Nursing homes: Will new federal rules curb abuse and lead to better care?

By Brett Arends

The challenge of finding and hiring staff at nursing homes is enormous

The Biden administration announced new regulations this week designed to reduce the cases of neglect, abuse and misery at America's 15,000 nursing homes.

The key feature of the new rules is a sharp increase in minimum staffing requirements. Once these rules are implemented, nursing homes will be required to have a registered nurse on site 24 hours a day, 7 days a week. And they will be required to employ nurses and nurses' aides for a total of 3.48 hours per day, per resident.

The theory is that more staff, and especially more qualified nursing staff, per resident will lead to better quality of care, less abuse and less neglect. It's intuitive, and there's some research to support it.

But the rules raise more questions than they answer: Will they ever be implemented? If so, who will pay for them? And how much difference will they make?

Richard Anderson at Wedbush Securities thinks there is a good chance the regulations will end up dramatically watered down over time, or even repealed - for example, if Donald Trump wins the presidential election in November. Even if that doesn't happen, Anderson says, the regulations contain so many loopholes and possible exemption clauses that the final result may be far less robust than many expect. As he put it in a recent note: "A concession here, an exemption there until minimum staffing essentially becomes a nonevent."

The administration has given nursing homes up to five years to implement the rules.

The operators have been fighting these regulations tooth and nail, and they will continue to do so.

"This fight is not over," the AHCA/NCAL, the industry trade association, said in a statement. It added that "momentum against the mandates continues to build among both Democrats and Republicans."

It's notable that the biggest stocks in the sector - nursing-home real-estate investment trusts such as Sabra Healthcare (SBRA), Omega Healthcare (OHI) and operator Ensign Group (ENSG) - have been largely unmoved by the announcement. Vikram Malhotra, an analyst at Mizuho Securities, says this may be in part because Wall Street was already braced for bad news on regulations.

It's easy to dismiss the industry position on the basis of self-interest, otherwise known as greed. But in fact, that position is not totally crazy.

There is a growing national shortage of nurses, as well as nurses' aides. A study published in 2019 predicted a shortage of about one million nurses by 2030. And that was before the pandemic, which led to an exodus from the profession.

It's one thing to say nursing homes need to hire a lot more staff. It's another thing to find and hire all those employees.

The challenge is enormous. The federal Centers for Medicare and Medicaid Services estimates that currently, 21% of U.S. nursing homes meet these staffing standards.

Meanwhile, the CMS reckons that implementing the staffing mandate will cost about $43 billion over 10 years. That's not a huge amount of money. But it's an artificially low estimate, because they're also expecting the first five years to be spent phasing in the rules.

By year 10, they estimate, the rules will cost an additional $5.8 billion a year.

America has 15,000 nursing homes, which have about 1.2 million residents. So that bill will average just under $400,000 per facility per year, or nearly $5,000 per resident.

Is this the best use of that money? If you wanted to stop nursing-home neglect and abuse and you had $400,000 to spend per facility, would you spend it all on more staff? Or would you spend some of it on, say, state-of-the-art technology to improve healthcare monitoring? It's easy to say you'd spend it on both, but the same dollar cannot go to two different places.

The original landmark research linking staffing levels to patient outcomes dates back to 2001 - long before inexpensive wifi, nanny cams and granny cams, and healthcare devices such as the Apple Watch (AAPL), which can monitor falls as well as things like heart rate, breathing rate and blood oxygen levels.

Of course, a healthcare monitor cannot take an infirm person to the bathroom, feed them, pick them up after they fall or simply provide human companionship.

On the other hand, hiring more staff won't necessarily lead to better care of nursing-home residents or protect them from abuse. Some estimates suggest that about half of nursing-home staff have committed some form of abuse or mistreatment - and that nearly half of residents have been on the receiving end of such treatment.

-Brett Arends

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04-24-24 1619ET

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