Assisted living: a regulation dilemma: improving assisted living is no easy job, lawmakers have to look at quality, economy and affordability.

Part care, part housing, assisted living can range from a modest boarding house to an elegant residential hotel. And in an effort to relieve hard strapped budgets, states are looking to the care component, trying to shift Medicaid money from costly nursing homes to assisted living.

But there's a catch. Abuses have forced states to increase regulations for assisted living, and that raises costs. And senior advocates are urging lawmakers to subsidize this market for low and moderate income seniors. So state lawmakers may need to spend money before they can save money.

With assisted living policy, legislators face three overlapping or intersecting paths. The first is "quality," which comes with costly regulations and inspections. The second is "economy," which makes assisted living as a cheaper alternative to nursing homes. The third choice is "affordability," whereby lawmakers subsidize the market to help lower income people.

PATH 1: IMPROVING QUALITY

"A rat had eaten a hole in a mattress. I saw it when I picked up the bedding," says Alabama Representative Ron Johnson. For 26 years, Johnson sold medical equipment to residents living in a collection of board and care homes in rural Alabama. He didn't need to read about any abuses in those homes. He saw it firsthand.

In 1989, Congress conducted hearings on board-and-care homes, spurred by the arsenic-and-old-lace tale of Dorothy Puente, the Sacramento landlady who buried three lodgers in her yard and pocketed their Social Security checks. Families described unsafe, filthy homes, with abusive staff. In some facilities, convicted felons were in charge. The ombudsmen for the District of Columbia reported "hundreds of complaints" about 250 licensed homes, mostly small mom and pop operations.

Those complaints about board-and-care homes prompted states to create a new category of long-term care, "assisted living," and enact regulations to correct the abuses in the old board-and-care homes.

Yet abuses persisted. In 2003, state inspectors sounded alarms about assisted living to the Senate Special Committee on Aging. Last May, USA Today summarized inspectors' reports from seven states (Alabama, Arizona, Florida, Colorado, Indiana, New York, Texas): Roughly 20 percent of the 5,300 homes had medication errors or staffing deficiencies. The cited facilities ranged from small to large, modest to expensive.

Twenty years ago, states saw occupants as "tenants" who chose this kind of housing, not as "patients" needing care. So states regulated only for fire and safety.

Many residents, though, are more like patients than tenants who need help taking pills, bathing and cooking. As many as 90 percent suffer from "cognitive impairment."

Scandals spurred new regulations. And over time state officials expanded them. "States are caught in a trap," says Robert Mollica, senior program director with the National Academy of State Health Policy. "Problems with the delivery of service may identify weaknesses in specific areas of the regulations. That leads to a cry for more regulations."

More than 40 states have rules for medications: who should administer them, how intensive the training should be. Thirty states dictate the staff-to-resident ratio, ranging from 1:15 to 1:6, with some states requiring "sufficient" staff. Other regulations include assessing patients when they arrive, minimum room sizes, administrators' credentials, even recreation.

Regulations, however, re-shape the industry in ways legislators may not anticipate.

First, rigid standards move facilities closer to the medical model of a nursing home--more care than housing. Yet many residents choose assisted living primarily for its hominess, not its medical care.

Oklahoma Representative Joseph Sweeden has constituents who moved to assisted living so "they don't have to cook. They have lunch with a friendly group. They don't have to be responsible for repainting the house or mowing the lawn."

States can allow for flexibility in several ways. Multi-tier licensing will accommodate smaller homes. States can require better information. Texas facilities, for instance, issue a disclosure form that answers the following questions: Will the facility feed a resident? Give incontinence care? Give injections?

Michael Crowe, former staff attorney for a Texas Senate committee that studied assisted living, recalls the discussions. "We didn't want to create an onerous set of regulations. This was a market-driven product." The committee sought consumer regulations "like the listing of ingredients on a soup can."

Yet the resident who initially needs only meals may One day need more help. "People want to stay in assisted living because it is their home," says Massachusetts Senator Harriette Chandler. "Yet some eventually need nursing home care."

Second, higher standards generally raise costs, which translate into higher fees, which shut out some facilities, as well as some prospective occupants, from the market.

Higher standards are useless if states don't enforce them. In some states the small staff of inspectors cannot possibly visit each facility yearly, or even once every two years.

