Publius: The Journal of Federalism Advance Access originally published online on November 6, 2008
Publius: The Journal of Federalism 2009 39(1):138-163; doi:10.1093/publius/pjn030
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This article appears in the following Publius: The Journal of Federalism issue: Federalism and Health Policy [View the issue table of contents]
Poorhouse to Warehouse: Institutional Long-Term Care in the United States
*Emory University; logden{at}emory.edu
Emory University
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Abstract |
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Nursing homes in the United States are a product of American federalism and reflect the complexities and variabilities of that system. Over time, institutional long-term care for frail elders has shifted from local government funding and administration to state-level oversight and support to a shared federal-state concern. The unsystematic American approach produces haphazard results in terms of quality, equity, and efficiency. The graying of the American population will increase the demand for long-term care, resulting in pressure for a more coherent policy response.
Nursing homes are a reflection of American federalism, a complicated, dynamic system that both presumes and facilitates differences among the states, leads to inconsistent policies between and among states, and produces muddled policymaking and policy directives at the federal level (Derthick 1996
). Over time, institutional long-term care for frail elders1 has shifted from being seen as an exclusively local problem supported by local funds to a state concern funded (in part) and overseen (often laxly) by middle-tier governments to a shared federal–state matter (funded by a combination of federal and state monies and regulated by states under federal standards). With the graying of the American population, and the increased demand that will result for long-term care services, pressure is mounting for a more coherent policy response.
The inconsistency of long-term care policy in America results from federalism's ambiguity and dynamism—ambiguity arises from overlapping performance of key functions and dynamism from periodic invasions of policy space occupied by one level of government by another, forcing reactive changes that, in turn, induce further change (Anton 1997). It is also partly a function of hobbled majoritarianism, in which "the dispersion of authority provides ample opportunity for derailing reform plans," even where mass preferences appear clear (Marmor 2000, 174). Given the difficulty of policymaking under these conditions, a uniquely American solution to elders’ long-term care needs emerged over time, resting on "traditional distrust of a large and activist government, interest group politics, and the continued need for care otherwise unavailable ..." and that arrangement is particularly resistant to change (Holstein and Cole 1996, 44).
Marmor writes of the "persistent divergent approaches to problems of social welfare in America," a dichotomous approach that pursues social insurance on the one hand ("partial solutions to commonly recognized programs through a financing mechanism that is regressive") and private and public charity (the latter funded through the general revenues of federal and state governments, which "in principle provides a more progressive tax base") (Marmor 2000, 25–26). The American policy approach to long-term care has been characterized by swings between the two views and is currently a hybrid with elements of both. No characteristic more aptly displays this tension than the convoluted assignment of long-term care coverage in publicly financed programs. Through a complicated evolution, short-term care (100 days or fewer) in a skilled nursing facility following a three-day (or more) hospitalization is funded for elders by Medicare, the federal health insurance program for all those over 65 years. But long-term care is funded through Medicaid, the joint federal–state health insurance program for poor Americans, which requires nonpoor elders to "spend down," that is, deplete their financial resources, in order to meet Medicaid's means-tested requirements. Eligibility and covered services vary from state-to-state. Medicare is a social health insurance program, funded partially from payroll taxes paid by employees and matched by employers; high-income Social Security beneficiaries pay income tax on Social Security income, a portion of which goes toward Medicare. Medicaid, on the other hand, is funded from general revenues at both the federal and state levels. This messy policy reflects the unsystematic American approach, which produces haphazard results in terms of quality, equity, and efficiency.
A second dichotomy strongly colors the policy milieu: "Although the debate over long-term care reform has many facets, it is primarily an argument over the relative merits of private versus public sector approaches" resting on values (Wiener, Illston, and Hanley 1994). The persistence of this political dichotomy does not facilitate productive policymaking. The market for nursing home services is complex and fragmented, dominated by a single purchaser (the government—or, rather, multiple state governments and the federal government), acting as an agent for the consumers of services. Government is also the licensor and regulator of the industry. Consumers are unable to evaluate the quality of what the government is buying for them (or what they buy on their own), and the government is not much better at quality assessment, therefore determining what to purchase and what to pay is difficult (Vladeck 1980). This observation is particularly trenchant given the national government's online "report card" consumer awareness effort, the first action principle of the current federal plan to improve nursing home quality (Weems 2008).
Added to this are long-standing ambivalence that characterizes the public's (and politicians’) views of poverty, changing notions of deservingness based on age, shifting ideas of which level of government is best suited for service delivery, funding, and oversight (particularly reflected in the complex system of regulation), and persistent and difficult questions of financial security, equity, efficiency, affordability, accountability, political sustainability, and individual liberty (Cox 2005; NASI 1999). Historically, issues related to government roles, responsibilities, and relative preeminence revolve around both ideology and pragmatism, with strongly held views about federalism on either side of the political spectrum being moderated by a persistent pragmatism about efficient and effective government intervention, depending on the nature of the problem and the solution deemed best (Bovbjerg, Wiener, and Housman 2003).
Because public long-term care financing is redistributive, functional federalism would place it most appropriately within the ambit of the federal government. And the federal government has had a large role in long-term care, beginning with the passage of Social Security in 1935. The federal government retains control of the other redistributive programs for older and disabled individuals: Medicare, Social Security, Supplemental Security Income (SSI), and Disability Insurance. However, long-term care has been dominated by legislative or political federalism, shaped by the political incentives that govern legislators’ objectives: chiefly their chances of reelection, which are bolstered by opportunities for credit-claiming, blame avoidance, and geographically concentrated benefits with diffuse costs (Peterson 1995). Seen in this theoretical framework, state and federal policymakers have engaged in an intricate policy quadrille to claim credit for helping vulnerable elders, fostering a local market-based solution to the demand for care, regulating that market, spreading costs across the breadth of taxpayers, and holding industry to acceptable standards of care—explaining the patchwork quilt of nursing home financing, licensing, and regulation in the United States. Ideology and pragmatism have not yet found equilibrium, and marble cake federalism remains a fairly apt metaphor for the admixture of roles, responsibilities, and intergovernmental relationships. Little wonder that Vladeck characterizes nursing homes as "an inadvertent byproduct of public policy" (1980, 242).
