Indiana has too many nursing homes

Zeke Turner has a way of making controversial statements.

And, sure enough, the CEO Carmel-based Mainstreet, a developer of senior care facilities, was true to form earlier this month when I interviewed him at a north-side McAlister’s about his latest deal—the $950 million sale of the real estate investment trust he started and a $1.4 billion development deal with a separate REIT.

Turner said the Indiana long-term care market was “overbuilt” or, more precisely, “underdemolished.”

“The Indiana market has seen quite a bit of new development," said Turner, between sips of ice water.

The numbers back him up. And they go a long way to explaining why Mainstreet’s rapid building in Indiana has been so controversial among the long-term care and hospital industries (which are now intimately linked via a series of partnerships designed to draw down extra federal payments).

Indiana ranks No. 4 in the nation for the chunk of its Medicaid spending that goes to long-term care facilities—rather than to home health care. Of all the Medicaid dollars spent on long-term care, 68 percent of them go to facilities (including mental health facilities). You can see all states’ totals here.  

That ties Indiana with Arkansas for the highest among all states behind only Alabama, New Jersey and—you guessed it—Mississippi, according to Urban Institute estimates based on data from the federal Centers for Medicare & Medicaid Services.

The national average is just 55 percent, down from 80 percent in 1995. And five states—Washington, Tennessee Minnesota, Alaska and Oregon—spend less than 33 percent on institutional long-term care.

It’s easy to see why more money goes to long-term care facilities: Indiana has more of them, and more beds in them, than the nation as a whole.

According to this report from the Kaiser Family Foundation, Indiana had 49,732 nursing home beds in 2011, or 763 beds for every 100,000 residents. Nationwide, by contrast, there were 528 beds for every 100,000 residents.

That’s 45 percent more beds per person in Indiana than the national average.

The number of facilities here is even more out of whack—58 percent higher than the national average.

Why does all this matter?

Because Hoosiers spend far more of their incomes paying for long-term care than their peers around the country. As I showed last fall, Hoosiers spend $1.1 billion more each year on long-term care facilities than if their spending equaled the national average. Hoosiers also spend $422 million less on home health care than the national average.

The cost differences between care in an institution and care at home are huge. A 2011 report by United Senior Advocate estimated that home care costs an average of $7,100 per patient per year, while care at a nursing home costs about $55,000.

That’s one reason why many legislators, such as Rep. Ed Clere, R-New Albany, thought it was wise to halt new construction of long-term care facilities. It was just the latest effort since 2011, when the Indiana General Assembly called for a five-year plan to gradually reduce nursing home beds and a shift more patients to home health care.

Turner, of course, fought hard to defeat that moratorium. And with some timely help from his father—Rep. Eric Turner, R-Cicero, the No. 2 Republican in the Indiana House—he did.

That victory will allow Mainstreet to proceed with 17 facilities that it intends to build in Indiana in 2015 and 2016 (and possibly allowed some of the seven projects Mainstreet started in Indiana this year to survive).

Turner has argued that most of Mainstreet’s facilities are, instead of stealing patients from older nursing homes, picking up the slack from hospitals, which are keeping fewer patients overnight and for fewer nights. Mainstreet’s competitors, naturally, don’t see it that way.

Mainstreet is hardly the only long-term care company building new facilities. Bloomington-based CarDon & Associates, Indianapolis-based American Senior Communities and Warsaw-based Miller’s Health Systems have joined the party as well.

Meanwhile, nursing home operators are loathe to close their old facilities—the average age of nursing homes is about 40 years—because debt-free facilities are highly profitable. Also, in some communities such as my hometown of Sheridan, there is only one nursing home. Closing such facilities would create a burden as the residents would have to find care farther away from their friends and families.

But so long as Indiana’s long-term care providers are building new facilities, and are keeping their old ones open, it appears that Hoosiers and the state Medicaid programs will be paying higher long-term care bills than the rest of the country.