New branches of the government got involved in the financing of long term care in the late 1950's, when legislation authorized the Small Business and Federal Housing administrations (SBA and FHA) to help finance construction and operation of proprietary nursing homes and nonprofit housing for the elderly.
In 1959 The Housing Act was amended by creating several programs to be administered by the Department of Housing and Urban Development (HUD). One program provided federal mortgage insurance to enable private lenders to make low-interest loans for the construction or rehabilitation of nursing homes, which were available to private, public operators, and non-profit operators. This was the first time that the federal government had provided any financial assistance to proprietary nursing home operators for the significant cost of building new facilities, and they took full advantage of it, greatly increasing the number of for-profit nursing homes in the country in the next few years.
Another program, called Section 202, provided direct, low-interest loans only to non-profit operators for the construction of housing for the elderly. Section 202 units could provide congregate meals, housekeeping services, personal care, social work/counseling services, or transportation for medical or social activities to people who lived in their own apartments in these buildings. Many church and fraternal organizations used this funding to add "independent living" apartments near their old age homes, creating campuses they started calling "continuing care retirement communities" or CCRC's.
These programs were more than adequate to allow for the development of new facilities. Bruce Vladeck reports that a $100,000 loan from the SBA (the maximum offered) was enough to purchase a 25-bed nursing home at that time. (Vladeck, 1980) The new construction activity also raised awareness of the industry for both builders and lenders, drawing in new developers and providing additional financing from private sources, even for projects not covered by federal guarantees.
This new activity was good for developers but may not have been so good for the public. The FHA was concerned with housing, not health care, and the medical criteria laid out in the Hill-Burton Act were not required for nursing homes built or remodeled using FHA or SBA funds. Worse yet, nursing homes built with private, non-government financing had no federal standards at all to adhere to. Many of these new facilities were designed for residential rather than medical needs, and many had no affiliation with hospitals or health care systems.
A number of the developers had housing backgrounds, and they had no idea how ill many of their residents would be, nor did they know how to provide medical services to a chronically-ill population. It was a recipe for disaster for an industry caring for a very vulnerable, very ill population -- hundreds of nursing homes were being constructed that couldn't comply with federal safety or medical standards, and they were often run by people with no medical background.