Nursing homes play an essential role in our health care system. They care for persons who are temporarily or permanently unable to care for themselves but who do not require the level of care provided in an acute care hospital. Titles XVIII and XIX of the Social Security Act establish minimum standards that all nursing homes must meet to participate in the Medicare and Medicaid programs. The states and the federal government share responsibility for oversight of the quality of care in the nation’s 17,000 nursing homes. Oversight includes routine and follow-up surveys to assess compliance with standards and enforcement activities to ensure that identified deficiencies are corrected and remain corrected. At the direction of the Congress, HCFA sets standards for nursing homes’ participation in Medicare and Medicaid. HCFA also contracts with state agencies to check compliance with these standards through surveys at least every 15 months. States also enforce their own licensing requirements in all state-licensed nursing homes, including those with Medicare certification, and check for compliance with these licensure requirements during standard surveys. States also conduct surveys in response to complaints. Enforcement of Medicare and Medicaid standards is likewise a shared responsibility. HCFA is responsible for enforcing standards in homes with Medicare certification—about 86 percent of all homes. When homes are found to have deficiencies at the most severe level, or when homes fail to correct deficiencies in a timely manner, HCFA policies call for states to refer these cases to HCFA, together with any recommendations for sanctions. HCFA normally accepts these recommendations but can modify them. States are responsible for enforcing standards in homes with only Medicaid certification—about 14 percent of all homes. As part of the Omnibus Budget Reconciliation Act of 1987 (OBRA 87), the Congress changed the focus of standards that homes needed to meet to participate in Medicare and Medicaid. Prior to OBRA 87, the Medicare and Medicaid participation standards focused on a home’s capability to provide care, not on the quality of care actually provided. Largely in response to a 1986 Institute of Medicine study, which recommended more resident-oriented nursing home standards, OBRA 87 refocused standards on the actual delivery of care and the results of that care. For example, the focus of the standards moved to such matters as a home’s performance in providing appropriate care for incontinence or for preventing pressure sores, and the performance would be evaluated by reviewing medical records and examining residents. To ensure that facilities would achieve and maintain compliance with the new standards, OBRA 87 also greatly expanded the range of enforcement sanctions. Studies of nursing home regulation had shown that many homes tended to cycle in and out of compliance with standards that were important to protecting residents’ health and safety, thereby placing nursing home residents in jeopardy. For example, in 1987 we reported that more than one-third of nursing homes reviewed failed to consistently meet one or more of the standards that were most likely to adversely affect residents’ well-being. These facilities were nevertheless able to remain in Medicare and Medicaid without incurring any penalties if the deficiencies were corrected in a timely manner. As such, there was no effective federal penalty to deter noncompliance. At that time, the only sanctions available were termination from the program or, under certain circumstances, denial of payments for new Medicare or Medicaid residents. OBRA 87 added several new alternatives, such as civil monetary penalties, and expanded the deficiencies that could result in denial of payments. (See table 1.) the Committee amendment would expressly allow a State to impose civil money penalties for each day in which a facility was found out of compliance with one or more of the requirements of participation, even if the facility subsequently corrected its deficiencies and brought itself into full compliance. This, in the Committee’s view, is essential to creating a financial incentive for facilities to maintain compliance with the requirements for participation (emphasis added). The Department of Health and Human Services (HHS) issued regulations implementing OBRA 87 in two stages. Regulations implementing standards were effective by October 1990, but enforcement regulations covering sanctions did not become effective until July 1995. According to a HCFA official, publication of enforcement regulations was delayed because of the controversial nature of the regulation and the workload associated with responding to the large volume of comments received in the rulemaking process. OBRA 87 gave the HHS Secretary authority to specify criteria as to when and how each sanction should be applied. In developing the regulations implementing these sanctions, HCFA proceeded on the assumption that, while all standards must be met and enforced, failure to meet a standard takes on greater or lesser significance depending on the circumstances and the actual or potential effect on residents. Thus, the regulations established an approach for determining the relative seriousness of each instance of noncompliance with standards. For each deficiency identified in the survey process, the approach places the deficiency in one of 12 