliberal initiatives can unfold differently depending on

whether and to what extent corporate interests already have a foothold in any given sector.

The history of the government–nursing home industry relationship also challenges progressive

interpretations of certain social welfare policy, especially Medicaid. The creation of Medicaid and

Medicare in 1965 coincides loosely with the time period in which governments, to some degree at

least, reined in excesses of capital and reduced inequalities (Duménil and Lévy, 2011; Mercille,

2016). However, the mechanisms of U.S. provision of long-term care for the elderly allowed for-

profit companies to flourish. Though social welfare and health-care programs are typically said to

reduce economic and social insecurity (see, e.g., Wagnerman, 2018), Medicare and Medicaid pay-

ments to for-profit nursing homes (and, more recently, home care) foster capital accumulation. If

capital accumulation produces inequalities, then Medicare and Medicaid, by providing funding to

for-profit companies, contribute to growing inequality and insecurity. While these programs assist

infirm elderly in the short term, in the long run they may foster the need for more Medicaid (and

other social safety-net) funds as a result of this growth in inequality.

The government–nursing home industry relationship has always had a neoliberal leaning in that

Medicare and Medicaid target individuals and facilitate “market” solutions. In instituting Medicare

and Medicaid, the U.S. did not create a system of government-run nursing homes or specifically

incentivize the development of not-for-profit nursing homes, as it might have done. Purposefully

or not, lawmakers created a system of large, for-profit, chain nursing homes. Early (pre-Medicaid)

arguments in favor of a private, for-profit system of elder care focused in part on the premise that

such a system could ultimately provide services at a lower cost (see Kaffenberger, 1998). But

potential cost-savings, if they exist, have come at the expense of patients and workers (Diamond,

1992).

Even the former CEO of the national nursing home lobby has questioned the U.S. model.

In a letter to the editor of the New York Times, Paul Willging (2007: 411) wrote:

as past chief executive of the American Health Care Association, I began to suspect a possibly inherent

contradiction between publicly traded and other large investor-operated nursing home companies and the

prerequisites for quality care. Can the investor’s focus (short-term profitability) simultaneously allow a

comparable focus on the patient? I think the answer has to do with time frames. Unfortunately, for many

investors, those time frames are short. Earnings growth, quarter after quarter, is often paramount. Long-

term investments in quality can work at cross purposes with a mandate for an unending progression of

favorable earnings reports.

That it comes as a surprise to anyone that the needs of elderly health care consumers and the low-wage

workers who care for them might not be best served by for-profit entities illustrates the pervasiveness

892 Critical Sociology 46(6)

of a belief in the power of “the market.” Corporate entities exist to make profits and, thus, seek to

provide goods and services in such a way that maximizes their growth and financial bottom line. As

Baran and Sweezy (1996/1966: 25) explain in their classic work on monopoly capitalism: “The major

goals of modern large-scale business are high managerial incomes, good profits, a strong competitive

position, and growth.” These goals conflict with those of the general public not only in the political

realm; externalization of costs in the interest of profit maximization harms workers and communities.

The case presented here provides evidence in support of the claim by critical scholars that neo-

liberal ideology operates mainly as a means to legitimate the capital accumulation and power of an

economic elite (Harvey, 2005; Mercille, 2016). The status quo is neither in the best interest of

elderly clients nor those who care for them. Research shows that not-for-profit entities provide bet-

ter care for elderly people in nursing homes (see, e.g., Harrington et al., 2012). Neither is for-profit

care likely to be the lowest-cost option. Medicare and Medicaid policies have allowed for-profit,

corporate entities to earn billions of dollars. While non-profits or government-owned entities pro-

vide no panacea, they are likely better options than the current, profit-dominant model. Future

research should continue to investigate the differences in quality of care between for-profit and

not-for-profit nursing homes and might also investigate whether (and how) government policy

might prioritize non-profit care providers.

The case of U.S. elder health care policy also indicates that even while taking actions (e.g. pro-

vision of social welfare and regulation of industry) that most would label “progressive,” the gov-

ernment facilitated capital accumulation and corporatization; future research should further

investigate this dilemma. Scholars might address the question of when and how corporate elites

welcome – or even seek out – increased regulation while other corporate actors seek to remove

regulations (see Stigler, 1971). Progressives, who often want to ensure that business is strongly

regulated in the interest of worker, consumer and citizen wellbeing, may be hesitant to take up the

question of whether and how regulations benefit big companies at the expense of smaller enter-

prises. Regulations are important for myriad reasons; yet if they are constructed in a way that facili-

tates corporatization and consolidation, regulations might serve to increase corporate power and,

by extension, inequalities. Activists interested in reducing inequalities should heed the lesson of

U.S. policy and the nursing home industry. While compromises (such as the Affordable Care Act)

that prioritize private, for-profit solutions might seem desirable as “a first step” toward a more just

and equitable system, once large, for-profit companies have a foothold, their power to maneuver

within – and to manipulate – existing policy structures increases and inequalities persist.

