CMS 5-Star Nursing Home Rating System

The Centers for Medicare and Medicaid Services (CMS) uses a rating system for nursing homes in the United States. It’s a 5-Star system. In this episode, we welcome Dr. Niam Yaragi, who will provide information on how the 5-Star system works, and the correlation between the rating system and quality of care in American nursing homes.

Schenk: Hey out there. Welcome back to the podcast. My name is Rob and I will be your host for this episode. We are going to be doing a deep dive into the Centers for Medicare and Medicaid Services five-star rating system for nursing homes across the country, literally the way in which our government ranks nursing homes with regard to the quality of care.

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So we’re going to be talking about the five-star system. Every nursing home is ranked and rated on a one to five-star scale similarly to hotels. You go to a hotel, it’s always like a five-diamond award or something like that. Well the Centers for Medicare and Medicaid Services, the federal agency in charge of overseeing nursing homes, has a similar rating system. But the question is how is that rating assigned, what is the data that goes into and what are ways it is manipulated by the facilities and how do we improve that rating system so that it is actually useful for the potential resident.

We will get into all of that on this episode but we are not doing it alone. We have a special guest. We have Dr. Niam Yaraghi. Dr. Yaraghi is an assistant professor of business technology at Miami Herbert Business School at the University of Miami and a non-resident fellow at the Brookings Institution’s Center for Technology Innovation. His research is focused on the economics of health information technologies. In particular, Niam studies the business models and policy structures that incentive transparency, interoperability and sharing of health information among patients, providers, payers and regulators. He has a B.S. in industrial engineering from the Isfahan University of Technology in Iran and a Master of Science from the Royal Institute of Technology in Sweden. He received his PhD in management science systems from the State University of New York at Buffalo. He’s extremely qualified, extremely educated and we are so happy to have him on talking about his field of expertise. Dr. Yaraghi, welcome to the show.

Yaraghi: Thank you for having me.

Schenk: Fantastic. I had come across some of your work on the Internet and I was like I need to have this expert on my show to talk about a subject that we talked about before on this podcast, and that is the CMS five-star system, what it means, what it represents, what it actually represents to prospective nursing home residents and how it’s possible that the system can be gamed to make one facility look like it’s actually another facility. So I saw your work on that and was like, “Let’s get this guy on here.”

So I won’t beat around the bush, I’ll get right into it. So from a 40,000-foot view, can you explain to the audience what the nursing home five-star system is, how it’s calculated?

What is the nursing home 5 Star Rating System?

Yaraghi: All right, it’s a very good question. The five-star rating system administrated by CMS is something very similar to the star rating that hotels use. You have a five-star hotel and that gives you an idea of the facility that you can expect to be there and that you can compare it to the one-star hotel. So the same idea applies here. This is a rating system administrated by CMS after a lot of criticism from members of Congress who were saying, “How come it’s easier for us to know about the washing machine that we want to purchase than it is for a nursing home that you may be living the rest of our lives at?” So those kinds of criticism pushed CMS in order to create these rating systems so that residents and their families and also medical providers could use in order to make more informed decisions about living there and staying there.

Schenk: Thank you. So I guess then it begs the question, if I’m looking online for a hotel, it might have five stars with regard to cleanliness, five stars with regard to breakfast, these types of things. So with nursing homes, what does the five-star system measure? What are the categories?

What services are measured in the 5 Star Rating System?

Yaraghi: Yeah, so very similar to hotels, there are subcategories within this five-star rating system. Nursing homes are rated based on their staffing levels, based on their quality measures and also based on on-site inspections done by Medicare inspectors, and once they are rated based on these three subdomains, there is an overall rating created based on that.

And the way that it works is quite interesting. Well the basic is the on-site inspections and audits done by CMS-certified inspectors. They come to the location of the nursing home and check many aspects. Based on that, they assign a star rating to a nursing home that can be between one to five. After that, nursing homes have to self-report their quality measures, for example, the percentage of the residents that fell during the quarter or the percentage of the residents that have infections. And also their staffing – for example, how many nurses they had for each resident.

Depending on how well they report on staffing and quality measures, nursing homes can lose or gain up to two stars from their initial ratings on inspections. So suppose that you are a nursing home that did mediocre and you got three stars from CMS initially, but then you go ahead and report fantastic performance when it comes to quality measures and also to your staffing, then you could potentially increase your overall star rating from three stars to five stars. And the opposite can also happen. If you got initially three stars but you reported really bad on your own quality and staffing level, then you may lose up to two stars and be downgraded to one star.

Schenk: So let me ask this then. So what is, in your research, is there an actual correlation between the star rating and the actual quality of care provided by the nursing home? And if there is, how do we know that? How do we correlate the star rating to the actual quality of care?

What do the ratings mean for expected quality of care?