With the graying of the American population, and the increased demand that will result for long-term care services, pressure is mounting for a more coherent policy response. As of July 2006, there were 37.3 million persons aged 65 years and older in the United States, accounting for 12 percent of the population. Roughly 4 percent resided in nursing homes—slightly more than a million and a half individuals. That number includes approximately 1 percent of persons aged 65–74 years, 5 percent of those aged 74–84 years, and 8 percent of those aged 85 and older. Over the past three decades, those over 85 have steadily accounted for roughly half the total nursing home residents older than 65. The Census Bureau estimates the 65+ population to double to about 70 million by 2030—to one in every five Americans—and the 85+ group to nearly double to about 8.5 million.
As fiscal and demographic pressures mount, policymakers can ill afford to continue unsystematically. From 1970 to 2006, the combined government share of nursing home spending jumped from 43 percent to 63 percent of the total. "Over the longer term, the increase in the number of elderly will add considerably to the strain on federal and state budgets as governments struggle to finance increased Medicaid spending. In addition, the strain on state Medicaid budgets may be exacerbated by fluctuations in the business cycle .... State revenues decline during economic downturns, while the needs of the disabled for assistance remain constant" (Walker 2002).
The history of federalism in the realm of health policy generally and nursing home care policy specifically takes the form of cyclical, iterative evolution. According to Nathan (2005), periodic changes are predictable (at least in hindsight): The national government has been the source of social policy initiatives in liberal periods in our history, producing Old-Age Assistance (OAA) as part of the 1935 Social Security Act and Medicare and Medicaid in 1965. In more conservative periods, however, states have been the source of innovation and expansion in the social sector, leading to recent expansions in some states in Medicaid eligibility and services, including home- and community-based support for frail elders, as well as some coverage for assisted living facilities as an alternative to nursing home care. As the history that follows shows, however, expansions are often followed by contractions, higher provider payments by steep reductions, and, most troubling, nursing home care scandals by political and public outcry. Making long-term care policy more coherent, given its political federalist history, will be challenging.
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Pre- and Early Federalism: Outdoor to Indoor Relief and Growing State Involvement |
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During the 17th century, all the colonies passed statutes specifying that relief for those impoverished by age or disability was to be organized at the level of the local community and paid for by a local poor tax. Families provided the bulk of care for poor and infirm elders, sometimes with relief in the form of a small pension provided by the community or through tax abatement (Williamson 1984
). Those without families were cared for through locally idiosyncratic systems of outdoor—that is, noninstitutional—relief modeled on the English Poor Law of 1601; indoor, or institutional, relief was unknown. Recipients were expected to contribute to their upkeep by working to the limits of their physical ability (Holstein and Cole 1996; Vladeck 1980; Williamson 1984). Local statutes established the right of the resident poor to support, but, using the English Law of Settlement and Removal of 1662 as a guide, strangers were often "warned out," left to wander from town to town or "passed on," in which the constable of one town escorted them to another. Even community residents, if they were judged nondeserving for some reason (e.g., profligacy, laxity, or alcohol use), were not deemed to have a right to care and, in some communities, their care was auctioned off to the lowest bidder, who agreed to provide for them in return for their labor (Williamson 1984; Holstein and Cole 1996).
The pre-federal era of ad hoc local support for those in need due to age or infirmity gave way to a more structured but still subnational system of poorhouses, almshouses, and county poor farms in post-Revolutionary America, particularly along the more settled and industrialized Eastern seaboard. In 1796, Thomas Paine, recognizing the link between age and poverty, proposed a national pension plan for all those 50 years and older, to be paid for by an assessment on cultivated land (Paine 1796). The young national government did not take Paine's advice, but states gradually took up the problem of needy elders and others. Beginning in the late 18th century, states gradually assumed growing supervisory role of local functions, followed by actual performance of formerly local services (Derthick 2001), including poor relief.
By 1904, when the Census Bureau enumerated paupers in almshouses, as well as statutes governing their disposition, all states save two (Maryland and Texas) had legislation (and, in the case of Florida, a provision in the state constitution) governing poor relief. Most directed that counties, rather than city or township governments, had responsibility for the poor. About 30 percent of states made provision for some sort of state oversight of almshouses, though the arrangements varied. Boards generally had no enforcement power (Munson 1930, 1230). Only four states provided any monies for poor support (Bureau of the Census 1906). In sharp contrast to the deplorable conditions of the publicly funded almshouses and poor farms, during the mid-19th century religious, immigrant, and fraternal organizations started homes to care for their members, predominately elders, including widows and retired clergy and spouses. Over time, these voluntary facilities, which would become the nucleus of the early nursing home industry, added health services to meet the needs of their residents.
From the late 1800s and into the early 20th century, public almshouses became the primary residence of for elders supported by public funds, as these institutions were gradually divested of the diverse populations they had been serving (including blind, cognitively, and physically impaired residents), leaving the elderly in place. Despite attempts to refashion almshouses as old-age homes, however, they continued to be viewed with fear and distaste, and became "a powerful symbol in the struggle for old-age pensions. Hatred for the almshouse created a resistance to any public provision of nursing home care" and led to the government-subsidized but not government-run nursing home industry (Holstein and Cole 1996, 29; also Fischer 1978; Katz 1996; Lerman 1985).
In addition to poor-relief laws, which were not age specific, some states attempted to legislate old-age pensions to reduce age-induced pauperism requiring institutional care (e.g., Arizona in 1914, Alaska in 1915, Pennsylvania, Ohio, and Nevada in 1923), but early state legislation was often declared unconstitutional or defeated in referenda.2 At the federal level, by 1929, forty-eight separate old-age pension bills had been introduced in Congress, and not one had been reported out of committee. However, advocates persisted at the state level, and by 1933, nearly all states had established some form of old-age support, though most pensions were small and qualification requirements strict, including age, means-testing, residency, citizenship, and the absence of familial support; other common requirements were that the applicant could not divest property in order to qualify, was not a vagrant, had not deserted wife or children, and had not been imprisoned. The "greatest single defect" of the state laws was that they made county adoption optional, and, as a result, the system was almost nonexistent in many states (Palmer 1932, 408). At the end of 1934, just prior to passage of the Social Security Act, an estimated 236,205 pensioners were covered by state programs; the average monthly pension ranged from 69¢ in North Dakota to $26.08 in Massachusetts (Stevenson 1936).
Despite legislative popularity at the state level and among the general public for outdoor OAA (Stevenson 1936), no policy or political consensus existed regarding the proper locus for long-term relief and care for elders. Common objections among both policymakers and the public were that old-age pensions were un-American (or Socialist or Communist), too expensive, discouraged thrift, promoted pauperism, and encouraged idleness. To provide a reliable national outdoor relief program for elders, political agreement that outdoor relief was legitimate and that the federal government could be properly used as a new source of funding was required. Until the Depression, however, "these fundamental assumptions did not command the allegiance of either a political majority or executive leadership" (Lerman 1985).