Acknowledgements

Thanks to Megan Cook for research assistance and Velma Garcia, Suzanne Zhang Gottschang, Marc

Steinberg, Sarah Wilcox, and the anonymous reviewers for comments and suggestions. A previous version of

this paper was presented at the conference, Marx’s Critique of Political Economy and the Global Crisis

Today, Hofstra University, April 2017.

Funding

This research received no specific grant from any funding agency in the public, commercial, or not-for-profit

sectors.

Notes

1. According to the Centers for Medicare and Medicaid Services (CMS, 2018), “Nursing home is a term

that includes both skilled nursing facilities and nursing facilities. Skilled nursing facilities (SNFs) are

those that participate in both Medicare and Medicaid. Nursing facilities (NF) are those that participate in

Medicaid only. Nursing homes primarily engage in providing residents skilled nursing care and related

King 893

services for residents.” Almost all nursing homes provide custodial care to low-income elderly, about 50

percent of whom suffer from dementia. SNFs also provide short-term, post-acute care to patients, mostly

Medicare recipients, who have been discharged from hospitals (CMS, 2015).

2. Hawes and Phillips (1986: 501) write that, “Beverly Enterprises increased its facilities by 600 percent,

ARA its holdings by approximately 250 percent, and Hillhaven by 200 percent. This growth pattern far

outdistanced the growth rate in the total number of nursing home beds and facilities, which was only 18

percent during the same period.”

3. It is important to recognize that the national nursing home lobby – the American Health Care Association

(AHCA) – as well as state trade associations lobbied lawmakers and contributed to policy construction

(Kaffenberger, 1998). According to the Center for Responsive Politics (2019) the AHCA spent almost $4

million on lobbying efforts in 2018. In addition, the fact that states administer Medicaid and are respon-

sible for monitoring and inspecting nursing homes has had important implications for the development of

the industry. To thoroughly understand how the industry contributes to shaping policy one would need to

look state by state. Nursing home trade associations and lobby groups typically have a strong state-level

presence. Walshe (2001: 138) writes that “nursing home providers have made large political contribu-

tions; in some states nursing home providers are prominent in the local political party hierarchies; and

some state and federal legislators have substantial financial interests in nursing home care.”

4. Today the argument that regulations help big business at the expense of smaller enterprises is rarely

considered by progressives but is discussed in right-wing circles (see, e.g., Rockwell, 2012).

5. I discuss these three events as major shapers of the nursing facility industry but it is important to note that

other changes – for example: consumer demand, changes in private insurance, and state-level policies

– occurred and were important during this time period as well.

6. Harrington attributes these nursing home deficiencies largely to the for-profit, corporate model, which

maximizes profits in part by providing minimal staffing and paying low wages (resulting in high turno-

ver). Harrington (2001: 510) states: “The government is reluctant to impose higher standards for staffing

because of concerns over cost. Although the government pays 62% of nursing home bills … financial

accountability for expenditure does not extend to rules governing the services to be provided, the types

of services, how much profit can be made, and how much is spent on administrative costs and other

expenditures.”

7. Though, as Kitchener et al. (2005) point out, bankruptcies were likely due in part to strategic decisions

by corporate leaders as well as Medicare reimbursement changes.

8. Other causes of nursing facility failure included poor investment decisions and malpractice lawsuits.

9. In large part, this is explained by the role of advocacy groups and reports by investigative journalists,

who documented the appalling conditions of many nursing homes.

10. There were 12,400 home health agencies in the United States in 2014, 80 percent of which were for-

profit (Centers for Disease Control, 2016a). An industry analysis (Harris Williams, 2013: 1) points to a

“large, rapidly growing market” in home healthcare and states that while the market remains fragmented,

“larger agencies are actively consolidating to spread fixed costs across broader populations.”

11. The members include virtually all for-profit (70%) and not-for-profit nursing homes in the state.

12. Medicare has used set fees for specific diagnostic categories (“diagnostic related groups” or DRGs) for

inpatient hospital care since the 1980s. “Bundled payments” update DRGs by including care before and

after hospitalization (and thus now pertain to care in nursing homes).

13. Discussing the medical-industrial complex as a whole, Estes and Associates (2001: 183) write, “After

three decades devoted to market rhetoric, cost containment, and stunning organizational rationalization,

the net result is the complete failure of any of these efforts to stem the swelling tide of problems of

access and cost.”

14. The replacement of AFDC with the Personal Responsibility Act was the result of a number of compli-

cated factors, among them racism and sexism (Mink, 1998). I suggest that in addition to these, AFDC

lacked corporate proponents while Medicaid benefitted from corporate support via trade associations and

business advocacy groups.

15. Certified nursing assistants, the main care providers in nursing homes, received an average annual salary

of only $27,510, just over $13.00 per hour, in 2017 (Bureau of Labor Statistics, 2019).

894 Critical Sociology 46(6)

ORCID iD

Leslie King https://orcid.org/0000-0002-2940-6077

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