Indiana has too many nursing homes

August 28, 2014
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Zeke Turner has a way of making controversial statements.

And, sure enough, the CEO Carmel-based Mainstreet, a developer of senior care facilities, was true to form earlier this month when I interviewed him at a north-side McAlister’s about his latest deal—the $950 million sale of the real estate investment trust he started and a $1.4 billion development deal with a separate REIT.

Turner said the Indiana long-term care market was “overbuilt” or, more precisely, “underdemolished.”

“The Indiana market has seen quite a bit of new development," said Turner, between sips of ice water.

The numbers back him up. And they go a long way to explaining why Mainstreet’s rapid building in Indiana has been so controversial among the long-term care and hospital industries (which are now intimately linked via a series of partnerships designed to draw down extra federal payments).

Indiana ranks No. 4 in the nation for the chunk of its Medicaid spending that goes to long-term care facilities—rather than to home health care. Of all the Medicaid dollars spent on long-term care, 68 percent of them go to facilities (including mental health facilities). You can see all states’ totals here.  

That ties Indiana with Arkansas for the highest among all states behind only Alabama, New Jersey and—you guessed it—Mississippi, according to Urban Institute estimates based on data from the federal Centers for Medicare & Medicaid Services.

The national average is just 55 percent, down from 80 percent in 1995. And five states—Washington, Tennessee Minnesota, Alaska and Oregon—spend less than 33 percent on institutional long-term care.

It’s easy to see why more money goes to long-term care facilities: Indiana has more of them, and more beds in them, than the nation as a whole.

According to this report from the Kaiser Family Foundation, Indiana had 49,732 nursing home beds in 2011, or 763 beds for every 100,000 residents. Nationwide, by contrast, there were 528 beds for every 100,000 residents.

That’s 45 percent more beds per person in Indiana than the national average.

The number of facilities here is even more out of whack—58 percent higher than the national average.

Why does all this matter?

Because Hoosiers spend far more of their incomes paying for long-term care than their peers around the country. As I showed last fall, Hoosiers spend $1.1 billion more each year on long-term care facilities than if their spending equaled the national average. Hoosiers also spend $422 million less on home health care than the national average.

The cost differences between care in an institution and care at home are huge. A 2011 report by United Senior Advocate estimated that home care costs an average of $7,100 per patient per year, while care at a nursing home costs about $55,000.

That’s one reason why many legislators, such as Rep. Ed Clere, R-New Albany, thought it was wise to halt new construction of long-term care facilities. It was just the latest effort since 2011, when the Indiana General Assembly called for a five-year plan to gradually reduce nursing home beds and a shift more patients to home health care.

Turner, of course, fought hard to defeat that moratorium. And with some timely help from his father—Rep. Eric Turner, R-Cicero, the No. 2 Republican in the Indiana House—he did.

That victory will allow Mainstreet to proceed with 17 facilities that it intends to build in Indiana in 2015 and 2016 (and possibly allowed some of the seven projects Mainstreet started in Indiana this year to survive).

Turner has argued that most of Mainstreet’s facilities are, instead of stealing patients from older nursing homes, picking up the slack from hospitals, which are keeping fewer patients overnight and for fewer nights. Mainstreet’s competitors, naturally, don’t see it that way.

Mainstreet is hardly the only long-term care company building new facilities. Bloomington-based CarDon & Associates, Indianapolis-based American Senior Communities and Warsaw-based Miller’s Health Systems have joined the party as well.

Meanwhile, nursing home operators are loathe to close their old facilities—the average age of nursing homes is about 40 years—because debt-free facilities are highly profitable. Also, in some communities such as my hometown of Sheridan, there is only one nursing home. Closing such facilities would create a burden as the residents would have to find care farther away from their friends and families.

But so long as Indiana’s long-term care providers are building new facilities, and are keeping their old ones open, it appears that Hoosiers and the state Medicaid programs will be paying higher long-term care bills than the rest of the country.

