(This is part 4 of our 5-part series on the history of nursing homes. Other parts: Part 1, Part 2Part 3, and Part 5.)

Basically, in a word, GOVERNMENT is all that’s needed to understand nursing homes throughout the 1900’s. By mid-century, federally-funded financing (say that fast 3 times) became available creating a for-profit nursing home construction boom.

Part of this was Federal efforts to channel payments to medical providers rather than directly reimburse recipients of the services. However, no matter how many homes were built, the demand would not subside. Regarding Government Programs, this is often called the ‘Woodwork Principle’:

Once government service/money becomes available, people getting along one way or another without government assistance will come out of the woodwork.

In 1956 the OAA (Old Age Assistance) payment cap was lifted and continuing changes in Social Security Law initiated reimbursements directly to operators as opposed to individuals. This meant a reliable income stream, and because Medicare and Medicaid were suddenly unlimited sources of risk-free reimbursement, a thriving industry was born as publicly-traded nursing home chains became some of the hottest commodities on Wall Street.

In 1965 only a few publicly-traded nursing home chains existed. Beginning in 1969 there were 58, but by the end of 1970 there were 90. The best known were called the “Fevered Fifty”,  promising returns of 20-25% a year. The bottom fell out in 1971 because of the usual suspects—greed, fraud, insider trading—and a new culprit: regulation of the industry. Additionally and not surprisingly, with government financial spigots open wide and few restrictions on what nursing homes should look like or how they should operate, quality-of-care (lack thereof) became a real public-relations issue.nursing mentor in the 50's

There was also a new, really insidious problem afoot. State Hospitals of the time housed the mentally ill without Federal Funding. Medicaid, however, matched State funding for Nursing Home patients. This incentivized local and state government to shift the fiscal burden (and bodies) of the mentally ill from State to Federal auspices. Thus began the ‘transinstitutionalization’ of patients.  In 1980, 44% (750,000 people) of the nursing home population had serious mental illness. By 1990, the Omnibus Budget Reconciliation Act legislated provisions requiring pre-admission screening of nursing home applicants to prevent the inappropriate placement of the mentally ill. About this same time, The Nursing Home Reform Act of 1987 began kicking in. This increased the percentage of free-standing (not part of a hospital) nursing homes providing physical therapy, speech and hearing therapy, occupational therapy, and nutritional services. By the early 90’s, nursing homes increasingly served as a ‘release valve’ for hospitals, permitting more rapid discharge into a setting where patients could recuperate in controlled circumstances. Assisted living facilities also began to emerge, thus providing alternative residential-care settings.

By 2000, segmentation of the market had begun, with an increasing share of post-acute patients being treated in stand-alone facilities specializing in rehabilitative care. The US Census noted between 2000 and 2010 a 20% reduction in the number of seniors living in nursing homes. This trend may partly reflect a growing preference for alternative settings for long-term care, but Medicaid funding plays a big part. In 1990, 13% of such funding was for home and community-based services. That number is over 45% today.

Our next blog talks about what the future holds for long-term care.