State regulatory enforcement and nursing home termination from the medicare and medicaid programs.

Nursing home services are largely paid for by public insurances and are regulated by the federal and state governments (Walshe and Regulating 2001; Harrington, Mullan, and Carrillo 2004;). In 2007, the annual cost of care provided to the nation's 1.6 million elderly and disabled nursing home patients was U.S.$131 billion, of which 60 percent was paid for by the Medicare and Medicaid programs (Hartman et al. 2009). In order to be eligible for public payment under the two programs, nursing homes must comply with the minimum quality and safety standards set forth by federal legislations. It is estimated that over 95 percent of all homes are Medicare/Medicaid certified. A recent study reported that between 1996 and 2005, approximately 11 percent of a longitudinally tracked group of facilities terminated from Medicare and Medicaid (Zinn et al. 2009). Involuntary termination from federal certification is an important tool used by state regulators to enforce federal quality standards. For nursing homes, termination from certification means that they cannot receive Medicare or Medicaid reimbursement, which likely leads to financial strains. After termination from certification, a facility may be sold to a new owner or closed entirely, and its Medicare and Medicaid residents would need to be moved to another nursing home unless the facility is sold. If the facility ultimately closes, all residents, irrespective of payer source, will be displaced. Transfer of residents to another nursing home entails a burden on the family, which needs to identify an alternative arrangement, and may place residents at risk for adverse health consequences due to changes in environment, caregivers, and service routines (Friedman et al. 1995; Capezuti et al. 2006;). On a macrolevel, the closure of a facility shrinks the supply of nursing home beds in the community, and it may affect access to care in areas of limited supply. In contrast, evidence suggests that nursing homes with poor quality of care or lower occupancy rate are more likely to terminate (either voluntarily or involuntarily) (Angelelli et al. 2003; Zinn et al. 2009;) and ultimately close (Castle 2005; Castle et al. 2009;). Therefore, termination from federal certification may help remove poorly performing and less efficient facilities from the market and increase the overall performance of the industry. Because of concerns about possible service disruptions and the potential political advocacy power of the nursing home industry in shaping state regulations and politics (Kronebusch 1997), state regulators use enforced terminations as a “policy of last resort”—many states do not impose involuntary terminations at all and others impose them sparingly. Table 1 shows the number and percent of involuntary terminations by state in 2006–2007. Thirty-two states had no involuntary terminations. The other 18 had between one and eight, with the highest number of states, seven, having only one enforced termination in this period. Table 1 Nursing Home Terminations in 2006–2007 and State Regulatory Stringencies in 2005 However, nursing homes may choose to voluntarily terminate from the Medicare and Medicaid programs (Angelelli et al. 2003). Indeed, voluntary terminations are more common than involuntary terminations. During the same period of 2006–2007, there were 353 voluntary terminations nationwide compared with only 47 involuntary terminations. And unlike involuntary terminations, voluntary terminations are widespread, with only five states having had none in this period (see Table 1). Yet the consequences of voluntary terminations (e.g., resident relocation and service disruptions) tend to be the same as in the case of state-imposed terminations. The implications for resident care, quality, and local access warrant an investigation of the causes for termination, and in particular the role that state policy and regulations play in encouraging voluntary terminations. In this paper, we present a heuristic model explaining the way state policy affects nursing home decisions to leave the Medicare and Medicaid programs, and we examine empirically the evidence for these decisions. It is important to note that while the majority of terminated facilities eventually close (as the data presented in “Discussion” suggest), termination is not synonymous with closure. Rather, as has been shown for acute care hospitals (Zajac and Shortell 1989; Meyer, Brooks, and Goes 1990; Alexander, D'Aunno, and Succi 1996;), termination or substantial reduction of public funding creates a strong environmental jolt that has profound impacts on facilities' operations and financing and is, therefore, likely to increase the likelihood of closure. When undertaken voluntarily, termination from public certification is a crucial decision made by the current management of the nursing home. Whether undertaken voluntarily or not, it is likely a precursor to further major business decisions which would change the nature of the organization and which may include either closure, selling the facility to another owner, or changing a market niche to serving exclusively private-pay patients.