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Hearing of the Health Subcommittee of the House Ways and Means Committee - Trends in Nursing Home Ownership and Quality


Location: Washington, DC

Hearing of the Health Subcommittee of the House Ways and Means Committee - Trends in Nursing Home Ownership and Quality


REP. KENNY HULSHOF (R-MO): Thank you, Mr. Chairman. And let state for the record that both you, Mr. Chairman and Mr. Camp were accurate. There were four votes, but only three recorded.

So, Mr. Johnson, I left Oxford, Mississippi with my law degree about seven years before you graduated Summa Cum Laude with your business degree, and I have great fondness of my time in the state of Mississippi.

You create in your written statements on page four, beginning an interesting hypothetical analysis, a corporate structure, and I think the gist of that hypothetical is that a nursing home licensee establishes a corporate structure to divest its assets for the purpose of limiting its financial liability in the event of a lawsuit.

I don't want to comment on our legal brethren in the state of Mississippi and the proliferation of plaintiffs lawsuits in that state. But some states do -- and I'm not sure if Mississippi does, but I know Missouri, other states have actually allowed those transferred assets to be fair game in a lawsuit.

Does Mississippi allow that, for instance, to actually -- does not --

MR. JOHNSON: No, sir. Not unless you can show that the transfer was fraudulent, and that would require that you show that it was conveyed at a -- for an amount largely below what anyone would consider fair market value.

REP. HULSHOF: You asked some very interesting questions, and perhaps we should visit beyond the scope of this hearing. One of those questions that you've left lingering, in fact you said lingering enquiry. Can the interest of nursing home residents be adequately protected through rigorous enforcement of minimum standards by state regulatory agencies, can they?

MR. JOHNSON: Yes. The -- I touched on that briefly in my opening statement. In that -- as a regulatory agency, state regulators as a whole, we come in and we identify misconduct, substandard care efficiencies, and we take a proactive stance then to remedy that substandard care, misconduct, deficiencies. However, often the harm has already occurred.


MR. JOHNSON: So the question then becomes -- and, you know, I'm probably not the best person to answer this question. But, you know, I was in private practice for several years prior to taking a position, we have -- the attorney general's office. And I do know that this is -- the following is true. You can have a tremendous injury, someone that comes in with paralyzation or severe burns or whatnot is a plaintiff's attorney.

And if there is nothing that you can get from the tortfeasors, the person who is at fault, then you don't even sign the person up. I mean, you don't even become their attorney.

So the question then becomes is, if we're looking at this from a standpoint of can we maintain the line on holding nursing homes to a minimum standard the vast majority of the time through regulatory action? I believe the answer is yes.

REP. HULSHOF: I'm going to have to cut you off right there, if you don't mind, because I'm limited on time. I appreciate your answer.


REP. HULSHOF: Let me go into a couple of other areas quickly.


REP. HULSHOF: Dr. Harrington, in the last colloquy between my colleague, Mr. English, and yourself, you indicated, or at least suggested that the idea -- your idea that Medicare should, perhaps, limit nursing home profits.

For consistency sake should Congress and CMS also take similar actions to limit the profit margins of hospitals and physicians?

MS. HARRINGTON: Well, I don't want to comment on hospitals and physicians, but I know that the vast majority of nursing home revenues comes from the government, whereas hospitals and physicians' revenues don't necessarily come from the government.

And we know for sure that the nursing homes are cutting staffing. So, if you did not want to limit profits, if you simply setup the cost centers so that money could not be taken from the direct and indirect care cost centers that would in fact help tremendously.

REP. HULSHOF: Mr. Muller, in the few minutes that I have remaining. I've read your written statement. It's very well documented, very well cited. I did not see a citation. You quote extensively from The New York Times, but I see no citation to the Palm Beach Post. Are you familiar with the editorial that came out Tuesday, November 13th, in the Palm Beach Post, sir?

MR. MULLER: No, I'm not.

REP. HULSHOF: Well, let me just -- if the chairman would indulge. SEIU, through you, have been quite critical of Mariner and Carlyle, and yet the editorial talks about SEIU support for the buyout of nursing home chain Genesis Healthcare by Formation Capital, which is a private equity firm, because apparently some secret deal, or a deal that, I guess, the secret terms of which have recently been allowed, I find it a little inconsistent.