In 2001, Washington won praise from the Government Accountability Office for its State Quality Improvement Consultation Program. Instead of using inspectors and citing facilities for deficiencies, the state hired seven consultants to help them improve. After eight months, consultants had helped more than 80 percent of the state's assisted living homes. Two and a half years later, budget constraints prompted the state to switch back to inspectors, who unlike the consultants, can be paid out of licensing fees.

PATH 2: SAVING MONEY

A state Medicaid office pays an average of $2,800 per month for a nursing home bed compared to $1,220 for an assisted living slot.

More than 40 states use Medicaid money (through waivers and state plans) to steer long-term care patients to assisted living. Nationally, in 2002, Medicaid paid for 11 percent of the total.

Some states have been especially aggressive. In 1995, Maine spent SO percent of its Medicaid long-term care expenditures on nursing homes, 39 percent on home care, and 11 percent on assisted living. By 2001, the nursing home share dropped to 33 percent and the assisted living share rose to 18 percent.

Legislators who walk down this path, though, will find that putting money into new services like assisted living often requires new money. If new money isn't available, existing services often take priority.

Fears of the "woodwork" effect might hurt the chance of expanding Medicaid to assisted living. State budget officers worry that people who now rely solely on their families for care, would come out of the woodwork if the state offered help with assisted living. Former Representative Maureen Maigret, now executive director of Rhode Island's Long Term Care Coordinating Council, says that's what killed the council's push for Medicaid waivers for assisted living in 1997. The Department of Elderly Affairs was enthusiastic, she says, but budget-staff in the Department of Human Services objected.

Using Medicaid for assisted living requires regulations, and drives up costs. States may find that the more effectively they regulate assisted living into a "high-quality" long-term care option, the less the savings for Medicaid.

PATH 3: KEEPING IT AFFORDABLE

When Rhode Island Senator Elizabeth Roberts talks about assisted living, she stresses, not the cost-savings, but the lifestyle. "In this less restrictive environment, the quality of life is higher than in a nursing home." As the population ages, the number of potential clients will grow.

Total fees for assisted living range from $1,800 to $5,000 a month, with an average of $2,159. The basic fees may exclude optional extras, like $8 a day for staff to give medication.

Making assisted living affordable is difficult. Most developers won't even enter this market. The cost of building facilities that meet strict regulations results in costs that are too high for low-income tenants. The board-and-care home Representative Johnson visited in Alabama was deplorable, but it was affordable.

States can act as catalysts, if not funding partners, as they have for affordable rental housing. A smorgasbord of funders--such as the federal Department of Agriculture, the Department of Housing and Urban Development, federal home loan banks and state housing finance agencies--can offer bonds, tax credits or loans for construction. The state can use Medicaid waivers, subsidies for those on SSI, and along with local governments, section 8 vouchers to help build affordable assisted living facilities.

The Robert Wood Johnson Foundation's "Coming Home" initiative committed $14.3 million over 13 years to encourage affordable developments. As of June 2004, it had spurred 31 demonstration facilities in 13 states, with another 55 underway. Robert Jenkens, deputy director of the program and vice president of NCB Development Corporation, says the financing is complex. The 45-unit Gardens at Osage Terrace in Bentonville, Ark., relied on the Coming Home program's pre-development loan; the Low-Income Housing Tax Credits; a private mortgage; a Federal Home Loan Bank Affordable Housing Program grant; a HOME loan; and a grant from the Community Care Foundation. In Pinella Park, Fla., the 110 unit Helen Pilonea Assisted Living gets operating subsidies from Medicaid, two state funds for people with disabilities receiving SSI, and the Housing and Urban Development.

THE CHALLENGE

Representative Johnson's board-and-care home fit its tenants' budgets. But its squalor--and the squalor of many homes across the country--spurred legislative action. The challenge is two-fold. On the one hand, states must improve assisted living facilities without making them so expensive that only the wealthy, or the very poor, can live there. On the other hand, states must allow developers to market a range of facilities, so that would-be residents can choose the facility that they want. The demographic push of aging baby boomers will spur demand for long-term care--assisted living (in a range of sizes, with a range of amenities) should offer choices. Safe yet affordable assisted living homes can help states save Medicaid money. But states need to pursue quality and economy at the same time.

Joan Retsinas teaches health care policy at Tufts School of Occupational Therapy and is managing, editor of Medicine and Health/Rhode Island.