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Cooperative Federalism: Shifts in Roles and Responsibilities for Nursing Home Care |
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 TopAbstractPre- and Early Federalism:... Cooperative Federalism: Shifts... Creative Federalism: Medicare...New Federalism: The Regulatory...From Poorhouse to WarehouseWhy Not Medicare?NotesReferences |
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During the era of cooperative federalism, dating from approximately 1901 to 1960, the federal government was often portrayed as the states’ servant in the kinds of activities that were nationally funded, including social welfare programs—although federal funding typically came with strings attached, and those strings grew both more numerous and tight over the course of this period. The federal intergovernmental grant system, spurred by the Great Depression, expanded and fundamentally changed the power relations between federal and state governments, creating a fiscal federalism that combined federal funding, minimum standards, and oversight with state (and local) program administration and implementation (Wallis 1984
; Bovbjerg, Wiener, and Housman 2003). As early as 1940, concerns were raised regarding federal monies’ distorting effects on state and local budgets (supporting spending that might not otherwise occur for policy initiatives that might not be priorities) and the shifting emphasis from economic stimulation to support, fostering state dependency on the federal government and diminished standing within the federalist system (Harris 1940). In January 1935, the president's Committee on Economic Security (CES) reported that the number of needy elders was unknown, but state surveys indicated a severe problem. Surveys in Connecticut (1932), New York (1929), and Wisconsin (1925) found that nearly 50 percent of their aged population (65 years and older) had less than subsistence income (defined as less than $25 per month). Nearly 34 percent of the population in Connecticut had no income whatsoever. More than 20 percent of Wisconsin elders had less than $8 a month. About 700,000 older people were members of families receiving federal emergency relief; 180,000 were receiving state OAA grants; the number in almshouses was unknown.3
CES program designers, working with Congress, established a federal program of grants-in-aid to the states for outdoor OAA under Title I of the Social Security Act, funded through general revenue derived from federal income tax. Unlike Social Security, OAA was noncontributory and means-tested. To get the legislation passed, the Administration and congressional supporters had to agree to power-sharing with the states, removing a provision requiring that state grants would be sufficient "for an acceptable standard of health and decency" and ceding federal control over standards for state personnel administering the benefit, changes that diminished the total cost of the program and reduced the efficiency and quality of services at the state and local level (Stevenson 1936, Derthick 1979).4
OAA built on the pension systems already in place in twenty-eight states by providing for a 50 percent federal matching grant of monthly payments up to $30 per state-certified beneficiary on the condition that recipients could not be residents of almshouses, instituted as a policy mechanism to hasten the demise of despised, publicly supported poorhouses. Two key characteristics of OAA shaped public programs for the elderly in the years following: First, while the law established a federal match ceiling, it did not establish a floor—states were free to spend as little as they desired and were fiscally able, and many spent modestly. State OAA spending varied considerably, depending on state contributions: "To the needy person in Arkansas the Federal government pays three dollars per month, but to the aged recipient in Massachusetts it pays over fourteen dollars" (Harris 1940, 22). OAA thus had the paradoxical effect of increasing interstate inequity. The five states paying average pensions of less than $10 monthly in 1939, all located in the South—Arkansas, Alabama, Georgia, Mississippi, and South Carolina—received a total of less than $5 million in federal matching funds, but Massachusetts, Colorado, and California, which paid about $25 monthly per beneficiary, received nearly $39 million to cover roughly equivalent populations.5 Second, eligibility determination was left entirely to the states, subject to minimal federal standards, including age (65 years or older), residency (not >5 years in-state residency could be required), and US citizenship. State eligibility rules, like state funding, varied. Most states required that the recipient not be gainfully employed, but limitations on assets and property were variable, as were requirements for familial support, though most states required family members to provide support, if they could.6
After passage of the Social Security Act, some states moved aggressively to close almshouses, but most did not—one reason being the frail and infirm elderly residing in them who could not be removed. Pensions were not a substitute for indoor relief for those elders who were infirm as well as poor. For those not already consigned to almshouses, however, public facilities were supplanted by proprietary homes for the elderly. OAA gave recipients the purchasing power to obtain private care provided by "mom and pop" operators who boarded elders in their homes as well as by existing nonprofit, voluntary homes. But even at this very early stage, there was general dissatisfaction with private nursing homes. Commercial insurers did not offer coverage for chronic illness, the reason many individuals required institutional care (Vladeck 1980; Holstein and Cole 1996). Public payments were insufficient to maintain quality care and ensure an adequate return on investment for owners; the chronically ill poor who needed care were often at the bottom of the list for admission—then as now, nursing homes preferred private-pay patients because they paid more on average (Raffel, Raffel, and Barsukiewicz 2002). "Facilities were often dilapidated and frequently unsafe; medical and nursing care was minimal; reports of exploitation and abuse of residents quickly circulated. Calls for public licensing and inspection soon arose" (Vladeck 1980, 38). Rather than pursue that policy, however, Congress acted to increase the supply of hospital (and, later, nursing home) beds on the assumption that increased market competition would increase quality, passing the Hospital Survey and Construction Act, commonly known as Hill-Burton, in 1946.7
Over 25 years, Hill-Burton provided more than $2.5 billion to help support construction of roughly 6,000 hospitals with more than 350,000 beds nationwide.8 The legislation was amended in 1954 to provide grants to public and nonprofit entities to construct nursing homes, rehabilitation facilities, and outpatient departments of hospitals. The nursing home portion of the amendment was a function of two policy pressures, quality and supply of care. In 1953, long-term care in ten states was judged seriously inadequate by a combined assessment of the U.S. Public Health Service (PHS), which administered Hill-Burton, and the Commission on Chronic Illness, established in 1949 by the American Hospital, Medical, Public Health, and Public Welfare Associations to assess chronic disease in the United States. The 1954 amendments also required the PHS to conduct a nationwide survey of nursing homes, which was provisionally completed in October. The inventory revealed wide variations in the number and types of facilities and beds across states. The number of skilled nursing care facilities—those best staffed and equipped to address medically vulnerable patients’ needs—varied most and was strongly positively associated with state per capita income and over 65 population, and negatively correlated with rurality (Solon and Baney 1954).
