Nursing homes’ financial reserves

Under the nursing insurance system, intensive-care nursing homes for the elderly are accumulating large internal financial reserves. These facilities care for people aged 65 or older who have serious medical issues. Most of them are bedridden or suffer from senile dementia.

To dispel any suspicions about their operations, it will be important for these homes to introduce transparency to their operations by disclosing how they plan to use the internal reserves in their long-term operation plans.

According to a survey by the health and welfare ministry, one such home had internal reserves worth ¥313.73 million on average as of the end of March 2013. Total internal reserves at such homes nationwide amount to about ¥2 trillion.

Attention must be paid to the fact that behind the accumulation of internal reserves in those homes is a structural problem. Most of those homes are run by nonprofit social welfare service corporations. These corporations are not legally allowed to give out dividends when they have a surplus.

As long as the homes are not running in the red, surpluses are carried over to the next year and allowed to accumulate. In this sense, they are quite different from ordinary companies. The larger their operations are and the longer history they have, the more internal reserves they accumulate.

Before the nursing insurance system was introduced in 2000, there was little need for intensive-care nursing homes for the elderly to stockpile internal reserves because they received large subsidies and grants-in-aid from the government sector.

With the start of the nursing insurance system, those homes came to rely on revenues based on payments (at piece rates) from the insurance system. The amount of subsidies and grants-in-aid dwindled. The facilities now need to secure funds on their own to maintain their facilities or to build new ones. This has given them cause to try to accumulate internal reserves.

In May 2013, the health and welfare ministry studied the real status of internal reserves that had built up at intensive-care nursing homes. The ministry concluded that reserves were small at slightly more than 50 percent of the homes and large at slightly more than 30 percent of them. Because of a lack of research on past internal reserves, the ministry could not show what level of internal reserves should be considered appropriate. In fiscal 2011, the total payments for nursing care services from the nursing insurance system increased by 5.1 percent from fiscal 2010 to some ¥7.6 trillion.

While demand for nursing care services for the elderly is rapidly increasing, the industry is suffering from severe staff shortages due to the difficult nature of the work and relatively low wages. To attract more people to this line of work, wages need to be increased. It is understandable that nursing care facilities want to have sufficient reserves to keep their facilities in good operating order, but they should make an effort to increase pay to ensure they have a sufficient number of skilled and dedicated workers.

Nursing care facilities should work out long-term operation plans and clearly explain to residents and their families how they plan to use their internal reserves.