Capitol Offenses

Who's responsible for the nursing home crisis?


Texas tort reformers thought they had left no stone unturned in 1995, when they pushed through a cap on punitive damages that all but ended the days of giant jury awards for personal injury and wrongful death cases. In fact, they missed one: The cap does not apply to defendants who kill, rape, or kidnap someone, or to those who knowingly cause harm to children, the elderly, or the disabled. That failure of courage by the 74th Legislature may be partially rectified by the brave souls of the 77th, led by Rep. John Davis (R-Houston). The special exemption for the elderly and the disabled has to go, according to Davis, because it has created an onerous burden for the nursing home industry, which has been hit in recent years by a series of enormous jury awards in cases brought by clients or their families. “They’ve become an easy target for the trial lawyers,” Davis says.

The awards are astounding: A Fort Worth-area nursing home operated by Horizon/CMS Healthcare has been hit with two huge suits in the last four years, including a $90 million judgement in 1997 (Auld v. Horizon), and a $312 million award this spring (Fuqua v. Horizon). Equally astounding are the stories of neglect and abuse in Texas nursing homes. Dependence on poorly-trained, underpaid, and overworked staff, particularly in the for-profit homes, has led to an alarming decline in the quality of care. Patients have been literally starved to death, physically abused, or allowed to lie in one position until pressure sores wore through to the bone.

It’s not an easy bill to explain to the folks back home—that the state can no longer afford to give special protection to the elderly and disabled. But neither is it easy saying “no” to the for-profit long-term-care industry in Texas, which is dominated by large corporate chains such as Texas Health Enterprises, Mariner, and Integrated Health Services. Davis’ H.B. 2225 is just one of a package of “regulatory relief” bills being flogged this session by the Texas Healthcare Association and some two dozen lobbyists, including capitol heavyweight Buddy Jones and former Speaker of the House Gib Lewis. In addition to the liability issue, the industry has been chafing under the oversight of the Department of Human Services, particularly since 1997, when the Legislature, led by Senator Mike Moncrief (D-Fort Worth) and Rep. Elliott Naishtat (D-Austin), imposed stricter regulations and stiffer penalties on homes in response to widespread abuses. Two new bills, S.B. 1082 and 1083, by Senator Chris Harris (a perennial point man for the industry) would rollback some of DHS’s authority to inspect and cite deficiencies in homes. A bill by Rep. Craig Eiland, H.B. 3476, would limit the use of DHS reports, which provide valuable eyewitness accounts of safety violations and other abuses in homes, in civil suits brought against nursing homes. Senator Robert Duncan’s (R-Lubbock) S.B. 1555 would also make it harder to collect punitive damages from nursing homes. The American Association of Retired Persons is vehemently opposed to these bills.

Equally disturbing, industry watchdogs say, is a behind-the-scenes push by the industry toward self-regulation. In early March, House budget writers, led by Eiland, cut 82 full-time positions from DHS’s regulatory division, along with $1.9 million in funding, and assigned the resources to a proposed new “Quality Assurance” nursing home program under the Health and Human Services Commission. Rather than focusing on enforcement, the new program will be more “consultative” in nature. A few days later, a new industry group calling itself the Coalition for Quality Eldercare staged a press conference in which they announced a new Quality Credentialing Program, a sort of self-monitoring vehicle for the industry to police itself. The press conference, organized by public relations guru Bill Miller, was something of a coup. Miller managed to line up House members from both parties to endorse the program, which is being “spearheaded,” according to the press release, by Houston Democrat Sylvester Turner. Turner, who has not generally worked on long-term care issues, now says that although he supports the goals of the Coalition, he would not support self-regulation by the industry. “I think we’re a long way from that,” he told the Observer.

This much is certain: Texas nursing homes are in crisis. One quarter of the state’s roughly 1,250 nursing homes have filed for bankruptcy. All but one of the regulated liability insurance providers have pulled out of the Texas market. Homes have been forced to turn to what are known as surplus lines carriers: essentially unregulated, out-of-state insurers that can charge whatever rates they please. Premiums have shot up, for both for-profit and non-profit homes, even those with exemplary compliance records.

