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What the federal budget deficit will do to nursing homes.

Even for nursing home administrators accustomed to tight budgets, the picture that Donald Muse painted for them was a grim one. Dr. Muse told his audience at the recent American Health Care Association meeting that the Federal budget deficit was not only everyone's problem, it may be the health care sector's problem in particular. With a double-digit inflation rate showing signs of only worsening in coming years, the heavily tax-supported health care industry "stood out like a sore thumb," said Dr. Muse. Government entitlement programs were seen as the main budget buster, he said, and health care as the most out-of-control entitlement program. As a result, Congresssional budget watchdogs were proposing to cut government health care spending in the next 10 years by $400 billion! Add to this the new concept of "global budgeting" supported by President-elect Bill Clinton and even some physician organizations - this approach would limit Federal health care spending to a fixed dollar amount each year - and if anything seemed obvious, it was that already financially-squeezed nursing homes were in danger of seeing worse. NURSING HOMES Editor Richard L. Peck asked Dr. Muse, who heads a Washington, DC-based "think tank" on health care policymaking, to expand on his insights.

Peck: With the prospect of a $400 billion cut in Federal health care spending over the next 10 years and a possibility of global budgeting being enacted, what do you see as the least painful scenario for nursing homes in the coming years?

Dr. Muse: The least painful scenario, of course, would be a postponement of the entire discussion, but that isn't likely. More likely would be a freeze on reimbursements, with no increase in the Medicaid daily rate.

Peck: But with an aging society, won't demographics mean an increase in money for nursing home care?

Dr. Muse: I tend to agree with the Congressional Budget Office on this one. They project demand for nursing home beds growing by 1.4% a year through the year 2000, but actual permitted expansion of nursing home beds at only 1% a year. For example, if nursing homes could justify an expansion of, say, 140,000 beds, the states will only allow them to build 100,000. With supply falling short of demand, there will be a trend of "lighter care" cases going to different settings, such as home health care.

Peck: But, again, nursing homes would be left with sicker residents. Won't that in itself drive up reimbursement?

Dr. Muse: The best thing for nursing homes in this situation would be to hook up with systems that allow acuity-based reimbursement. Those nursing homes involved in some sort of case mix reibursement will come out better than those that aren't. Policymakers won't be happy, but at least they'll understand.

Peck: How will global budgeting impact on all this?

Dr. Muse: Nursing homes will face competition with other health care sectors for a fixed health care dollar. I think that home health care will come out as the fastest growing sector, at least initially.

Peck: You project that, by 1995, Medicaid will be the sole support for 60% of nursing home residents, compared with 50% today. Are you assuming that private long-term care insurance will not be a major player by then?

Dr. Muse: Yes, I am assuming that. Unless something is done to make these policiesmuchmoreaffordabletopeople, private long-term care insurance will not be a major factor. And current trends aren't promising. The recent government regulation on company set-asides for retirement funds - FAS 106 - has, in effect, made retirement health insurance a less attractive option for companies. Yes, those retirees who have been promised health insurance will be assured of receiving it - but fewer retirees will be promised it. This means that increasing numbers of retirees will be paying for their own health insurance, and have less to spend on long-term care insurance.

Just a final comment on long-term care insurance, though: If nursing homes favor its expansion, they should support plans having government provide back-end coverage for extended nursing home stays, rather than front-end coverage. This will, in effect, give priority to private long-term care coverage. For some reason, this has not been intuitively obvious to many in the field.

Peck: Given the scenario you've discussed, do you have any words of hope for the long-ten-n care field?

Dr. Muse: Only that they should be prepared to change as much in the next 20 years as they've changed during the past 20. In short, they will be dealing with the sickest of the sick, and will be providing intensive care for those chronic patients who cannot be kept in hospitals. This clearly defined role, as it develops, will give everyone a chance to better identify nursing homes' financial needs.
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Title Annotation:interview with Donald Muse who heads Washington D.C.-based Policy Research Group think tank
Author:Peck, Richard L.
Publication:Nursing Homes
Article Type:Interview
Date:Nov 1, 1992
Words:788
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