  • Is it about campaign dollars?
    Years ago the General Assembly passed legislation allowing home care. No money or teeth were put behind it so we continue with the out-of-control spending on new nursing homes. Could it be that the nursing home lobby and developers are lining the pockets of legislators? Most likely. Older Hoosiers want to remain in their homes and get the care they need when health issues occur. And as you pointed out, it is cheaper yet we continue to see more and more facilities being built.
  • Increased competition to reduce cost of long-term care?
    Seems like Hoosiers could benefit from the overbuild by way of increased competition between facilities causing the cost of long-term care to go down.
    • Real Solution
      Also long-term care dollars spent on nursing homes is a tragedy. It's an abominable situation for individuals forced to live in nursing homes, and is an incredibly tough job for underpaid caregivers who frequently get burned out. The good caregivers find better jobs, and the ones who can't stick around to abuse and neglect residents. Indiana needs to do more to foster consumer-directed care. In most states, a fiscal intermediary is hired to take care of payroll, while individuals needing care are able to hire and fire their own caregivers. This enables the individual in need of care to exercise autonomy, and ensures more accountability on the part of caregivers. Caregivers prefer this setup because they, too, have more autonomy in choosing which clients they work for, as well as more say in their schedules. Moreover, the State benefits because there is no need to pay overhead to a nursing home or home health care agency. This allows the State to raise wages for caregivers (attracting higher quality workers, which improve care) AND save money. Currently, Indiana only offers this service to certain individuals on the Aged and Disabled Waiver. There is also only one fiscal intermediary. We can do much better. I hope after HIP 2.0 dies down, Secretary Wernert, his team, and Governor Pence will direct attention to this issue.
      • To kfc
        In normal markets, you would be correct. But things don't tend to work that way in health care because providers don't compete on price. Since the vast majority of long-term care patients are paid for by Medicaid or Medicare, which set prices based on cost calculations rather than negotiate prices with providers, the providers that cut their fees will not attract more patients--or will not attract nearly enough to make it worth it. So no one cuts prices. Instead, the way to attract patients is to offer nicer facilities and nicer amenities, to boast higher quality or to remain more convenient to the residents' families. Those things tend to add costs, not reduce them.
      • Yes, but where do we rank?
        Indiana ranks pretty close to the bottom when it comes to quality of care ranking. The industry in Indiana has some of the lowest rankings in the nation when it comes to nurses per patient in a nursing home, RN versus LPN or lower. There a several more rankings or score categories in which Indiana's nursing home s rank extremely low. PLEASE NOTE: INDIANA HAS ONLY 5 NURSING HOMES STATEWIDE EQUIPPED TO TAKE CARE OF PATIENTS WHO NEED LIFE SUPPORT EQUIPMENT.YOU WOULD NOT PUT YOUR WORSE ENEMY IN ANY OF THEM. I KNOW, I HAD TO USE WHAT WAS CONSIDERED THE BEST OF THE FIVE. MY FATHER WAS DEAD IN TWO DAYS FROM BEING ADMITTED.
        • Clearly, you don't have a loved one in a modern facility.
          My father recently moved to an assisted living facility which accepted Medicaid. His health and quality of life have increased significantly. He could not afford it but for Medicaid. So...speak for yourself (or whatever industry you seem to be representing) when you say it is a travesty that federal dollars are spent on nursing care.
        • There's a difference
          Your article seems to use "nursing home" "senior care" and "long-term care" interchangeably. There is a difference. Does Indiana have 49,000 nursing home beds? 49,000 senior care beds? Something else?
          • Costs in US
          • Wish that were the case
            Unfortunately as I have witnessed over the years, some nursing homes are forced out of business by the latest and greatest homes but costs have continued to skyrocket. Competition, in this case, will not drive down the cost of healthcare.
          • To Not exactly the same
            The figures I cite are for skilled nursing facilities and skilled nursing beds, not for assisted living or other forms of senior care. You are correct that they are not always the same, but int this article they are. My use of "senior care" was only to describe Mainstreet's facilities, many of which take no Medicaid patients at all, but instead take Medicare and private-pay patients. Since those are the better-paying patients, other nursing home operators accuse Mainstreet of skimming off their most lucrative patients, leaving them with an abundance of low-paying Medicaid patients.
          • Horrible Care
            Most of the nursing homes I have dealt with are nothing more than warehouses to abandon the elderly. The last one my parent was in, pro staff was great but the day to day care, room cleaning, supposed activities that my mother never got to do were a damn joke. Some of the staff were actually upset that we showed up all the time to check on my mother, especially after numerous calls to the facility were not answered, we made " night runs" at 2am. It is not about the quality of care for folks who have worked hard to make the world a better place. It's about creating jobs and facilities that they hope families will just drop off their loved ones and check in not at all or every once in awhile-while the elderly deal with abuse and neglect.
          • Indiana Lags Behind
