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Hot Button Topic: Is the Type of Nursing Home Ownership Important?

Published January 22, 2008 10:27 AM by Brian Garavaglia

A recent September 2007 New York Times article entitled, At Many Homes, More Profit and Less Nursing, discussed the issue of profit and ownership, especially by private equity firms. This article especially was quite critical of many companies that reduce important nursing staff to enhance their profits. For those nursing homes, especially those owned by companies that know little, if anything, about health care, this can become a very important problem. 


However, the reality is that although the nursing home industry is one of the most regulated industries in the United States, with a plethora of state and federal regulations that govern the daily operations of nursing care facilities, there are very little regulatory requirements for those who want to get involved in ownership of long-term care facilities. Because of this, many soon-to-be-owners enter the industry to obtain a bottom-line profit, coming from numerous areas and professions with little understanding of the nursing home industry and the regulatory requirements that govern this industry. 


For the administrator this can be quite disconcerting. As a person that has to not only understand the financial situation of the nursing care facility, but also hold the responsibility for making their nursing home attain quality care standards toward servicing their residents, administrators are often placed into a bind of attempting to minimize costs, enhance their revenue, and still provide sound care. The resounding impact of the New York Times article was felt back on capital hill where our country’s legislators have started to talk about investigating this issue further. 


However, should we be so surprised that these problems exist in the nursing home industry, especially when private equity firms and other group investors who become involved in the long-term care industry think doing business and closing sales in health care is similar to that found in the retail or restaurant industry. Moreover, administrators and other long-term care staff often face conflict between what they know is correct and best practice in servicing the nursing home population while at the same time having to address the myopic bottom-line concerns of many owners who want to maximize their profit. 


Last year, Consumer Reports found that not-for-profit nursing homes often service the nursing home population better than for-profit nursing homes. Furthermore, independent nursing homes have been found to provide superior care than larger chain-owned nursing care centers.  However, this is not news that is new. Numerous studies have found similar results.  In reality this makes a great deal of sense. Nursing homes were never meant to be profit centers, leading investors to maximize their returns. The very nature of these health care facilities have been built around servicing frail and infirm individuals that often need extended care or extended levels of rehabilitation. 


Also, by placing individuals who know very little about health care in high authority positions with values that dictate profit at the expense of quality care, an inherent contradiction is now in place that in turn creates potentially harmful consequences as reducing nursing staff as was found in the New York Times article.   


The major dilemma that results is when the capitalistic business values of our society collide with the values of our health care sector. Health care deals with human lives and not selling widgets.  Reducing costs through eliminating staff, supplies, or key positions within nursing homes are not the same as doing so within a retail sector that does not deal explicitly with sick, ill, and frail patients. The variable costs dealing with the types and levels of acuity of residents that nursing home’s service cannot or should not be equated with the fixed volume of inventory found on car lots. Furthermore, nursing homes, the acuity of the residents they serve, and the number of skilled personnel that they must have, can change dramatically on a daily basis, which is something that is typically not found in other business sectors. This in turn leads to volatility in variable cost factors in long-term care that is not typically found in non-health care sectors.


Given all that has been mentioned, the reader should not interpret that nursing home administrators should fail to be adroit health care administrators. They need to reduce unnecessary costs and enhance their revenue if possible. However, this should never be at the expense of the care that is provided to residents. Streamlining the business environment in nursing homes aimed toward achieving greater efficiency is still as important as it is in other types of business.


Yet, since nursing homes deal with human lives that often need to be serviced to a considerable level, the business environment of nursing homes is also quite different than the traditional business environment. Cutting costs become more difficult when the acuity of resident care is raised considerably. Companies or owners that get involved in nursing home care failing to understand this unique feature of the nursing home industry are bound to fail.  Furthermore, the types of cost control that they may institute, similar to the types of control that they have instituted in other business sectors, could lead to deleterious results when applied to patient care.                 


Therefore, how does the administrator, who may be sandwiched by the company advocating bottom-line profit and strong operating margins versus providing for the needs of their residents even at the expense of reducing profits reconcile this very difficult dilemma? It becomes a source of ethics. As mentioned previously, the administrator is always entrusted with understanding the larger picture of the nursing care facility that they oversee.


The administrator should never just see himself or herself as a businessperson, but hold firm to viewing their primary role as the chief advocate of the residents they serve. This may not always be a comfortable fit with those who run the company, but reconciliation should never mean compromising the integrity and ethics of the administrator. Good businesses and good business people will recognize that, not just in words of mouth, but also manifest through their behavior. 


As Edwards Deming preached, if you focus on servicing customers, or in this case residents, achieving positive bottom line results will come, but they should never be the end in themselves.  Unfortunately, as brought to the attention of the American public by the New York Times, too many companies in nursing home care today are uncompromisingly and myopically focused on the bottom-line profit margin at the expense of care.


In conclusion, nursing homes were never meant to be major areas of investment but providers of an important type of health care. It should also be mentioned that there are some very good companies and nursing care facilities that have a firm understanding of their values and the reasons they are involved in the practice of nursing care.


However, as has been mentioned in this article and in the New York Times expose, there are also some that have questionable values that need to be re-examined. Nursing home administrators have to take a clear stance at demonstrating the roles and values that should be emblematic in nursing home care. They are more than just business administrators, but health care administrators vested with the responsibility of protecting and advocating for the sick and infirm they ultimately service.             



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About this Blog

    Brian Garavaglia, PhD
    Occupation: Long-term care administrator
    Setting: Sterling Heights, Mich.
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