State: When verdicts shoot up and income falls, worries fill the gap

Relevant links
To compare nursing homes, including latest inspection results, click here
State of Florida's "watch list" of homes that have had recent inspection problems, click here

For several years, nursing homes have pointed at bankruptcies and blamed greedy lawyers for driving them out of business. But until recently, what really caused most bankruptcies was the federal government changing the rules on Medicare.

Medicare had always reimbursed nursing homes for their costs. Wall Street loved it. Big chains borrowed fortunes to buy out smaller chains. Executives enjoyed private jets and $10-million salaries. And Medicare spending ballooned 25 percent a year.

Then the government uncovered gross padding. One $8,415 bill included $4,580 for the cost of submitting the claim. Another bill charged $600 an hour for resident care. Other bills charged for phantom nurses who existed only on paper.

Forget it, the government decided. Starting in 1997, we'll pay you a fixed rate, regardless of your cost.

Chains that had borrowed heavily for expansion collapsed under their debt.

Today, however, when the nursing home industry cries wolf, the fangs really might be sinking into their necks. Just a year or so ago in Florida, $3-million was considered a top-dollar nursing home verdict. Now it's $15-million or $20-million. Bigger verdicts make for bigger settlements.

[Times files (1999): Toni L Sandys]
Attorney Jim Wilkes has been suing nursing homes for a decade. He hopes the size of verdicts keeps going up: "We'll get rid of most the big chains eventually. That's one of my personal goals."

Jim Wilkes, whose law firm recently won the biggest nursing home verdict in Florida, says verdicts have followed a general social trend.

"A million dollars ain't what it used to be," he says. "People are making salaries of $20-million and $40-million. We saw the stock market absolutely explode with dot-com millionaires."

Nursing home income has not kept pace, so the squeeze is on.

One industry study says yearly liability costs in for-profit homes average $12,000 per bed in Florida, up $6,000 from last year. These figures include the cost of insurance and the cost of damages not covered by insurance.

That's an astounding figure, given that Medicaid pays a home $35,000 to $40,000 a year to treat a poor Floridian. If liability costs $12,000 per bed, that would mean lawsuits eat up as much as one-third of what Medicaid pays.

Beverly Enterprises and other big chains are selling their Florida homes. Extendicare Inc., which owned Colonial Care Center when Charlie McCorkle lived there, sold its last Florida home in January, saying Florida accounted for 90 percent of its liability costs nationwide.

The industry wants the Florida Legislature to put caps on how much money a jury can award for pain and suffering. One bill suggests $400,000, except in extraordinary cases. Gov. Jeb Bush and legislative leaders worry that if caps are not imposed, nursing homes might close altogether and the state will have to take over their management.

So far, that hasn't happened. For every chain that wants to sell, another chain wants to buy, usually at a deep discount. With less debt to service, the new owners usually can operate at lower profit margins and spend more money on care.

Tandem Health Care Inc., a 54-home chain based in Pittsburgh, bought nine of Extendicare's Florida homes and hopes to make a profit, even though its liability costs here run $5,000 per bed, compared to $500 in other states.

"Florida is very litigious. It's very difficult doing business in Florida," spokeswoman Carla Naegele says. But "giving high quality of care is one defense," she says. "We put our resources at the facility level. We are very lean at the corporate level."

Unlike the for-profit homes, non-profit nursing homes haven't been hit with whopping verdicts. They tend to hire more staff and enjoy better reputations. But still, they get sued and end up settling a nagging crop of smaller cases. Insurance companies, skittish over the possibility of big verdicts, are withdrawing coverage and jacking up rates.

[Times photo: Fraser Hale]
Plaintiff lawyer Brian Thompson, on big settlements: "I don't buy that juries are dumb. They get right to the heart of the matter. Nursing homes pay large sums of money because there's something there. There's negligent care."

River Garden Hebrew Home in Jacksonville is widely regarded as one of Florida's best nursing homes. In 55 years, it has been sued only three times. Last year, it paid an $80,000 premium for $3-million in straight liability coverage, a $6-million umbrella policy, with a deductible of $1,000.

After the 180-bed home enjoyed another lawsuit-free year, here was this year's renewal quote: a premium of $720,000 for the same $3-million straight liability coverage, no umbrella policy, with a deductible of $100,000.

To pay for its insurance, River Garden had to dip into its reserve fund, which earns interest and helps pay for high staffing levels. If insurance rates continue to skyrocket, chief executive officer Elliott Palevsky says, "we will not cut back on quality of care. We will either shrink our services or close until the world becomes more rational."

As momentum for a major overhaul builds in Tallahassee, some advocates worry that the Legislature might restrict litigation so much that it will send Florida back to the dark days when lousy care was rampant.

Regulation alone cannot do the job, says AARP director Bentley Lipscomb. "Sometimes lawsuits are the only thing standing between death and neglect for a lot of these patients."

One compromise would tinker with Florida's resident rights law, to discourage the smaller claims that plague non-profit homes and assisted living facilities, while allowing large negligence verdicts -- like McCorkle's -- to continue under common law.

Recent coverage

Profits & patients (Part One, March 18, 2001)

Back to State news

Contact the Times | Privacy Policy
Standard of Accuracy | Terms, Conditions & Copyright

Special Links

Lucy Morgan

From the Times state desk