Yaraghi: It’s a very interesting question because it allows me to tell a little bit of background of how I got interested in this research to begin with. I remember clearly that one Saturday morning, I was reading The New York Times, and that was when they were talking about all these nursing homes that were supposedly fantastic nursing homes, five-star nursing homes, however they have very bad conditions for their patients that led to harm and in some cases even the deaths of patients. And they were saying, “Look, it doesn’t make sense.” The patients and their families look at these ratings. They see a five-star nursing home that may mean they’re charging them quite a lot, and then they go there and what they experience is very different from what they expected.

So I started looking into these ratings and one thing that was really interesting to me was that when you look at the trend of these ratings from 2009 all the way to now, you will see the percentage of the nursing homes that have an overall star rating of let’s say one, two or three has been consistently declining whereas the nursing homes that have four or five stars have been consistently increasing. So this trend could be interpreted in two ways. The very first one is to say, “Wow, since CMS has started these rating systems, then nursing homes have been continuously improving their quality of care as reflected in their ratings.” The other way some pessimistic person may look at it is maybe they have learned how to game the system because this much improvement over relatively short period of time doesn’t pass the smell test. And that was what I started to look at.

So to answer your question, I think it depends on which of these ratings are you looking at. In our research, we figured that the on-site inspections and audits done by CMS directly are quite highly correlated with other measures of quality such as patient complaints of nursing homes recorded by other parties than CMS. But when you look at the self-reported quality measures, then it may not necessarily be that much correlated.

And interestingly, CMS is very well aware of this issue and because of such awareness, they changed the reporting requirements such that you no longer as nursing homes can report your own staffing, but instead you have to report your payroll. So you have to exactly identify who was on your payroll and what was their roll and for how many hours they were on your payroll. And then they take that and calculate the staffing rating based on that, where previously you said, “Oh, I have this many nurses and this many nursing assistants on my staff.”

Schenk: So I guess that actually makes sense to me that the manipulation of the rating to the extent that it is able to be manipulated would be easier for the nursing homes for the things that are self-reported as opposed to the inspections, the fire inspections, the annual inspections, which are done by theoretically an independent surveyor without warning, right? Although it seems to me nursing homes always know when they’re about to get inspected, but that makes sense.

Can you unpack a little bit how it’s manipulated with the payroll-based journals, the PBJs we call it on our end, but the payroll as you mentioned? And also kind of speak to the fact that even using the payroll as a way to chart whether or not it’s staffed, that’s still only paid time, so it includes vacation time, paid time off, which theoretically would mean that what you’re reporting is still not accurate because it’s accounting for vacation pay, like that person might not be there for the week you’re saying actually is. Can you speak to how it’s manipulated?

How is the 5 Star Rating System manipulated by nursing homes?

Yaraghi: Yeah, I did not look at how they do it, so I cannot speak to that. However, it’s very interesting that you brought up this PBJ rating mechanism because on top of what you already said, I think one other thing that is important is the quality of staffing. You may have a nurse on staff but how well she or he does the job really matters. And that is something that is quite honestly very difficult to capture using quantified data.

Schenk: Definitely.

Yaraghi: So even if there were further refinements in PBJ data so that we could parse out the vacation time from the time that they are actually on the job, still the concern is how do you differentiate between the quality of these two people, because we know that there is a huge quality in the level of services that a particular nurse or nurse assistants could provide in these nursing homes.

Schenk: So if I understand you correctly, the system as it stands now would not differentiate between a facility that has a low turnover rate versus one that has a very high turnover rate. In fact, it could be said that a facility that has veterans that have worked there for 15 years and know every resident but is slightly understaffed would score worse than a facility where they’re losing somebody every other week although they might have theoretically the right amount of staff.

Yaraghi: You brought in a very interesting point which is that is actually the focus of my research as we speak, and that is the staff turnover. There is an abundance of academic literature that has looked at the impact of staff turnover on various aspects of nursing homes from quality of care to patient safety, and it is unanimous that it is going to hurt patients and it’s going to reduce quality of care. However, yes, as you speak, the way the PBJ rating on staffing works is that you have to have certain number of nurses and nursing assistants. It really doesn’t matter if you’re working with a nurse who’s been there for 20 and who knows every resident and not only the resident but also the family of residents on a first name basis whereas somebody who is churning these staff over and over quite a lot. And what is troubling to me is that there are some evidence in the literature that says maybe these staff turnovers are financially helping these nursing homes. In other words, not only do they not have any incentive to reduce the turnover but also they have a direct financial incentive to maybe even increase the turnover because you don’t have to worry, for example, about salary increases or sometimes the benefits if your employees are only there for three, four months and they go and somebody else comes.