But the solution to the crisis is far from clear-cut. Despite promises to the contrary, tort reform has not generally produced lower insurance rates in Texas, according to a study by former Insurance Commissioner J. Robert Hunter. Capping punitive damages is unlikely to bring insurance rates down for nursing homes, either. That’s because insurance companies don’t generally cover punitive damages, which by definition are assessed for intentional, not accidental, harms. In theory at least, that leaves the nursing homes themselves on the hook for those headline-grabbing awards, not the insurance companies. In fact, few of those large awards have actually been paid at all. Although the 1995 law capping punitive damages contains an exception for injuries to the elderly, in order to take advantage of this provision (known as “popping the cap”), plaintiffs must prove that the defendant acted knowingly—a very difficult standard. According to Carol Taylor of the Texas Trial Lawyers Association, only one nursing home suit filed since 1995 has actually taken advantage of the exemption. The home in that case failed to protect its clients from a fellow resident who was known to be dangerously violent; as a result he raped a 98-year-old woman, who later died. More commonly, juries have awarded large damages, only to have them subsequently pared down by the cap, or by the judge, who has the discretion to limit punitive damages as he or she sees fit. The $90 million Auld verdict in Fort Worth, for example, was eventually reduced to $9 million. (It’s one of the few that has actually been paid—most of the other large verdicts are tied up in appeals.)

Availability and affordability of insurance is not a problem limited to Texas. Florida no longer has any regulated carriers covering its nursing homes. The general trend nationally is for insurance carriers to pull out of the long-term-care liability market, according to Abby Sandlin of Texas Watch, a long-term care watchdog group. Because of nationwide problems in the industry, “there is a growing sentiment that they don’t know what they’re insuring,” she said. Nor is the financial crisis in nursing homes unique to Texas. Roughly 90 percent of the bankrupt homes in Texas are owned by four corporate chains (three national and one Texas-based), whose financial troubles have more to do with poor business decisions than greedy trial lawyers. Financed by free-flowing federal Medicare funds, nursing home chains went on a buying spree in the 1980s and early ’90s, snapping up smaller firms and related companies, and racking up huge debts in the process. When Congress tightened the flow of Medicare funds in 1997, the large chains were caught in an untenable position, one they should have anticipated, according to a study by the U.S. General Accounting Office. Instead, they continued buying companies right up until the rug was pulled out; when Integrated Health Services (which has many homes in Texas) declared bankruptcy, the company had $3 billion in acquisitions debt.

The major chains have also been hammered by charges of Medicare fraud, which have resulted in huge claims being filed by the Department of Justice. Last year, Vencor was hit with a $1.3 billion suit for fraudulent filings dating back to 1982. Another giant, Beverly Enterprises, agreed to settle fraud charges for $175 million. Mariner Post Acute Network, which has several properties in Texas, has also been hit with a multi-million dollar suit, according to SEC filings collected by Texas Watch.

The solution to the crisis in Texas, says Sandlin of Texas Watch, is not tort reform or regulatory reform, but better care. Despite the cap on damages, insurance companies have lost money on nursing homes, and rates are higher than ever. But that’s the way the market works, Sandlin argues: As long as the level of care is low, risk will be high, and so will rates. Improving the quality of care will lower risk, which will bring regulated insurers back into the market, she predicts. Sandlin and other advocates, as well as many non-profit home operators, have proposed allowing insurers to assess rates based on performance, as they currently do for automobile policies. Bad actors would pay more, while those homes with good records would get a credit. The bottom line, Sandlin says, is that more money will have to be spent on staffing and services to residents.

Which leads back to a familiar refrain at budget time in Austin: Like so many areas of health and human services, Texas gets what it pays for in long-term care. About 70 percent of the state’s 93,000 nursing home residents are on Medicaid; that is, the state pays the nursing home to take care of them. One thing all interested parties agree on is that the state has set reimbursement rates too low: Texas ranks 45th in the nation. That means low wages and minimal staffing levels. Annual turnover for all positions industry-wide is over 100 percent. Chris Spence of Wesleyan Homes, a non-profit facility in Williamson County, testified at a recent hearing that his non-profit spent $682,000 more in cost of care than he received in reimbursements last year.

“If we demand a better standard of care in Texas, we have to be willing to pay for it,” Rep. Naishtat said. Yet neither the House nor the Senate budgets as currently written contain any significant increases in reimbursement rates. Senator Moncrief has proposed a new fee on nursing homes, the collection of which would trigger more federal matching money from Washington. But that will only go so far.

According to Rep. Davis, tort reform is just one part of a package designed to bring “stability” back to the industry. If the for-profit homes seem to be pushing harder to limit their liability than for any other portion of the package, they may simply be realists about the prospects of squeezing extra money out of the lege. Historically speaking, tort reform has been a much safer bet.