Congress appropriated $10 million funded from general revenue for construction of nonprofit and other nonproprietary nursing homes, but conditioned subsidies on the requirement that nursing homes be operated in conjunction with a hospital (private or public), thus transforming nursing homes from primarily residential, custodial facilities into medical facilities. In doing so, nursing homes moved from being a policy component of the social welfare system to a component of national health system (Vladeck 1980). From an economic perspective, nursing home care shifted from being a social good to a consumable good, like other health care. Two additional federal programs provided loans (not grants) from general revenues. The Small Business Administration made direct or participatory loans to proprietary nursing homes and the Federal Housing Administration offered loan guarantees of up to 90 percent of construction costs to nursing home developers. Recipients were not required to be affiliated with any hospital. These loans made nursing homes a more attractive business venture, and new private-sector entrepreneurs emerged, though hoped for improvements in quality of care did not (Holstein and Cole 1996). The influx of for-profit firms fundamentally altered the form and ethos of nursing homes from small, "mom-and-pop" residences and voluntary facilities, and it changed the politics of long-term care, as the new purveyors began to influence finance and regulation policy.
With an increasing supply of nursing home beds, Congress acted to support demand by expanding Social Security. Amendments in 1950 included three provisions directly related to nursing homes: Congress lifted the ban on payments to residents of public long-term care institutions; authorized federal matching for direct payments by states and localities to vendors (not beneficiaries), a policy already in use in several states, in instances where beneficiaries faced total impoverishment as a result of medical costs; and, as a condition of participation, required states making payments to either residents of public institutions or to vendors to establish licensing programs for nursing homes—but did not specify what the standards should be or how they would be enforced. The movement away from individual benefits to payments to vendors is a significant policy shift, and vendor payments increased rapidly, from $100.7 million in FY1951 to $1.7 billion in FY1966, just after the passage of Medicaid (Merriam and Skolnik 1968). Amendments in 1956 further established separate matching for vendor payments. States still had to match these dollars, which kept the overall program small, though a few wealthier states, such as New York and Massachusetts, substantially expanded vendor payments for nursing home care (Vladeck 1980). The vendor payment policy had a political consequence: Beneficiaries were essentially removed as purchasers, and the locus of negotiation over payment rates (and regulation) shifted to facility owners and states, resulting in strong lobbying by the nursing home industry in most states and the relative powerlessness of individual consumers. Over time, the nursing home industry has pressured state and federal policymakers to increase reimbursement rates (and therefore their profits) and to minimize regulation. Militating against looser regulation, however, is the repeated cycle of scandals about care quality.
Various studies during the 1950s found that somewhere between 30 percent and 60 percent of residents in private nursing homes were receiving public assistance. A 1957 study of expenditures found that 53 percent of costs for nursing and convalescent homes were borne by federal, state, and local governments, and government attention began to focus on quality received for those dollars. The federal Commission on Chronic Illness called attention to quality concerns; states also reported problems, which came to light as a result of federal licensing stipulations. In response to growing public concern, the U.S. Senate established a special Subcommittee on Problems of the Aged and Aging (under the Labor and Public Welfare Committee) in 1959. After examining the issue, the subcommittee concluded that because demand outstripped nursing home supply, many states had not fully enforced existing regulations, reporting that, if they did so, the majority of homes would close. Remedies for noncompliant facilities were quite limited; closure was often the only sanction available to states for facilities with serious deficiencies. Two years later the Senate created the Special Committee on Aging and began to hold hearings on nursing home problems in 1963, chaired by Senator Frank Moss. On the eve of the passage of Medicare and Medicaid, the Moss Committee hearings documented five chief reasons for state-level variations in nursing home quality: (i) states had few, if any, weapons other than the threat of license revocation to force homes into compliance; (ii) as a result of the availability of few sanctions, enforcement often meant facility closure. Beds were already in short supply and many state policymakers felt that patients in closed facilities would have nowhere to go; (iii) license revocation required a lengthy administrative and legal process when owners appealed; (iv) even if those processes were satisfied, judges were often reluctant to uphold home closure if the owner claimed deficiencies were being corrected; and (v) nursing home standards and inspections focused on the physical plant rather than quality of care. These barriers were in the minds of the designers of Medicare and Medicaid, who built in stronger regulatory mechanisms as part of the price of federal funding.
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Creative Federalism: Medicare and Medicaid and Nursing Home Care |
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As an entering wedge for Medicare, the Kerr-Mills bill of 1960 established Medical Assistance for the Aged (MAA), an expansion of the vendor payment program under OAA, with two important exceptions: States were permitted to define means-tested "medical indigency" separately from the need for OAA income assistance, so that they could pay for medical services for those not poor enough to meet OAA eligibility requirements. Open-ended federal matching ranged from 50 percent to 80 percent of a state's contribution, in inverse proportion to the state's fiscal capacity, based on per capita income (Corning 1969
, Fine 1998, Vladeck 1980). In 1962, Kerr-Mills was extended to cover medically indigent persons over the age of 21 years who were totally and permanently disabled or blind and not already receiving Social Security Administration benefits, the entering wedge for Medicaid.
In the political rhetoric around Kerr-Mills, the policy expectation was that it would permit states to establish far more comprehensive health insurance programs for needy elders, without burdening taxpayers with insurance for the nonindigent. Although all but nine states adopted MAA programs, some did so only on paper. For example, neither Mississippi nor Georgia ever appropriated any funding for their programs. Three years into the program, five states—very wealthy states, comparatively (New York, California, Massachusetts, Minnesota, and Pennsylvania)—received a staggering 90 percent of federal MAA funds, even though they had a combined proportion of just 32 percent of the nation's elderly and were all in the lowest category of federal matching percentage (Marmor 2000).
Notwithstanding its lack of effect on health care overall, Kerr-Mills had substantial impact on nursing homes. Vendor payments to nursing homes increased nearly 10-fold in the 5 years prior to the passage of Medicare and Medicaid, to roughly $450 million, or roughly a third of total program expenditures. Public funds were paying a large, and rapidly increasing, share of the cost of the burgeoning proprietary nursing home industry. With this in mind, Medicare designers deliberately excluded long-term nursing home coverage because they were afraid it would destroy the budget and political support for health insurance for seniors. At the time of enactment, Medicare included posthospital extended care of 100 days, a provision framed in the medical, rehabilitative model of curative care, not long-term care for chronic conditions. The structure of the benefits, providing acute hospital care and periodic physician care, did not address many elders’ health needs, particularly those who were chronically ill (Marmor 2000). The reason a short-term nursing home benefit was included at all was budgetary; program designers reckoned that a nursing home day cost far less than a hospital day and that care for patients too ill to be discharged to home but not in need of acute care would be less expensive in nursing homes.
