Gold in Geriatrics

Anyone who has tried to find a proper nursing home for an aged relative has suffered a special agony. Homes that offer merely adequate care and comfort are hard to find, and the demand for places in them is rising steadily. For one thing, the 65-and-over population, which is already approaching 20 million, is growing by 1.7% a year, compared with 1.3% for the total population. Government programs also subsidize the convalescence of the ailing aged. For an oldster who has been in a hospital at least three days, Medicare will pay nearly all costs for 100 days in an approved nursing home. In most states Medicaid picks up the bills for the low-income aged who need still longer stays.

The new demand has burst on a field that was totally unprepared for it. The number of beds in U.S. nursing homes has almost doubled in the past eight years to 750,000 but less than half are in homes that meet such Medicare standards as fireproofing and staff nursing services. The current additions of 90,000 beds a year can take care of only one-third of the rising need. The shortage has created profitable business possibilities for entrepreneurs. Doctors, lawyers, salesmen, even a talent agent and a junk dealer, have started chains of nursing homes, which live largely off federal funds. Investors have rushed to buy shares in the more than 50 chains that have gone public in the past four years. Stock prices have been commonly bid up to 50 or 100 times earnings, which is three to six times more than a blue chip commands in the market. This fevered growth and speculation raises serious questions. How sound are the chains as businesses? How well do they care for the ailing aged?

Subject to Audit. On the surface, the business looks healthy. Chains have little trouble filling beds with Medicare-Medicaid patients. Southern California's Beverly Enterprises, one of the biggest chains, in six years has opened 27 homes, and its revenues have climbed from $3.2 million in 1967 to $17.4 million last year. Some chains have ambitious expansion plans. Four Seasons Nursing Centers of America, a 40-home Oklahoma chain that has grossed more than $6,000,000 in fiscal 1968, is negotiating to borrow $45 million to promote a home franchising program. Still other companies have shown enough growth potential to become takeover targets. International Chemical & Nuclear Corp. two weeks ago agreed to buy Monterey Nursing Inns, a 31-home Ohio chain with 1968 revenues of $3,000,000. The price: an estimated $45 million, an astonishing 209 times Monterey's fiscal 1968 earnings.

Profit has not come so easily to the chains. They have been borrowing at high cost to expand and diversify into such related businesses as drugstores and retirement communities. Some of the largest chains net only 5% or 6% yearly on investment v. an average of 10% for all of U.S. industry last year. The stocks in several big chains have dropped sharply; Hillhaven and National Health Enterprises are down more than 60% from their 1968 highs.

Medicare and Medicaid payments are no guarantee of profitability. The American Nursing Home Association says that Medicare paperwork has become so snarled that some homes are still waiting for reimbursement for their 1967 bills. All payments are subject to adjustment after Government auditors define just what nursing-home costs are "reasonable"; quite a few chains have not set aside reserves for possible rebates. Some flatly turn down Medicare recipients, whose payments for basic care generally range from $1015 a day. Private patients pay up to $24 a day.

A Big Improvement. In general, nursing homes have long had a chamber-of-horrors reputation, especially many of the older, smaller "mom and pop" homes run by unskilled husband-and-wife teams. Roy Christensen, 35, president of Beverly Enterprises, charges that they often are "just cesspools for the dying aged." By all outward signs, the newer chain homes are a vast improvement. Most are airy, well-lighted, landscaped structures that look like motels. Some have such amenities as barbershops and beauty parlors. Mindful that idleness can break the will to live, many organize activities for patients, including on-premises religious services, movies and tours.

What Is Needed. The homes often cut costs in disconcerting ways. Baltimore-based Community Health Facilities keeps only one registered nurse on duty at a time in each home and relies heavily on nurse's aides, who get only $1.30 an hour. President Richard Rynd, 38, a onetime scrap-metal dealer, openly scoffs at a competing home that employs registered nurses rather than aides. "No wonder it loses money," says Rynd. Like most operators, Rynd has no full-time staff physicians or dietitians. Even so, his homes exceed Medicare's staffing standards, which call for only one registered nurse in a home and licensed practical nurses to take charge when she is off duty.

Medicare standards could be tightened to require more trained help and force other chains to follow the lead of Beverly Enterprises, whose President Christensen announced last week that he will open schools to train nursing-home personnel. Such efforts would increase costs, of course, perhaps enough to hasten the shakeout period that in any new business follows the opening era of heady growth. That would be all to the good. Investors as well as prospective patients need to know which of the chains, behind their sparkling fronts, have developed an ability to earn a profit while meeting exacting standards. Meanwhile, those selecting either nursing-home beds or nursing-home stocks must choose with great care.

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