Under Pressure: Two Years Into the COVID-19 Pandemic, Nursing Facilities Still Face Significant Challenges

• July 25, 2022

• Stanton J. Stock , Hooper Lundy & Bookman PC
• Jeffrey Lin , Hooper Lundy & Bookman PC

The first COVID-19 outbreak in a nursing facility occurred in February 2020. Now, over two years and 185,000 deaths later, the industry still faces significant operational challenges, even as the rest of the country emerges from the pandemic. Grueling working conditions and heightened scrutiny of practitioners have caused widespread nurse staffing shortages. Census remains low as families question the safety of such congregate living environments. Many nursing homes were saved financially by emergency Provider Relief Funds (PRF), but upcoming audits and investigations may result in recoupments. Some facilities already went bankrupt under the weight of crushing regulatory penalties and private litigation costs.

While there is great uncertainty for the future of nursing homes, the United States’ geriatric population continues to rapidly grow. If the pandemic previewed anything, it is that our society is underprepared and will need more resources to care for the frail and elderly. As many nursing homes close in midst of this looming crisis, we must ask ourselves: what exactly is the plan to care for America’s aging population? This article discusses some of the current pressure points in the nursing home industry and evaluates some proposed solutions. The reality is, however, these are difficult issues for which there are no easy answers.

Nurse Staffing Shortages

The COVID-19 pandemic caused massive staffing shortages in nursing homes, from which the industry has yet to recover. Since February 2020, there have been over one million confirmed cases of nursing home staff contracting the disease, and over 2,300 deaths.[1] Before tests and vaccines were widely available, staff members who tested positive were prohibited from entering the facility for two weeks. This put a significant strain on able-bodied personnel, who were asked to work many hours of overtime. Indeed, many states had to call in the National Guard when staffing levels fell to crisis levels, using troops to fill basic nursing needs.[2]

On top of grueling working conditions, government regulators and plaintiffs’ lawyers have been critical of the care provided by nursing personnel. Even at the beginning of the pandemic, when little was known about the disease, state surveyors critiqued every move of nursing home personnel. Surveyors cited facilities for relatively minor deficiencies, such as standing too close together or a mask falling below a nose. Family members also expressed anger and frustration towards staff about the inability to see loved ones. Countless numbers of private lawsuits have been spawned by COVID-19 outbreaks, where plaintiffs’ lawyers make allegations of malpractice and gross negligence. The guilt and stress of these accusations takes a toll.

Since February 2020, nursing homes lost more than 238,000 workers, which amounts to approximate 15% of the entire workforce.[3] Although other health care settings have returned to pre-pandemic levels of employment, staffing levels in the long term care industry remain at "crisis levels."[4] Earlier in the pandemic, nearly all nursing homes reported staffing shortages, with nearly 60% saying they had "high level staffing shortages."[5] This is true despite some nursing home operators attempting to improve working conditions by increasing wages and benefits, offering hiring bonuses, and offering more flexible work schedules.[6]

Decreased Resident Census and Revenues

Another challenge nursing facilities face is decreased revenues from lower census and other operational changes. The Centers for Medicare & Medicaid Services (CMS) has reported more than 150,000 resident deaths from COVID-19.[7] As the deaths mounted, public perception and confidence in the congregate living environments offered by nursing facilities declined. It is important to note that, unlike hospitals or physician offices, many residents actually live in nursing facilities, which were designed more for the comfort of their residents than with isolation precautions in mind.

As the deaths mounted, the reputation of facilities fell. A poll conducted by Skilled Nursing News indicated that 54% of respondents had worse views of nursing homes during the course of the COVID-19 crisis. And 62% of those closest to the age of nursing home residents (55 or older) responded that their opinion of nursing homes worsened.[8]

According to an analysis by CliftonLarsonAllen, the median occupancy rate for U.S. nursing homes dropped from 85% in January 2020 to 68% in January 2021. Nursing facility revenues are, of course, driven by patient census. With patient census down, revenues drop as well; some senior living providers have reported a drop in revenue because of fewer number of patients served.[9]

Emergency financial assistance for nursing facilities will also come to an end. As of April 1, 2022, Congress implemented a 1% reduction to all Medicare payments to move forward with federal sequestration cuts. Further, CMS is currently proposing several payments cuts including: (1) a .7% cut to Medicare reimbursement for nursing facilities, caused largely by a parity adjustment relating to the Payment Driven Payment Model transition and the requirement of budget neutrality; and (2) an additional proposed cut caused by the Value-Based Purchasing elements and the full 2% sequester.[10]

While sources of revenue are decreasing, the costs of operating a nursing facility are increasing. Heightened infection control expectations, which require investments in infrastructure, are not going away. As discussed above, staffing costs are going up. The combination of these revenue challenges can make for a dire financial forecast.

COVID-19 Litigation and Enforcement Actions

The COVID-19 pandemic has also caused an onslaught of litigation from private parties and the government. To protect nursing facilities, 38 states issued or passed executive orders or legislation to provide some level of immunity.[11] More litigious states, however, such as California, have not passed any such protections.

Some nursing facilities have attempted to use the federal Public Readiness and Emergency Preparedness Act (the PREP Act) as a basis for immunity and removal of litigation to federal court. Under the PREP Act, nursing facilities are “immune from suit and liability under Federal and State law” with respect to all claims for loss caused by or resulting from the administration to or the use by an individual of a “covered countermeasure”[12] during a public health emergency such as the COVID-19 pandemic.[13] The PREP Act also creates a federal remedy and venue for allegations of “willful misconduct.”[14] However, such efforts have been met with limited success to date, as several federal circuit courts have rejected providers’ pleas for protection.