Inconsistently, the 11th-hour Medicaid legislation (an expansion of the 1962 Kerr-Mills amendments) did include long-term care for those receiving any kind of cash welfare benefits from federal programs and/or meeting state-established criteria of medical indigency (the backdoor entryway for elders into nursing home care). Medicaid mandated five basic medical services, including "skilled nursing home" care. It increased incentives for state participation and retained the states’ administrative control over the program. Like OAA and MAA previously, Medicaid was optional; states could participate or not, but if they chose to do so, they had to operate within federal guidelines governing client eligibility, provider certification, and payment rates. Most states were quick to access the new source of federal support. The program was uncapped—states were permitted to spend as much as they chose or were fiscally able, matched by federal funds. The federal medical assistance percentage (FMAP), used in determining the amount of federal matching funds for state expenditures for assistance payments for certain social services and medical and medical insurance expenditures, pays a larger portion of Medicaid costs in states with lower per capita income relative to the national average (and a smaller portion in states with relatively higher per capita incomes); it has a floor federal matching rate of 50 percent and a ceiling of 83 percent.
The evolution of Medicaid policies in the intervening 40+ years can be seen as a series of technical decisions about eligibility, services, reimbursement, and financing structures. But the heterogeneity of interests in the Medicaid program—elders, people with disabilities, children in low-income families, impoverished working-aged adults, and varied providers of care—creates an unstable policy environment. These groups differ politically, socially, medically, and financially (Kronebusch 1997). The spend-down provision, held over from Kerr-Mills, is an important element of Medicaid politics, because it broadens the program's constituency to include middle-class elders with high medical costs (Grogan and Patashnik 2003). Medicaid policy, including nursing home policy, is further affected by state and federal policymakers’ political ideology and concerns for reelection (Grogan 1994). Decisions are not merely technical; they rest on deeply held, often divergent political values.
From the beginning, Medicare and Medicaid presented complex problems associated with nursing home regulation, licensing, quality, and poor performance. These problems stemmed in no small part from early implementation decisions at the Health, Education, and Welfare (HEW) department. Nursing homes were essentially unregulated at the federal level and weakly regulated in most states prior to Medicare and Medicaid, and because so few facilities met Medicare's statutory requirement for providing medically intensive posthospital rehabilitative services (as opposed to less-intensive custodial services), HEW staff decided to create a certification category termed "substantial compliance." These institutions would be certified for Medicare participation if they approached statutory requirements and demonstrated the intent to improve through a plan of correction. It was hoped that, once facilities were part of the system and receiving federal payments, quality would improve and they would be brought into statutory compliance. Because the new federal programs offered substantial funding, states agreed to minimal federal standards for nursing homes, which previously had not existed. The federal regulations were lenient, and states and operators soon learned that providing a written "plan of correction" sufficed to address most violations (Fleming, Evans, and Chutka 2003).
Inspecting facilities to determine whether they were eligible for participation in Medicare and Medicaid was a state responsibility; HEW provided central supervision and issued formal certification based on state recommendations. Six months after the effective date for Medicare's extended care benefit (January 1, 1967), there were just 740 facilities nationwide that met the statutory requirements for care, but 3,200 that were in substantial compliance. With the extra supply, demand skyrocketed, as did costs. The chief actuary of the Social Security Administration had estimated that first-year costs for extended care would range from $25 million to $50 million. Actual costs approached $275 million. Part of the discrepancy was increased demand; part was reasonable cost reimbursement. Average daily cost for care was >50 percent higher than projected—in no small part because providers were reimbursed for mortgage interest, depreciation, self-reported costs of care, and an added profit margin (Fleming, Evans, and Chutka 2003). The reimbursement for capital costs was a bonanza for the real estate investors who had been attracted to the industry and resulted in a flurry of sales, resales, and lease-back arrangements among related parties that dramatically increased profits for owners and costs for Medicare and Medicaid. In addition, contrary to the Medicare framers’ operating assumption, there was no cost savings from substituting nursing home days for hospital days. Instead, for each hospital day saved, several nursing home days were used, and a net increase in costs resulted (Hellinger 1977). The government's share of Medicaid-covered nursing home costs also spiraled: as early as 1970, the combined state–federal share was 43 percent of total nursing home expenditures.
Senator Moss spearheaded 1967 amendments to Social Security that tightened federal Medicaid standards for skilled nursing homes, addressing a gamut of concerns from recordkeeping to hospital transfers for acute medical services to staffing and ownership disclosure. The federal department of HEW was in the same bind as before: If it devised regulations that were strict enough to satisfy those advocating for nursing home improvement, then most facilities would be unable to meet them. "There would then be considerable pressure on government, at both state and local levels, to increase reimbursement in order to provide funds for improvement," but there was no way to ensure increased funds would actually be used for improved services "and, in the meantime, many government beneficiaries would end up on the street." Alternatively, the government could issue weaker regulations, "which would mean that government would be abetting the continued maltreatment of helpless older citizens, and would be paying for that maltreatment" (Vladeck 1980, 60–61). Two years elapsed before final regulations were issued, and they were not as stringent as the amendments specified.
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New Federalism: The Regulatory Pendulum |
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TopAbstractPre- and Early Federalism:...Cooperative Federalism: Shifts...Creative Federalism: Medicare...New Federalism: The Regulatory...From Poorhouse to WarehouseWhy Not Medicare?NotesReferences |
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A series of scandals, however, forced the federal government to act—a cycle that would be repeated nearly every decade since. In the early 1970s, following a series of scandals about poor quality, including deadly nursing home fires, food poisonings, and Congressman David Pryor's reports on the House floor of his experiences working undercover as a nursing home orderly, President Nixon convened a high-profile White House Conference on Aging and ordered the creation of the Office of Nursing Home Affairs at HEW, responsible for coordinating efforts by different department agencies and upgrading nursing home standards nationwide. The president issued an eight-point nursing home improvement program, but it was largely politically symbolic, and little substantive improvement was realized (Vladeck 1980
). By 1980, the combined federal–state expenditures on nursing home care was $11 billion, or 60 percent of total spending. The incoming Reagan administration strongly promoted program decentralization, with the notable exception being Medicaid, which the administration proposed taking over, in line with its operation of Medicare. Paradoxically, in 1982, the administration also proposed deregulating the nursing home industry in response to industry complaints about stringency, though the proposal was withdrawn in the face of public, media, and political outcry. The proposal to federalize Medicaid was strongly opposed by the states, for which it would have meant a significant loss of revenue, and it was not enacted. To curb spending, Congress temporarily reduced the FMAP, but did not limit rates of growth (Bovbjerg, Wiener, and Housman 2003).
