The Shame of our Nursing Homes | The Nation


The Shame of our Nursing Homes

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Federal officials are promising to subject nursing homes to closer scrutiny in the coming months. President Clinton has ordered a crackdown on repeat offenders, the Justice Department is investigating charges of fraud and abuse, and Congress is poised to reshape Medicare and other programs that pay for long-term care. Yet such efforts focus more on cutting costs than improving care; they fail to recognize that standards remain lax and reforms fall short because of the very nature of nursing homes. Facilities that care for nearly 2 million elderly and disabled residents form a lucrative private industry that profits directly from pain--while taxpayers foot the bill. Nursing homes ring up $87 billion of business each year, and more than 75 cents of every dollar comes from public funds through Medicaid and Medicare. The less of that money homes spend on care, the more they pocket for themselves and their shareholders. To insure those profits, nursing homes are careful not to skimp when it comes to investing in politics: The industry gives millions in contributions to state and federal officials, insuring weak public oversight.

Research assistance was provided by the Investigative Fund of The Nation Institute.

About the Author

Eric Bates
Eric Bates is a staff writer for The Independent, an alternative weekly in Durham, North Carolina.

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James Neal is a short, muscular man with close-cropped hair who has spent the past twelve years behind bars for armed robbery.

Beverly Enterprises controls more than 60,000 nursing-home beds, more than any other company worldwide.

At a time when Republicans and Democrats alike are clamoring to let big business run everything from prisons to schools, nursing homes represent the nation's longest-running experiment in privatization--one that, after half a century, offers a graphic portrayal of what happens when private interests are permitted to monopolize public services [see sidebar]. While the industry is currently struggling to adjust to new limits on Medicare spending, nursing homes still rely on a generous flow of public subsidies. Leading the for-profit field is Beverly Enterprises, which controls more nursing-home beds than any other firm in the nation. Founded in 1963 as privatization accelerated, the company now owns 561 homes like the one in Jacksonville, which is located just a few hours down the road from its corporate headquarters in Ft. Smith, Arkansas. Although Beverly posted a loss last year, it remains an industry giant. In 1997 the company enjoyed after-tax profits of $58.5 million on revenues of $3.2 billion.

The money did little to help elderly residents like Jewel Forester. "I trusted them not to let her come to harm," says Kimberly Holdford, looking at a photo of her grandmother. "Instead, this sweet little old woman who loved me all my life suffered a brutal death. Somebody has got to stop these big corporations from hurting our old people. They're supposed to be in the healthcare business, not the money-making business. All they care about is keeping profits up."

From colonial times, caring for the elderly poor has been a responsibility of government. At first, officials tried not only to pass the buck but to make a few as well. Until the 1820s villages and cities confronted with growing numbers of impoverished citizens routinely auctioned them off to families who provided squalid accommodations in return for grueling work. An observer at one Saturday-night auction at a village tavern noted that citizens "could speculate upon the bodily vigor and the probable capacity for hard labor of a half-witted boy, a forlorn-looking widow, or a halt and tottering old man." But as abuses--and profits--mounted, cities and counties began to operate their own poorhouses for the sick and aged. The expression "over the hill" comes from an 1871 ballad that depicts the plight of an old woman cast out by her children to live in a government-run workhouse.

As industrial mechanization eliminated jobs after World War I, the public began to protest overcrowding and illness in county poorhouses. Reformers often seemed less concerned about aiding the poor, however, than about keeping them away from the well-to-do. "Worthy people are thrown together with moral derelicts, with dope addicts, with prostitutes, bums, drunks--with whatever dregs of society happen to need the institution's shelter at the moment," the New York Commission on Old Age Security complained in a 1930 report. "People of culture and refinement," the commission noted, were forced to share services "with the crude and ignorant and feebleminded."

Spurred by scandals over conditions in public poorhouses, federal lawmakers decided to hand the elderly over to private industry. In 1935 Congress specifically framed the Social Security Act to prohibit cash payments to any "inmate of a public institution." Those over 65 received small monthly pensions, but none of the money could go to government-run homes for the aged. The massive transfer of tax dollars to private business fueled the creation of for-profit homes. Almost overnight, operators set up facilities to exploit pensioners. Sometimes little changed but the name. In Minnesota, private owners removed a large sign identifying the "Dodge County Poor Farm," replacing it with one reading "Fairview Rest Home." The federal government soon began making direct payments to private nursing homes and providing low-interest loans for construction, insuring the fledgling industry a handsome profit. "So rapidly has the nursing home developed during the past 20 years," two observers noted in 1955, "that its history seems more like an eruption than an evolutionary development."

The eruption became volcanic in 1965, when Congress created Medicaid to assist the elderly poor and Medicare to provide health insurance for the aged. The two programs provided a huge infusion of public money into private nursing homes, with few strings attached. Most states limited the number of homes, thus insuring a supply of patients to fill the beds. They also reimbursed homes for all expenses, from mortgage and depreciation on the building to the staff and supplies inside--in essence, giving owners a blank check that virtually guaranteed them a healthy profit on their investment. Before long, global corporations like ITT rushed to cash in on the industry. With backing from Wall Street, the number of homes soared from 13,000 in 1967 to more than 23,000 in 1969.

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