State and federal agencies also came down hard on nursing facilities with COVID-19 outbreaks. Many facilities were subject to hundreds of thousands of dollars in civil money penalties as a result of alleged infection control regulatory violations. In more extreme cases, federal and state agencies terminated facilities’ Medicare and Medicaid provider agreements. This effectively bankrupted and closed the facilities’ doors in a matter of weeks. Countless lawsuits, surveys, audits, and investigations against nursing facilities are ongoing.

Provider Relief Fund Audits and Investigations

Government financial assistance, such as the federal Provider Relief Funds, saved many facilities from closure during the pandemic. However, audits and investigations regarding the use of these funds have yet to begin. Many nursing homes fear the detrimental impact of potential recoupments.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act, P.L. 116-136) was the largest rescue package in U.S. history. In general, health care providers received approximately $178 billion to prevent, prepare for, and respond to the COVID-19 pandemic.[15] The CARES Act initially provided $100 billion, then another $75 billion was added via the Paycheck Protection Program (PPP) and Health Care Enhancement Act, and another $3 billion more added via the Consolidated Appropriations Act of 2021.

As of March 2021, approximately $21 billion of the $175 billion was earmarked for nursing facilities.[16] SBA data indicated that 10,293 nursing facilities received PPP loans totaling $5.7 billion.[17] The average PPP loan was $550,701, but 389 nursing facilities and organizations received at least two million dollars in PPP loans, totaling more than $1 billion.[18] In addition to federal funding, many state Medicaid programs tied increases in reimbursement rates to the public health emergency.

There is no question this financial assistance was helpful to the industry. Indeed, the American Health Care Association claims that at least 1,600 nursing homes would have closed in 2021 but for financial assistance.[19] The receipt and use of these funds, however, comes with specific requirements. Providers must accept terms and conditions, which require the submission of reports about the use of the money.[20] Noncompliance with terms or conditions for use of the money may be grounds for recouping some or all of the payments made.

Unfortunately, the CARES Act provided ambiguous guidance to providers on requirements for PRF eligibility or reporting requirements. The authority of this guidance remains in flux as well. HHS has yet to publish a final rule rescinding the Good Guidance Rule, which would limit the use of guidance documents in investigations and enforcement actions.[21] The government does, however, retain broad audit authority. Providers who received PRF Funds can expect at least four different, concurrent audits: Single Audits required by the Health Resources and Services Administration; Audits of PRF General and Targeted Distributions by the Department of Health and Human Services Office of Inspector General (OIG); Program Integrity Audits by CMS; and DOJ COVID-19 Fraud Enforcement Audits by the Department of Justice. These federal audits are in addition to any audits by state Medicaid programs.

These audits are about to begin. Indeed, in May 2022, nursing facilities across the country received requests from the OIG concerning a review of PRF spending and infection control practices. The OIG specifically requested interviews with facility leadership (e.g., officers and administrators), facility personnel (e.g., infection preventionists), and resident or family council representatives. The OIG also made broad requests for “any evidence you have for how you used the PRF funds.”

Many nursing homes utilized PRF funds in good faith but nonetheless fear recoupment as a result of vague and confusing reporting requirements. With resident census decreasing, operational costs going up, and COVID-19 litigation costs accruing, the additional burden of returning millions in PRF funds would likely be insurmountable for many organizations.

Proposed Solutions

The COVID-19 pandemic exposed many vulnerabilities and weaknesses of our health care system. It is easy to point fingers and attempt to shift blame for these issues. Implementing real solutions, however, is more difficult and costly. In February 2022, the White House announced a number of proposed reforms for nursing homes, aiming to improve quality and transparency. The proposed rules include establishing federal minimum staffing requirements, increasing penalties for poor performing facilities, a “minimum loss ratio” for nursing facilities,[22] and heightened scrutiny of private-equity ownership of nursing homes.[23]

Critics of these proposals, however, believe such initiatives miss the mark. Nursing homes are in need of additional nursing personnel. Simply imposing heightened staffing requirements, without providing the means to actually secure[24] more staff, may be a fruitless endeavor. Similarly, merely increasing penalties for poor performing facilities, without providing the means necessary to improve performance, only compounds the problem. Additionally, CMS may not have the authority to impose a minimum loss ratio or minimum staffing requirements on nursing facilities.

Unfortunately, some payer sources simply do not cover the costs of providing nursing services to their beneficiaries. State Medicaid programs are the main payer source for nursing homes, but Medicaid reimbursement rates have been notoriously poor for many years covering only 70-80% of the actual costs of care for Medicaid beneficiaries in nursing homes.[25] Experts within the industry believe low reimbursement rates, especially state Medicaid reimbursement rates, contribute to adverse patient care outcomes.[26] The pandemic has only widened the gap between the costs of rendering care and Medicaid reimbursement. It is fair to scrutinize and audit how nursing homes spend Medicaid reimbursement, however, the failure of state Medicaid programs to cover the costs nursing care is a longstanding issue.

Conclusion

As the dust settles on the COVID-19 pandemic, nursing facilities struggle to forecast their future. Staffing challenges, decreased revenues, and on onslaught of litigation are just some of the challenges that the industry will face in the immediate future. There is no question that significant changes will need to occur for our country to effectively care for its rapidly aging population. It remains to be seen whether the solutions proposed by the White House and other advocates will improve care or only exacerbate existing problems.

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• Coronavirus Pandemic Hub
• Long Term Care