In contrast to the general trend of cutting social welfare spending, as part of the Omnibus Reconciliation Act of 1980, the Boren amendment to the Social Security Act required that Medicaid nursing home rates be "reasonable and adequate to meet costs incurred by efficiently and economically operated facilities in order to provide care and services in conformity with applicable state and federal laws, regulations, and quality and safety standards." State Medicaid officials overwhelmingly came to oppose the amendment as impossible to operationalize, believing that they were being forced by the courts to spend too much on nursing homes at the expense of other services (Wiener and Stevenson 1998). Protracted battles over certification standards resulted in the Health Care Financing Administration (HCFA) abandoning the effort and instead working to change the procedures for applying existing standards, which also failed. At an impasse, in the summer of 1983, Congress and HCFA agreed to a moratorium on all regulatory changes and mandated a study of nursing home quality and regulation by the Institute of Medicine (IOM). Improving the Quality of Care in Nursing Homes was a rebuke to nursing home deregulation and called for strengthening federal regulatory standards and processes (IOM 1986). The IOM concluded, "There is no American nursing home regulatory system"; instead, there are substantially differing regulatory systems in 50 states and the District of Columbia (IOM 1986, 12). The authors noted that, although the federal government prescribes detailed standards for certified nursing homes, states license (according to widely varying standards), inspect (haphazardly), and enforce (also with wide variance), with the consequence being that substandard nursing homes were allowed to operate, and residents frequently received inadequate and sometimes shockingly deficient care.
Congress responded by including reforms in the Omnibus Budget Reconciliation Act (OBRA) of 1987, which included a requirement for federal regulations strengthening residents’ rights, specific service requirements (nursing, medical, and psychosocial) to help residents attain and maintain the highest possible level of mental and physical functioning and comprehensive patient assessments for care planning (Raffel, Raffel, and Barsukiewicz 2002). The OBRA reforms also included a new resident-focused and outcome-oriented survey process, with mandated unannounced inspections, and a range of enforcement remedies intended to address deficiencies.
In the 1990s, a new category of subacute care facility emerged to provide posthospital care of greater intensity than intermediate care facilities (themselves a creation of the 1971 Miller Amendment to Medicaid). The Balanced Budget Act of 1997, following a predictable increase in spending, cut Medicaid reimbursements, and repealed the Boren amendment, giving states far greater freedom in setting nursing home payment rates, which they immediately lowered, triggering the bankruptcy and reorganization of several large, multistate nursing home chains.9 That same year, scandal again erupted when Time magazine reported that California nursing home residents were being denied food and water and not being provided needed medical care. The Senate Special Committee on Aging held hearings on nursing homes; President Clinton, like President Nixon a quarter of a century previously, ordered a crackdown on nursing homes that abused patients or repeatedly violated federal standards. The president went so far as to order state officials to inspect nursing homes at night and on weekends "so there is no time to hide neglect and abuse" and directed federal officials to focus enforcement efforts on nursing home chains with a history of poor performance (Pear 1998). In 2001, a second IOM report, Improving the Quality of Long-Term Care, called for more data, more penalties, tougher standards and enforcement, and noted that low Medicaid reimbursement was (still) a potential source of quality problems (IOM 2001; Fleming, Evans, and Chutka 2003). More recently, in response to continuing concerns about quality of care, the Centers for Medicare and Medicaid Services (CMS) launched "Nursing Home Compare," an online tool to provide information about the past performance of "every Medicare and Medicaid certified nursing home in the country" and another rating tool that gives consumers "a detailed checklist for rating different nursing homes visited based upon Quality of Life, Quality of Care, Nutrition and Hydration, and Safety" (CMS 2008).
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From Poorhouse to Warehouse |
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Despite the repetitious cycle of scandal, political attention, new or altered regulations, and changes in financing, the essential nature of nursing home care has not changed much. The 2001 IOM report characterized the quality of care in nursing homes as "a major concern for local, state, and national policy makers" (IOM 2001
, 21). Regulation continues to be highly fragmented; federal certification and state licensure systems overlap, resulting in duplication, conflicts, and confusion (Walshe 2001).
Long-term care coverage is inconsistent: Medicaid is "far less uniform than Medicare, and the differences in coverage are particularly sharp" (Coughlin, Ku, and Holahan 1994, 79). Spending for Medicaid-covered long-term care varies widely, from $709 per capita in New York to $147 per capita in California. In theory, strict federal guidelines govern financial eligibility for Medicaid, but, in practice, states have great flexibility in determining how income and assets are counted, and they control functional standards governing disability eligibility for optional long-term care, nursing home care, and services offered under waivers (Wiener and Tilly 2003).10 Services also vary considerably. The system of Medicaid waivers, which allows states enormous flexibility in program design and increases fiscal control, has exacerbated variations in access and services. Some waivers permit beneficiaries to select and manage home-based caregivers and to secure care in assisted living facilities (Holahan, Weil, and Wiener 2003). Recent changes in the long-term care market raise concerns about who is being cared for in nursing homes. With the expansion in assisted living, mean nursing home occupancy rates have fallen and the share of residents who rely on Medicaid has concentrated (Grabowski and Stevenson 2008).
There continue to be wide disparities in nursing home deficiency rates across states. The federal government sets quality and safety regulations, and states determine compliance through survey and certification programs. But both the federal government and states have been criticized for ongoing quality problems and laxity in regulatory oversight (Wiener and Tilly 2003). A recent analysis found that disparate payment rates for public- and private-pay patients, as well as long-standing differences in the populations of for-profit and not-for-profit facilities, along with residential segregation in municipal areas, combine to result in a high degree of racial segregation as well as racial disparities in nursing home quality of care. Black clients are much more likely to be in nursing homes with serious deficiencies, lower staffing ratios, and greater financial vulnerability—the net result being separate and unequal care (Smith et al. 2007). Troubling racial disparities in care range from inappropriate pharmacologic management and physical therapy to higher rates of hospitalization from nursing homes for black residents (Gruneir et al. 2007).
