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Are Nursing Homes Crying Wolf?

As healthcare reform starts to look probable, industry groups of all kinds are stepping up their lobbying. One of those groups is the nursing home industry, which is already facing a $16 billion cut in direct support from Medicare over the next 10 years, as well as Medicaid cuts in many states. Twenty-four states have reduced funding for nursing homes in the past year, and Medicaid everywhere pays less than it costs to house and care for elderly patients, say industry officials. So nursing homes depend on Medicare to stay in business, they point out.

The nursing home operators warn that further cutbacks in Medicare-which are part of the reform legislation--will drive many facilities out of business. Some homes are laying off employees now, and a few have recently closed. Meanwhile, the need for these institutions is increasing. The number of people in the nation's 16,000 nursing homes rose to 1.85 million in 2008 from 1.79 million the previous year.

But all is not doom and gloom in the nursing home industry, says the Washington, DC-based Center for Medicare Advocacy. According to this group, reports from the Government Accountability Office (GAO) and the Medicare Payment Advisory Commission (MedPAC) show that Medicare overpays nursing homes billions of dollars a year. MedPAC found that that aggregate profit margins for freestanding nursing facilities exceeded 10 percent for seven years in a row. In 2007, their profit margin was 14.5 percent. Moreover, they didn't add staff. So the Center for Medicare Advocacy believes that the nursing home operators are pocketing much of the profits, rather than reinvesting them.

The advocacy group also charges that nursing home owners are waging a campaign to derail healthcare reform by scaring their residents into thinking that it will reduce their Medicare benefits. The center specifically cites Genesis Healthcare, which owns more than 200 skilled nursing homes and assisted living communities in 13 eastern states. If this sounds familiar, it might be because some Medicare Advantage plans have been sounding the alarm on reform to their members.

So, whom should we believe? The nursing home industry, which depicts reform as a grim reaper that will turn elderly patients into the street, or the Medicare advocacy group, which relies on government data? As usual, the truth probably lies somewhere in between. Nursing home operators have been known to put their own profits before their residents' well-being, but states are certainly cutting back on Medicaid, and some homes are undoubtedly in jeopardy.

The one thing that can be said with certainty is that it's becoming increasingly likely that MedPAC will be transformed into an agency with sweeping powers over Medicare. If that happens, nursing homes better look out.