Schenk: Okay. So that’s an excellent point and we see that. In depositions, in our cases, we talk to the administrators and directors of nursing and go, “Would you say that it’s better for somebody to know and have experience with all the residents they’re taking care of or somebody who just came in off the streets and are taking care of these residents? So knowledge of these residents, and even the facility’s culture, so to speak, is important and you don’t have that when you have high turnover.

Yaraghi: Absolutely.

Schenk: So let’s do this. I have a magic wand and I made Dr. Yaraghi the Secretary of the Department of Health and Human Services, okay? So you’re sitting over CMS. What are some things if you controlled it all that would improve the five-star rating and the purpose of the five-star rating?

How can the system be improved?

Yaraghi: It’s a very interesting question because we have also looked at it, and I think there are two things that CMS could do – one easy thing and one more difficult thing. The easiest thing is to implement the auditing system. The current rating system of nursing homes is similar to having a tax code without an IRS to audit us, and in that situation, while most of the people still continue to be honest while reporting their taxes, those people who have the tendency to cheat would cheat even more because they know there is no agency to audit them, and even if there were an agency to audit them, there are not consequences.

So the very first one is to implement an auditing system that looks into all of these self-reported measures and see if they are honest or not. The second one, which is the more difficult but I think the fundamental solution to this problem is to completely eliminate the need for self-reporting because that is what leads to many violations, and if they remove the need for self-reporting, then they completely eliminate any chance of cheating. And the way that it is done is through smart sensors and IoT devices. Why do nursing homes have to report the number of patients who fell in the facility when we have already sensors you can wear around your neck and they can detect automatically if you fall? Why do nursing homes have to report their UTI infections when we now have sensors that could fit in underwear that can detect UTIs? All these sensors can report all these data in real time to CMS so there’s no need for nursing homes to do that and it is also going to be a great benefit to nursing homes because, first of all, it removes the burden of reporting from nursing homes, and second, it would enable nursing homes to increase the quality of their care.

UTI is a good example. If with these sensors, we can detect it early, then treating it is much easier than when it is at the advanced stages. So nursing homes using these technologies can improve the quality of their care, can improve patient satisfaction and can make their management much more efficient.

Schenk: That’s an interesting concept – eliminating the need for self-reporting through basically informational devices in the facility. And forgive me if I misheard you – I know that we had some technical difficulties there for a second, but what about the accuracy about the payroll journal? Do you think that’s something we can bypass the self-reporting of? How can we – I don’t know, I guess if I understand correctly, is it possible for them to manipulate the payroll data that’s provided?

Yaraghi: So I don’t think it is as easy as it was before they have to have some documentation evidence for that.

Schenk: Right.

Yaraghi: There is no system that is 100 percent fool-proof.

Schenk: Sure.

Yaraghi: And that is why it is very important to have an auditing system so although there still may be chances that there are some bad apples among these nursing homes and they find loopholes to manipulate the ratings, if we have an auditing system, then I think that would reduce the chance that these nursing homes actually commit that kind of fraud.

Schenk: That makes sense. So Dr. Yaraghi, in the final couple of minutes that we have on the program today, where is your research headed? What are you looking at next in terms of nursing home industry and this five-star system? Anything exciting or anything worthy that you want to talk about?

What’s next in the research of the five-star system?

Yaraghi: Sure. It’s almost impossible to ignore the issue of COVID when you’re talking about nursing homes, and one of my most recent projects was to look at the COVID infections and the size of COVID infections in nursing homes among their staff and the residents, and one thing that we looked at was the association between the tendency to manipulate your self-reports and the likelihood of having an infection in your facility and also the size of the infection in a facility along with a whole bunch of other features of nursing homes – for example, we looked at their for-profit status, we looked at their size, location, all of these factors.

And there are two interesting things that stood out. The very first one is that the likelihood of having at least one infection is only dependent on the location that you are, meaning that if you are in a state that has experienced a surge in COVID, then it is very difficult for you to isolate yourself from it. However, you can do a lot in terms of controlling the size of the outbreak inside your facility if you have, for example, better staffing or if you had higher ratings from inspections. If you are a not-for-profit nursing home, and most importantly, if you were a nursing home that was honest in your reporting and was not engaged in increasing your self-reported measures, then you tend to have outbreaks, however the size of those outbreaks would be much smaller.

Schenk: That’s right. Well that’s very interesting. I really appreciate you sharing your knowledge with us and talking us through the five-star system, especially how we can in the future make it better. So thank you so much for coming on the show.

Yaraghi: Thank you. It was a pleasure.

Schenk: If you’d like to learn more about the five-star system, we’ve covered that in other episodes – sorry about that, it’s been a long day. So that will be in the show notes. It will be linked in the transcript if you’re looking at this on the website, but you can learn more about the five-star rating, how to use CMS’s Nursing Home Compare website and maneuver that in terms of understanding which nursing home might be right for your loved one.

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