Nursing home care is expensive. In 2007, the average annual cost for a private room in a Medicare-certified nursing home was $74,806 ($204.95/day); a semi-private (double occupancy) room averaged $65,985 annually ($180.76/day). These rates were 5.5 percent higher than the previous year (Genworth Financial 2007). Although governments are carrying a large share of the financial burden, the average family has little security from financial risk, given that more than a quarter of the annual costs of long-term care are now paid for out of pocket. Reinhardt, most prominently among health economists, has decried "pauperised Medicare beneficiaries" required to spend down sufficiently to be eligible for means-tested Medicaid-covered long-term care (Reinhardt 2005, 87). Their forced impecuniosity is exacerbated by the stigma, emotional pain, and administrative burdens they endure in applying for what is viewed as welfare coverage (Oberlander 2003). By that critical criterion, more than two centuries of public policy have not moved us much beyond the almshouse.
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Why Not Medicare? |
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Expenditures for nursing home care in 2006 were $125 million, about 6 percent of total health expenditures. Public spending for nursing home care was $78 million; the federal/state-local split was $54 million/$24 million. Private spending was $47 million (38 percent of overall spending), with nearly $33 million coming out of pocket. Only a little over $9 million of nursing home expenditures (7 percent of the total) was covered by private insurance. State governments are currently encouraging elders to purchase long-term care insurance on the private market in an attempt to reduce the public financial burden now and going forward (Levitz and Greene 2008
). But private long-term care insurance covers a very small portion of those at risk for catastrophic financial losses; the market is not predicted to grow and likely will never play more than a small role in total nursing home care spending (Wiener, Illston, and Hanley 1994). Only about 10 percent of the elderly have private long-term care insurance, and private insurance currently pays for <10 percent of nursing home expenditures.
As a policy fix, experts have advocated tax incentives for individuals to purchase long-term care insurance (The Commonwealth Fund 2008). In the current environment, however, Medicaid coverage crowds out private long-term care insurance (Brown and Finkelstein 2004b), insurance costs are prohibitive for seniors, and coverage often does not adjust for medical care cost inflation (Oberlander 2003; also Brown and Finkelstein 2004a). Limited insurance coverage for long-term care expenditures has important implications for elders’ welfare, and that will only become more pronounced as the population continues to age and as medical care costs continue to rise. Long-term care spending for elders is estimated to increase to $379 billion in 2050 (Walker 2002).
Why has Medicare not expanded to cover long-term care, when elders are its chief consumers? According to Oberlander, the Medicare legislative framers’ concern about costs spiraling out of control has been an ongoing, politically limiting factor. Also, many elders and younger workers paying into the system mistakenly think Medicare does cover long-term care, which undercuts the ability of advocacy groups to mobilize them for benefits expansion. There have been calls to finance a long-term benefit through a premium (The Commonwealth Fund 2008), but beneficiaries (and, thus, many politicians) have strenuously rejected attempts to self-finance expansions through either means-testing or greater cost sharing (e.g., the 1988 Medicare Catastrophic Coverage Act's passage and subsequent repeal). Most importantly, however, Medicaid, even with its imperfections, has reduced pressure for expansion in Medicare.
At the state level, political, institutional, logistical, and philosophical obstacles impede long-term care policy change—and all, at bottom, are financial (Kane, Kane, and Ladd 1998). Medicaid has been steadily growing as a share of state spending, and long-term care accounts for a significant portion—more than $24 billion in 2006. The nursing home industry has become a powerful political influence in each state; other providers as well as consumers influence legislators and governors. States operate under the imperative of maximizing federal money in the face of limited state funding, both for service payment as well as capacity for program oversight and management. State efforts to shift nursing home costs to the federal government11 are part of a larger pattern of tension between state and federal governments over Medicaid (Coughlin, Ku, and Holahan 1994), which also contributes significantly to policy confusion.
The longstanding debate over the proper locus of finance, design, and administration of long-term care programs remains. Federalizing long-term care might promote cross-program coordination of beneficiary services and better care coordination between acute and long-term or postacute facilities, and the federal government would likely be better able to finance the predicted growth in service need. Federalizing nursing home care would arguably reduce interstate variations in access and care. But there remains the notion that state and local governments are closer to the people, and thus better suited to design, deliver, oversee, and regulate programs to best meet local needs and preferences (Wiener and Tilly 2003).
According to Grogan and Patashnik (2003), policymakers are further constrained by a normative and practical dilemma: the real need for nursing home care encourages politicians to expand access, but providing care—especially through Medicaid, a program designed for the poor—to middle class elders is difficult to justify. "The practical result ... is to produce a vacillating political dynamic, prone to controversy and uncertainty" (p. 66).
Opinion strongly differs regarding the relative strength of national versus state governments in the recent era of federalism, and the structure of federal–state relationships (Krane 2007). Within the realm of social policy, although "states have recaptured a great deal of policy authority in recent years, it is unlikely the federal role will be significantly diminished in the near future" (Arsneault 2000, 50; Peterson 1995, Derthick 1996, Posner and Wrightson 1996). The federal government has influenced state health policy through financing, regulation, and oversight. The federal–state relationship has also affected policy diffusion and program innovation, with bidirectional adoptions of change (Arsneault 2000). In the realm of nursing home policy, the middle tier is clearly not dominated by the federal government, and "the persistence of state discretion," in Derthick's words (1987, 68), in both tenacity and tenure is clear. States establish their own Medicaid eligibility rules, payment policies, and nursing home payment rates, and regulate the number of beds, limiting supply in order to limit Medicaid budgets. Medicaid waivers and demonstration programs further extend state discretion.
With neither government tier dominant, federalism's complexities offer multiple points of access for influencing public decision making on long-term care, benefiting a range of actors and stakeholders (Elazar 1972). Shared responsibility increases opportunities for politicians to claim credit (and avoid blame); it allows the national government to expand or launch programs without increasing its workforce, while permitting states to offer otherwise unaffordable services and to replace local tax dollars with federal funds. All-in-all, stasis is a win–win for governments (Anton 1997). Collectively, these constraints impede long-term care policy change. They impose on state and federal policymakers the need to supervise an industry within a financial system limited by local tax payers and strained by the needs of elders as well as poor and near-poor families and lead to policy indecision and inaction. Fiscal and demographic pressures may combine to break the policy logjam.
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Notes |
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1. The history of institutional care for special needs populations other than frail or needy elders—individuals with cognitive or physical impairment (or both) and veterans—is beyond the scope of this article. While many of the overarching issues relating to institutional care are similar across groups, there exist significant differences in the social–political constructs surrounding each, and thus governmental financing, payment, and regulatory schemes. Likewise, long-term care for elders outside nursing homes—specifically assisted living facilities and home- and community-based care—is not addressed, except in passing.