categories, labeled “A” through “L” depending on the extent of patient harm (severity) and the number of patients adversely affected (scope). The most dangerous category (L) is for a widespread deficiency that causes actual or potential for death or serious injury to residents; the least dangerous category (A) is for an isolated deficiency that poses no actual harm and has potential only for minimum harm. Homes with deficiencies that do not exceed the C level are considered in “substantial compliance,” and as such, providing an acceptable level of care. The effect of HCFA’s categorizing is that for a home to be out of compliance, it must have one or more deficiencies that subject a resident to at least the potential for more than minimal harm. Identifying the scope and severity of a deficiency also provides the basis for three groups of enforcement sanctions, which may be required or optional. (See table 2.) Homes in substantial compliance are not subject to sanctions. For noncompliant homes referred to HCFA for sanction, the severity of the sanction that must or can be imposed generally increases with the severity of the deficiency. For each category in the scope and severity grid, a sanction from a particular group must be imposed and sanctions from certain other groups can be added. For example, a home with one or more deficiencies rated J or higher must receive a sanction from group 3, and HCFA has the option of levying additional sanctions from groups 1 or 2. HCFA regulations provide that the choice of sanctions is to take into account not only the severity and scope of the deficiency but also a consideration of prior performance, desired corrective and long-term compliance, and the number and severity of all the homes’ deficiencies together. Under their shared responsibility for Medicare-certified nursing homes, state agencies identify and categorize deficiencies and make referrals with proposed sanctions to HCFA. HCFA is responsible for imposing sanctions and collecting monetary penalties. Under HCFA’s policies, most homes are given a grace period, usually 30 to 60 days, to correct deficiencies identified in the standard or complaint surveys. States do not refer these homes to HCFA for sanction unless they fail to correct their deficiencies within the grace period. Exceptions are provided for homes with deficiencies rated J, K, or L and for homes that meet HCFA’s definition of a “poorly performing facility”—a special category of homes with repeat severe deficiencies. HCFA policies call for states to refer these homes immediately for sanction. HCFA also requires a notice period before the sanction takes effect. When a HCFA regional office receives a referral from a state, it reviews the case and the state’s recommendation, decides whether to impose a sanction, and notifies the home if a sanction is to be imposed. Under HCFA regulations, homes have 15 to 20 days to come into compliance, and if a home does so by the deadline, the sanction does not take effect. There are two major exceptions. One is a civil monetary penalty, which can be assessed retroactively even if a home corrects the problem. The other is when a nursing home is found to have a deficiency rated J, K, or L. In this circumstance, HCFA may put a sanction into effect after a 2-day notice period. National data on nursing home surveys for July 1995 to October 1998 showed that the proportion of homes with the most severe deficiencies remained at uncomfortably high levels throughout this period. The total number of homes not in compliance, even for the most serious deficiency categories, remained relatively steady. Furthermore, about 40 percent of the homes found to have serious deficiencies in a survey early in the period were found to have deficiencies of equal or greater severity in a subsequent survey late in the period. Compliance with nursing home standards of care continued to be a problem during the entire 3-year period we examined. Comparing the number of cited deficiencies per noncompliant nursing home during this period showed little overall change from the first, or base, survey (3.79) to the most recent survey (3.74). In the earlier set of surveys, 28 percent of homes had at least one deficiency in the two highest severity categories (actual or potential for death or serious injury and other actual harm); in the most recent set of surveys, the figure was 27 percent (see table 3). In the two highest severity categories, common deficiencies included inadequate attention to prevent pressure sores, failure to provide supervision or assistance devices to prevent accidents, and failure to assess residents’ needs or provide necessary care. Table 4 shows the most frequently cited violations in these severity groups for surveys conducted in the most recent survey period. Although most noncompliant homes eventually returned to compliance, many did not maintain this status. Among those homes cited for deficiencies at the two highest levels of severity during the base survey, about 40 percent were cited for deficiencies at the same or higher level of severity during the most recent survey. In other words, during the 3-year period, 4 of 10 homes that were found by the base survey to have caused actual or potential death or serious injury or other actual harm to residents had deficiencies (possibly different deficiencies) that were just as severe—or worse—in the most recent inspection.