[Congressional Record Volume 145, Number 64 (Wednesday, May 5, 1999)]
[Senate]
[Pages S4789-S4790]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                   RUMORS OF NURSING HOME BANKRUPTCY

  Mr. GRASSLEY. Mr. President, I serve as chairman of the Senate Aging 
Subcommittee and I feel a necessity to inform my colleagues about the 
issue of rumors about the pending bankruptcy of some nursing home 
chains in the United States.
  There are reports in the press, and in discussions with my colleagues 
I have received information, indicating that one and possibly two large 
nursing home chains may be facing bankruptcy in the near future. That 
has an economic side and it has a human side. I will speak first about 
the human side.
  Should one or both of these nursing home chains go bankrupt, we would 
have an immediate challenge to ensure the continued care of somewhere 
between 35,000 residents, on the one hand, and 70,000, on the other, in 
these respective homes where they are currently under care. This would 
be a significant task. Nursing home residents are frail and are not 
easily moved. Moving them runs the risk of causing ``transfer trauma,'' 
a condition that can result in death. Therefore, it is critical that we 
keep focused on preventing avoidable harm and take precautions to 
prevent this from happening.
  I have introduced legislation to ensure that the quality of patient 
care is monitored if there would be bankruptcy. My legislation requires 
the appointment of an ombudsman to act as an advocate for the patient. 
This change will ensure that bankruptcy judges are fully aware of all 
the facts when they guide a health care provider through the process of 
bankruptcy. Prior to a chapter 11 filing, or immediately thereafter, 
the debtor employs a health care crisis consultant to help it in its 
reorganization effort. The first step is usually cutting costs. 
Sometimes this step may result in a lower quality of care for the 
patients who live there. The appointment, then, of an ombudsman, should 
balance the interests between the creditor and the patient. These 
interests need balancing because the court-appointed officials owe 
fiduciary duties to creditors and the estate but not necessarily to the 
patients.
  There will be occasions which illustrate that what may be in the best 
interest of creditors may not always be consistent with the patients' 
best interest. The trustee's interest, for example, is to maximize the 
amount of the estate to pay off the creditors. The more assets the 
trustee disburses, the more his payment will be. On the other hand, the 
ombudsman for the patient is designed to ensure continued quality of 
care at least above some minimum standards. Such quality of care 
standards currently exist throughout the health care environment, from 
the health care facility itself to State standards and even Federal 
standards that were adopted in 1987.
  I would like to have my colleagues consider the following excerpt 
from the Los Angeles Times on September 28, 1997, which describes the 
unconscionable, pathetic, and traumatizing consequences of a sudden 
nursing home closing because of bankruptcy:

       It could not be determined Saturday how many more elderly 
     or chronically ill patients may be affected by the health 
     care company's financial problems. Those at the Reseda Care 
     Center in the San Fernando Valley, including a 106-year-old 
     woman, were rolled into the streets late Friday in 
     wheelchairs and on hospital beds, bundled in blankets as 
     relatives scurried to gather up clothes and other personal 
     belongings.
  The presence of an ombudsman should help prevent a recurrence of 
instances similar to what I just described, where trustees quickly 
close health care facilities without notifying appropriate state and 
federal agencies and without notifying the bankruptcy court.
  I began discussions with the Health Care Financing Administration at 
the beginning of April to urge them to take seriously the rumors we 
were hearing about possible nursing home bankruptcies and to encourage 
them to make preparations. I called for contingency plans that would 
prepare, well in advance, for the daunting challenges bankruptcies 
would pose to various federal and state agencies. HCFA briefed the 
staff of the Aging Committee, as well as staff from the Finance 
Committee and Budget Committee. While the HCFA staff appreciated the 
severity and size of the problem of ensuring resident safety in the 
event of a bankruptcy, they did not have a plan--or even a plan for a 
plan.
  I wrote to the HCFA Administrator urging her to take the effort very 
seriously, to keep at the planning and to stay in touch with my office. 
Only on April 28th did I hear from her office

[[Page S4790]]

that we could expect to see the plan in the next two weeks. That is why 
I wrote to her again on April 29, to tell her to get on with the effort 
and to let me and interested Members know of the plan to ensure that 
the people in the affected nursing homes will be protected.
  Once we are assured that residents will be safe we can turn to the 
financial part of the bankruptcies. Now I will address these financial 
issues.
  Before we take any action involving the taxpayers' hard-earned 
dollars, we should ask, and get solid answers to, some critical 
questions.
  The first is this: if the rumors of financial distress are true, how 
is it that some providers are in such distress while others seem not to 
be? What factors have put certain companies at particular risk? The 
answer to that question will go a long way to help us know what kind of 
response their situation demands.
  At this point, I'd like to make an observation about the Medicare 
element of this situation.
  This is in response to the one excuse you are going to find from some 
of these changes why something ought to be done in the balanced budget 
amendment of 1997.
  A Prospective Payment System (PPS) for Skilled Nursing Facilities was 
mandated by the Balanced Budget Act of 1997 (BBA). Some argue that, 
comparing CBO's 1997 baseline with its 1999 baseline, Medicare has 
saved $7 billion more than originally anticipated, and that this pushed 
these companies over the edge.
  But we need to ask whether or not it did.
  CBO has recently clarified its baselines, explaining that the alleged 
difference between the two baselines comes from an apples-to-oranges 
comparison: the 1997 baseline included Part B spending on patients in 
these facilities, while the 1999 baseline does not. When apples are 
compared to apples, CBO tells us, the Medicare Part A baseline for 
Skilled Nursing Facilities has decreased by only $200 million over 5 
years--not by the $7 billion that we are hearing. Of course this 
doesn't tell us what is going on in the real world--it only tells us 
that the discussion should not be about CBO's baselines, it should be 
about what is really going on out there.
  And that is what we need to find out.
  Next, questions have been raised by shareholders, in class action 
suits against the management of these companies, about the competence 
and effectiveness of the management of these two companies. Did these 
companies try to grow too large, too fast? Did they take on more debt 
than they could manage? Was their business strategy flawed? A host of 
questions need to be answered about the internal operation of these 
companies--to see if they were being well run--before we assume that 
more taxpayer dollars will fix the problem. Otherwise we could wind up 
subsidizing the mistakes of well compensated executives.
  These are serious questions that should be answered by the committees 
of this body. We should make full use of the evaluators who work for 
Congress. And the Administration should devote some effort to the 
inquiry as well. We need to understand the problem before we propose a 
solution.
  Yet, some solutions are being presumed, and they are being presumed 
based on that apples-to-oranges comparison which says there has been $7 
billion more saved from Medicare than was anticipated in the 1997 
balanced budget amendment. We should make haste to get these answers, 
and not rush blindly into what could otherwise be a thoughtless 
bailout.

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