2. For example, Arizona's law was worded so loosely that the court held it unconstitutional; Arkansas’ law was declared unconstitutional because it was deemed to be financed by an unlawful tax. Pennsylvania's was held unlawful on the basis of the state constitution, which prohibited the legislature from making appropriations for charitable, benevolent, or educational purposes. Pennsylvania legislators immediately took steps to amend the state constitution, but the amendment did not pass until 1931, had to be repassed in 1933, and then submitted to a referendum, which was approved. In 1925, the Nevada state legislature passed a bill repealing and replacing the 1923 law. Ohio submitted old-age pensions to a referendum in 1923, but the issue was defeated almost two to one (Ballard and Mayer 1934; Committee on Old Age Security 1935).
3. Just as rates of impoverishment were indefinite, rates of disability among the elderly were similarly unknown to old-age security planners. The National Health Survey of 1935–1936 was a large-scale undertaking to determine rates of disabling illness, chronic disease, and impairment. Health statisticians reported a steep increase in the amount of disability with advancing age, reflecting primarily an increasing proportion of chronic disease and a strong correlation between age, disability, and receipt of any form of relief (Britten, Collins, and Fitzgerald 1940).
4. According to Davies and Derthick (1997), "[t]he administration's bill had attempted an extraordinary degree of intrusion into state policy making and finance; the outcome, presumably in reaction to this attempt, was an emphatic assertion of the states' independence" in funding and carrying out OAA, resulting in varied state funding levels and eligibility requirements (these are discussed in the text). State pension administration was unreliable (Witte unpublished, circa 1935), and the consequences of slack state-level staffing standards were apparent as early as 1939, when a critical assessment reported that "much remains to be accomplished in the direction of improving organization, working out policies and procedures, and developing merit systems for the selection of qualified personnel on an objective basis" (Roseman 1939, 56).
5. At the time Social Security was passed, 31 states had established old-age pension programs, none of which was in the South. Southern states initially balked on OAA not only because of concerns about fiscal capacity but also because race-based discrimination was prohibited, but provisions that kept eligibility decisions in local hands served to obviate that provision in practice (Alston and Ferrie 2005).
6. According to the final CES staff report, in many respects, the various state laws were similar. "With the exception of Arizona and Hawaii, they all specify that pensions must not be paid to old people who have children or relatives able to support them." The great majority of state laws included income and property qualifications: "The property limit is $3000 in most of the laws, while the income limit is $300 to $365 a year. ... A good many of the laws include the provision that the transfer to the pension authority of any property the applicant may possess, may be demanded before a pension is paid. In most laws there is a provision that a pension must be denied to persons who have deprived themselves of property in order to qualify for assistance. Almost all of the laws provide that the amount of pensions paid shall be a lien on the estate of the pensioner and shall be collected upon his death or the death of the last survivor of a married couple."
7. According to Clark et al. (1980), Hill-Burton was "designed as a market intervention strategy to overcome, through the use of public money and authority, the competitive disadvantage suffered by poorer and less urban areas" in attracting both physicians and hospitals (p. 534).
8. Initially, the law required federal funds to be matched with state and local monies at a rate of 1 : 2, a provision poorer localities and states could not meet. In 1949, the federal share was increased to a maximum of 67 percent. State allocations were made by a formula that was determined by population, weighted by relative state wealth, and relative need for hospital beds (Brinker and Walker 1962). The federal funds had strings attached: Facilities were not allowed to discriminate based on race, color, national origin, or creed—except for the proviso that allowed for discrimination so long as separate, equal facilities were located in the same area. (The U.S. Supreme Court struck this provision in 1963.) Facilities receiving funding were also required to provide a "reasonable volume" (undefined) of free care each year. Hospitals were initially required to provide uncompensated care for 20 years after receiving funding. Federal oversight of this element of the legislation was, for many years, inadequate, until class action lawsuits on the part of needy clients forced the government to commit the resources necessary to determine compliance. States and localities were also required to prove the economic viability of the facility in question, effectively excluding the poorest and neediest municipalities from the program—though the obvious equity questions raised by this proviso were not invoked for decades.
9. By 2000, the Clinton Administration estimated that 1,600 nursing homes were operating under Chapter 11 bankruptcy protection, most of them part of chains that had aggressively acquired new facilities and expanded rapidly for several years prior to the new enforcement and payment structures. These facilities were heavily leveraged, having paid top dollar for acquisitions and allowing debt-to-equity ratios to spiral precipitously. More for-profit nursing home operations were operating under Chapter 11 bankruptcy protection than were nonprofits, consistent with the fact that approximately 65 percent of nursing homes were owned by for-profit companies nationally (Pelovitz 2000). As a legal and fiscal strategy, bankruptcy and reorganization allowed many of these firms to avoid paying fines to the government.
10. Financial qualifications for Medicaid are often tied to the SSI program ($623 per month in 2007), but states can and do set higher limits. In addition, to qualify elders must have few assets, typically $2,000 for an individual and $3,000 for a couple in most states. Those who become impoverished as a consequence of disabling injury or illness (the "medically needy") can spend down to state eligibility levels. In 38 states, this is set at income of up to 300 percent of SSI, or $1,869 per month in 2007. However, individuals who qualify for nursing home care through Medicaid are subject to a 5-year review of their finances, intended to prevent people from divesting themselves of assets in order to qualify for Medicaid assistance (Kaiser Commission on Medicaid and the Uninsured 2007).
11. States use several mechanisms to widen that separation, shifting costs onto the federal side of the ledger. Medicare is the first payer of services covered by both that program and Medicaid, and states strive to ensure that Medicare is billed first. Additionally, many states have shifted state-funded home care programs into Medicaid, thus obtaining a federal match for at least half of the costs. Some states use county-run nursing homes as a way to increase federal cost sharing, though the upper payment limit (UPL) rule. Federal law requires that Medicaid payments cannot be higher than what Medicare would have paid for the same service (the UPL). Until 2001, federal regulations allowed states to pay much higher rates at public facilities, and states exploited this loophole to make the higher UPL payment to publicly run nursing homes, which then returned much if not all the payment to the state, which at the same time collected the federal share. "So, at the end of the transaction, the federal government [had] made additional nursing home payments without any real state spending and usually with very little of the UPL funds being kept by nursing homes" (Wiener and Tilly 2003, 257). Most of these funds were recycled in state Medicaid programs, spent for other services, thereby earning yet another federal match (a so-called match-on-match payment). In 2000, 28 states had one or more UPL programs, and combined federal-state spending reached an estimated $10 billion nationwide (Coughlin and Zuckerman 2003). That same year, Congress passed the Benefits Improvement and Protection Act, which phases out UPL schemes, in order to limit federal liability.
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