Implementation of Medicaid‐Funded Long‐Term Care: The Impact of Prior History on the Development of the Nursing Home Industry

Growth of the “nursing home” industry was enhanced considerably by passage of Medicare and Medicaid in 1965 (Public Law 89–97, Titles XVIII and XIX of amendment to the Social Security Act). Injection of federal funds into Medicare for extended‐care nursing (ETC) and into Medicaid for means‐tested, long‐term care (LTC) spurred the growth of for‐profit and nonprofit enterprises. Prior to 1965, the effects of vendor payments for Medicare and Medicaid and federal low‐interest real estate loans for facility construction resulted in the initial development of a specialty real estate industry that was to become an important substrate in extended‐ and long‐term medical care. Although the LTC industry has evolved over the decades, the basic structure and function of the industry had been established prior to passage of the 1965 Social Security Amendments. The power and influence of Southern Democrats, the American Medical Association, and ultraconservative Republicans were major factors in development of a nursing home system designed for welfare medicine, state control, and industrialization. No vision of care for a looming precipitous growth in an elderly population needing long‐term care in skilled‐nursing facilities guided congressional debate during the enactment of Medicaid. The Medical Assistance for the Aged Act (MAA or “Kerr‐Mills“) and other legislation preceding the passage of Medicaid established precedent for vendor payments, spend downs, and, consequently, means‐testing. Kerr‐Mills codified elderly individuals too poor to pay for medical care but not poor enough to qualify for Old Age Assistance into a new category of U.S. resident: “the medically indigent.” This categorization through legislation of poor Americans needing care would have far‐reaching consequences in the U.S. medical care system. By legislating a categorical, means‐tested, industrialized, long‐term care system into existence, Congress ensured that the nursing home system would be characterized by the “total institution” as opposed to maximum support for community and home‐based systems. Excessive institutionalization of the frail elderly and disabled in institutions based on profitability and, hence, economy and efficiency, has been responsible for an industry with revenues approaching a half trillion dollars. From the view of Southern Democrats and their allies, Medicaid‐funded, long‐term care has been well implemented. Advocates for patients and most scholars believe that it has failed the patients whom it was intended to serve.