New York nursing homes will be required to put nearly three quarters of their money toward caring for residents, as a nursing home profit cap was included in the 2021 New York State budget.
The profit cap, also called a medical loss ratio, was tucked away in the Health and Mental Hygiene budget bill. The state Senate and Assembly passed the $212 billion budget Wednesday.
The cap will mandate nursing homes put at least 70% of their revenue toward direct care. Of that 70%, at least 40% will have to go toward paying nurses.
The push to curb nursing home profits came as a result of 15,000 New York nursing home residents dying of COVID-19 during the pandemic. Advocates and lawmakers say the deaths were a byproduct of longstanding issues in the long-term care industry, such as understaffing and owners valuing profits over care.
Meanwhile, a New York State Attorney General report found some for-profit nursing homes transferred money to related parties, such as they and their associates’ companies, instead of investing in staffing and personal protective equipment during the pandemic.
One of the groups that pushed for the profit cap was the Long Term Care Community Coalition, which advocates for nursing home residents. Richard Mollot, the group’s executive director, said the state deserves a say on how much nursing homes spend on care, given that the state reimburses nursing homes for Medicaid residents.
“A medical loss ratio ensures that, when we pay facilities for care, we have some assurance that a certain percentage and a meaningful percentage of that money goes toward care, and isn't siphoned off into administrative costs or profits,” he said. “It's pushing a largely for-profit industry to do the right thing and do what it promises to do when they contract with our state and federal government to provide skilled nursing care.”
The nursing home industry opposed the profit cap throughout the legislative session. Stephen Hanse, president and CEO of the New York State Health Facilities Association, called the profit cap a “one-size-fits-all approach” that doesn’t recognize that each nursing home’s finances are unique.
“Many of the nursing homes that are four- and five-star nursing homes, high-quality nursing homes that are fully staffed, were not meeting the 70-40 thresholds,” he said. “And we saw many one- and two-star homes that were meeting the 70-40 ratios.”
Hanse also criticized the profit cap for not counting capital expenses as part of resident care, which he said would disincentive investment in nursing homes buildings, and for failing to address what he calls the largest issue facing nursing homes, the workforce shortage of nurses.
“Men and women are not attracted to working in nursing homes,” he said. “[Licensed practical nurses] especially are leaving nursing homes and going to work in hospitals. Hospitals can always afford to pay workers more and provide more flexibility.”
Hanse blames Gov. Andrew Cuomo, not legislators, for the profit cap. Both the Senate and Assembly passed their own versions of the profit cap, but failed to come to an agreement. The cap was instead part of Cuomo’s executive budget.
“Both the Senate and the Assembly initially wanted to do it outside of the budget. They passed separate legislation and they recognized that it was a very technical issue. We worked with them, but ultimately the executive brought this into the budget and it really pushed it through,” Hanse said. “In the New York state budget process, the executive, based on case law, really has the upper hand in advancing policy initiatives.”
Cuomo, who has faced widespread criticism for his handling of nursing homes during the pandemic, had said he would not sign the budget unless it reformed nursing homes.
New York is not the first state to create a nursing home profit cap. The New Jersey State Legislature passed a profit cap that was signed into law by Gov. Phil Murphy last September. It mandates nursing homes put at least 90% of revenue toward care.
Hanse said it’s “too early to say” whether New York nursing homes will file a lawsuit to challenge the profit cap, but they are “looking at all aspects.” In particular, a provision of the profit cap that says the state can remit a nursing home’s profit if it doesn’t follow the spending ratio.
“There’s Medicaid money that comes from the federal government. The state is taking that Medicaid money that's paid for care already provided and taking it into the state's coffers. We're not sure as to the legality of that,” he said. “They’ll be a regulatory process which providers will fully participate in.”
The profit cap is set to go into effect Jan. 1.