Financial Viability of Public Nursing Homes: NY Isn’t Only State Struggling

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Erika Rosenberg New York isn’t alone in struggling with the financial viability of its public nursing homes. Across the country, public nursing home operators are weighing their options in an era of diminishing state and federal reimbursement. Many counties, especially those in the Northeast, are choosing to sell, or contract out management of the homes, in order to stem financial losses.

In New York, 92% of homes had operating deficits in 2010, as CGR detailed in our in-depth report, The Future of County Nursing Homes in New York State. Financial pressures have led 8 of the 33 remaining counties with homes to decide to sell them, and another 5 to actively consider it. If all those potential sales actually occurred, New York would be left with 20 counties with nursing homes, down from 40 just 15 years ago.

From 2005 to 2009, half of states had declines in the number of public nursing homes, compared to 28% that had increases (more recent data aren’t yet available).

Just 6% of nursing homes across the country are county- or state-owned. With such a small share of the overall market, why should anyone care whether public nursing home care remains available? In some places, county nursing homes provide a valuable safety net, accepting indigent residents, or those with behavioral issues that other homes might be reluctant to admit.

Whether publicly or privately owned, many nursing homes are struggling to break even or make a profit. In New York, more than 60% of non-profit and 30% of for-profit homes had negative operating margins in 2010. Like county nursing homes, these homes face pressures to maximize reimbursement revenue – drawing in more Medicare and private-insurance dollars by admitting rehabilitation patients is one common strategy – and to contain costs.

One of the main obstacles county nursing homes face is the relatively high compensation levels for staff, especially health and retirement benefits. Median employee benefits paid per resident day rose 181% for county nursing homes between 2001 and 2010, compared to increases of 87% in non-profit homes and 74% in for-profit homes (these figures are not inflation-adjusted).

Once again, New York is not alone in this problem. In a few places, public employee unions have agreed to benefit cuts in order to keep public nursing homes afloat, seeing the reality that benefits would be slashed under private ownership.

Unlike other services government provides, nursing home care isn’t mandated, and there is obviously lots of private-sector competition. That’s not true of many other things government does – tax assessment and collection, road construction and maintenance, regulation of private industry and land use – areas in which the generally higher benefits paid to government workers also drives up the cost of those services relative to what they would likely cost in the private sector.

In places where high-quality for-profit or non-profit nursing homes can fill the gap created by a public home sale, a transfer of ownership can potentially save taxpayers money without harming the community. But in places where homes are scarce, such as rural areas, the public home may provide a crucial service that won’t be delivered sufficiently by the private sector.

Each public home’s future should be carefully evaluated in the context of the needs of the county’s population and the landscape of providers able to meet those needs. Each county should undertake a careful due diligence process of assessing the cost-effectiveness and quality of alternative options before making any final decisions. County officials in New York and elsewhere face a difficult and complex task balancing the interests of taxpayers alongside those in need of nursing home care, now and in the future.