In your testimony, you talk about and address the shielded liability issue and yet when the service employees union actually signed off on the private equity buyout of Genesis, the agreement included a provision that SEIU would walk the halls of the California assembly to lobby for reduced legal liability for nursing homes in the state of California. Do you care to address that inconsistency?

MR. MULLER: I'm not aware of the policy, you know, those policy issues. But I do know that -- you know, we have been working to try to improve quality care as a union representing a 150,000 nursing home workers who are on the frontlines, and are dealing with these issues all day long. We are very invested in trying to figure out all the different ways we can to try to improve quality of care, and we will work with whoever we can to try to do that.

REP. HULSHOF: Probably not a fair question, given that you've not seen it.

So, Mr. Chairman, if not been part of the record, I would ask that the Palm Beach Post editorial of Tuesday, November 13, 2007, be included for whatever purpose it may serve in the record.

Thank you. I yield back.


REP. CAMP: And I think we just don't have enough information. I think there are states that require insurance -- have insurance requirements in order to be licensed. Obviously, Mississippi apparently does not. But why isn't the state legislature then taking action there to require, if they had been able to put in a requirement that ownership be disclosed, why not also have minimal insurance requirements?

And so I think we need to get some more information in terms of what is the state of play around the country in terms of what are states doing. But clearly, your point about -- it's about the care and the quality of care that's delivered. I think that really needs to be the focus of this committee and --

REP. HULSHOF: Would you yield?


REP. HULSHOF: I -- and I would say to my friend from Illinois, I agree in principle with your statement. But regulation for regulation's sake, there could be, for instance, differing opinions. Congress wanted to address the WorldCom issue, and so as a result -- or Enron, and so as a result we passed Sarbanes-Oxley. And there have been varying opinions about whether that accountability measure -- if the good has outweighed the possible harm.

And so, again I -- and then to address Mr. Camp's point, having some consistency in enforcement. I know firsthand some years ago, because we did some constituent advocacy in Missouri, a nursing home, privately owned but by a family company, was written up by a very aggressive regulator, because they had provided a pat of butter on the tray of the meal of a diet-restricted patient, and faced, in my view, enormous fines.

And so, again, the goal is the same. I would say to my friend from Illinois, those residents deserve -- and especially because of taxpayers monies going to support their care -- the enforcement of important safety regulations.

But I agree with my friend from Michigan that, you know, in law school they used to say bad cases make bad law. And I'm not sure, you know, anecdotally we all can probably talk about tough cases. But I would like to see more data before we run headlong into some sort of regulatory issue. Thanks.


REP. HULSHOF: Would you yield, Mr. Chairman -- (cross talk.)

REP. STARK: Yes, I'd be glad to yield.

REP. HULSHOF: Just very briefly, and -- apologize to witnesses for hearing this sort of out-loud discussion. But I think it's useful. And I would only say that you're exactly right Mr. Chairman that DRG rates or a host of reimbursements are set. And -- so if you see a Medicare patient, you know, for instance, what you're going to be reimbursed for a particular procedure.

Rate setting and market baskets, and quite frankly as a real aside, tangential aside, I think, unfortunately, our health care decisions are often driven by the reimbursement rates. But that's -- you know, I have said that on other occasions.

But when you talk about profit margin and what is too much or too little and the citation of 13 percent or 15 percent for nursing homes. a couple of weeks ago when sitting in those chairs we had some representatives of some big insurance companies providing Medicare advantage, and I seem to recall during that testimony one company in particular said they weren't making even a 3 percent profit margin.

So I bristle a bit. I'm reluctant to embrace the idea of determining the profit margin, yes, on rates and reimbursements. And as even Dr. Harrington pointed out, often a provider will see a Medicaid patient knowing that Medicare is going to help kind of pay for the bills and to keep the doors open.

And so I think this has been a very useful hearing. But I hope we're not going to get too far a field by Congress, in its wisdom, deciding what the private sector -- the profit margins or percentages should be.

And I appreciate the chairman yielding.


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