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Nursing Bad Policy

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Jackson Hammond Temp Headshot
Senior Policy Analyst

Jackson Hammond is a Senior Policy Analyst at Paragon Health Institute. He has been active in the federal and state health policy space since 2017.

Prior to joining Paragon, Jackson was a health care policy analyst for American Action Forum (AAF). While at AAF, his work focused on payer issues including private insurance, Medicare, and Medicare Advantage. Furthermore, Jackson wrote extensively about the 340B Program and contributed to AAF’s research on a variety of drug pricing issues.

On April 22, the Biden administration finalized a rule mandating minimum staffing levels for nursing homes. The controversial new rule is expected to cost the industry, federal and state governments, and patients more than $43 billion over 10 years. Key questions include: Who is paying for all this, and where are facilities going to find staff? Let’s explore the rule and the questions it raises.

Understanding the Rule

In an attempt to ensure adequate patient care and safety, the rule requires that long-term care (LTC) facilities have minimum hours for certain types of staff starting in 2026. Specifically, registered nurses (RNs) must be onsite 24 hours a day, seven days a week, and facilities must provide a minimum of 0.55 RN hours per resident day (HPRD). HPRD is the total number of hours worked by staff divided by the number of facility residents. Nurse aide (NA) coverage must be at least 2.45 HRPD, and total nurse staff coverage must exceed 3.48 HPRD. Importantly, these ratios do not differ based on the general health of a facility’s residents. The rule notes that these requirements are the bare minimum, and facility assessments may require more staff depending on the needs of the facility.

Cost of Compliance

Even by the administration’s estimates, this will not be cheap. The Centers for Medicare and Medicaid Services (CMS) estimates an escalating annual cost that reaches $5.8 billion in year 10 and a total of $43.0 billion over 10 years. These cost projections were made by estimating wages for different nursing positions and CMS’s assumption that only 22.2 percent of nursing homes would have to hire staff to meet the requirement for 24/7 RN coverage. According to an analysis by KFF, only 19 percent of facilities currently meet the new staffing requirements, and would therefore need to hire more nursing staff.

Who is going to pay for all of this? According to CMS, LTC facilities have three options to make up for the increased costs: Cut profit margins, reduce expenditures, and pass the cost to payers. If facilities were to pass on 100 percent of the cost increases to payers, CMS estimates that $28.2 billion would be picked up by Medicaid, with $11.7 billion by states and $16.5 billion by the federal government. CMS further estimates that Medicare would pay $4.7 billion, and non-Medicare/Medicaid payers would pick up $9.2 billion. Admittedly, these estimates assume that facilities will not fire any non-medical staff and that no facilities will qualify for exemptions. Facilities that are in nursing shortage areas may qualify for an exemption and CMS estimates that as many as 29 percent of facilities could be exempt from the full 24/7 RN rule, 23 percent could be exempt from the NA rule, and 22 percent could be exempt from the total staff requirement.

Higher Costs and Lower Quality Facilities

The majority (71.7 percent) of these facilities are private, for-profit entities. When faced with higher compliance costs, facilities would prefer to pass many of these costs onto payers, like many businesses do when labor costs rise. CMS believes that is unlikely to happen, and for good reason: Medicaid payment rates vary by state, and changing state Medicaid payment rates and Medicare payment rates typically involves extensive legislative and regulatory action.

Neither Medicaid nor Medicare were designed to cover 100 percent of the costs of LTC services, so it is entirely plausible that states and the federal government decide against increasing payment rates to cover the higher costs. This will, of course, raise financial costs for the non-Medicare/Medicaid payers, namely the patients and their families, and some may have to leave their nursing homes. It will also increase non-financial costs for nursing home residents who are covered by Medicaid or Medicare (which the vast majority of nursing home residents are), as they cannot be expelled from nursing homes as long as they qualify for those programs. This means the next step for facilities would be to cut expenses where possible, namely reducing the number of social activities, the quality of food options, and non-health care staff. CMS seems to think that its vague and virtually unenforceable regulations on extracurricular activities will keep those activities from getting cut, and essentially hand-waved related concerns. However, limiting the ability of facilities to reduce the quality of these features, or pretending they won’t, is not practical. Finally, facilities may eat the higher costs and bear lower profit margins, but many facilities’ profit margins are already low (the industry as whole had a profit margin of 0.58 percent in 2019, and one survey found that 89 percent of nursing homes had margins of 3 percent or less in 2020) and can’t be cut further without the operation becoming unprofitable. Some facilities, squeezed by limited options for revenue, may decide to cease operating entirely, thus reducing access to care for patients.

Who Will Fill These Roles?

The most challenging issue that LTC facilities will face is finding workers to meet the requirements. A survey by the American Health Care Association, a trade group for LTC facilities, showed that 99 percent of nursing homes have job openings, and 94 percent have faced difficulties recruiting new staff. This is despite 90 percent of surveyed nursing homes reporting that they had increased staff pay in the previous six months, and another 78 percent saying they have offered sign-on and retention bonuses. This survey is backed up by a September 2023 report by the Office of the Inspector General (OIG) for the Department of Health and Human Services, which found major nursing home staff shortages. The OIG report noted severe difficulties in recruiting and found that facilities often resorted to contracting with staffing agencies to fill vacant spots with temporary nursing staff. These temporary staff were both much more expensive, less accountable, and less effective due to unfamiliarity with a given facility’s procedures, staff, and patients.

The labor market problem is particularly challenging since nursing home jobs are difficult and not well-paid compared to other options for trained nurses, such as working in hospitals or physician practices. The Biden administration hopes this rule will force LTC facilities to increase pay and thus incentivize more people to become and remain nurses. Of course, that brings us back to the problems listed above with just how, exactly, this rule is going to be paid for.

A Misguided Rule

This latest staffing mandate rule is simply wish-casting by the Biden administration. There is a labor shortage for nursing homes and requiring short-staffed facilities to magically find new workers with money they’re supposed to conjure up is not feasible and will have numerous unintended negative consequences. Merely mandating more nursing staff does not increase the supply of nurses. In the meantime, given that Medicaid budgets already dominate state treasuries and the fiscal pressures on Medicare make it unlikely the program can increase its payment rates in the near term, the burden of this new rule will fall on patients outside of these programs, who will face increasingly expensive care, and on all residents as facilities are likely to cut social programs and reduce facility quality where possible. Some facilities may decide there isn’t enough money to be made with the new regulations and decide to close altogether, decreasing access. What was an attempt to fix a problem in a few facilities with genuine staff issues is more likely to make nursing homes even worse. As my colleague Stephen Moses has explained previously, we should limit government LTC support to only the indigent, and instead encourage people to begin LTC planning at a much younger age. This will ensure the truly needy will have an effective safety-net in their old age while preserving and improving the quality of LTC in the U.S. with additional private financing.

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