            I am going to make a generalization that many will shrug off as BS. Indiana is a state that has political leadership and a culture that resists change for just about everything; its conservative nature seems to be the source of inertia. We lead on nothing except cutting corporate taxes. That is why, in some ways, our K-12 educational system, health care system and health care results, progress on social issues, and economy produce results that lag behind most of the country. I think most of the responsibility lies with our state leadership over the past decade. The times they aren't a changin'.
            • common misunderstanding
              Second comment illustrates a common misunderstanding of how NF reimbursement works. There is no competition for price when Medicare and Medicaid are the primary payers for NF care. The shift to community services from institutional care not a level playing field in Indiana.
            • NH Boondoggle
              The cost of healthcare is exponentially higher because Medicaid provides a higher reimbursement rate for "government owned" healthcare facilities compared to privately owned facilities. Due to this issue, private operators "lease" their facilities to "government owned" groups like HHC. HHC then pays the former owner to operate the home. Literally, by shifting the ownership through a lease they get paid hundreds of millions dollars more than they would if privately owned. This process is akin to stealing from the government and is a classic example of a government taxpayer boondoggle.
            • Marion County HHC
              As long as we are on the topic of HHC, it would be interesting to see an IBJ report on medical malpractice claims at their facilities. I wonder how many claims they would find. Incidentally, why does Health and Hospital of Marion County own nursing homes all over the state if their mission is to serve Marion County?
            • Good story
              Appreciate your clarifications based on comments. Nice story. Kind of eye opening how the system can be manipulated to improve profitability at the expense of taxpayers.
            • What keeps underdemolished facilities open?
              What I don't understand is why these "underdemolished" facilities are staying open? If the patient population is spread so thin, why aren't they driven out of business? Even if you account for the market distortions of Medicare / Medicaid reimbursement, there are only so many patients to go around. Unless, of course, we are seeing more patients steered toward long-term care and away from home care by ordering physicians and hospitals...but why would that happen in Indiana more than elsewhere? Couldn't the hospitals make a few bucks by doing more home care under their umbrellas? Are they reluctant to send patients home because they are worried about lawsuits -- and, if so, why would they be more worried about that here in Indiana than in other states considering our malpractice caps? Something else is going on here to cause all of this. And simply capping the number of long-term care facilities seems to be attacking the symptom, not the underlying disease. Please continue to dig deeper into this, JK!
            • Please Clarify Causation
              I wasn't able to gather from the article why having more of these homes and beds directly leads to the increased percentage of dollars spent on facilities vs in-home care. Is there any insight into why more Hoosiers are opting for the facility route over the in-home route (as compared to other states)? From a layman's perspective, it seems the percentage of dollars spent on long term care would align with our choices of care rather than the amount of homes and beds available. I can see why building a new home might be a bad business decision (i.e. if the demand isn't there), but not seeing how adding a new home hurts the state. Are we saying that people are being forced or misled into these high cost options? If so, I think that would be your headline, not the number of homes.
              • Saturation
                Didn't we just go through the same with hospital over-construction? Suddenly Indiana had some of the highest hospital rates. Not surprisingly the over-construction led to over-saturation and the inevitable cost cutting measures by hospitals.
              • Politics
                There has been a long battle between supporters of in home elder care and nursing home care. Both are partially supported by various streams of Medicaid funding. In the end the legislature caves to the nursing home industry by maintaining funding there instead of for home care. Other states have done the reverse because it is cost effective and better care. Therefore families wishing to care for their seniors at home and needing some assistance can't get it for home care but can get it for nursing home care. For more information contact your local Area Agencies on Aging, in central Indiana that is COCOA.
                • Typo
                  CICOA not COCOA!
                • We're A Very Competitive State
                  I agree with you! But remember, we're a very competitive state. We compete for lax environmental standards, low paying jobs and lowering taxes for corporations. Our main competing states are Arkansas, Mississippi, Alabama, South Carolina-- get the picture? Some people love cheap housing costs, low paying jobs for the masses and very limited government. Sad, but this is the "attitude" that many Hoosiers fall for. It's not real economic development, and it squanders Indiana's assets and talent to have leaders like this.
                • Too many nursing homes / Medicare
                  There are too many nursing homes, just a thought, could be due to the lack of healthcare payments from Medicare to physicians. I have a family member who is 76 had 2 back surgeries, and needs a 3rd due to the severe pain. Insurance doesn't pay enough to the providers, he always wondered if there'd be a day where older seniors will just be left to die. The reply given, yes you need surgery, hum not sure who could do it. Thankful, he is a go getter, however, never out of pain. Pain keeps those from moving, thus, where to look to, Nursing homes. So sad.

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