In addition to being a safety net for low-income seniors in need of skilled nursing services, Medicaid is a key funding stream for financial stability and operational viability for nursing homes throughout the United States. As the primary payer for long-term care services, Medicaid funds a significant portion of the care provided to older Americans and is vital to the nation’s healthcare system, especially as the population rapidly ages.
Given this vital role and the criticism among many operators around Medicaid not covering the actual cost of care, the Office of the Assistant Secretary for Planning and Evaluation (ASPE) at the U.S. Department of Health and Human Services launched a study aimed to understand the relationship between state Medicaid payment rates to nursing homes and the costs these facilities incur while caring for Medicaid residents. Medicaid data was collected from individual states and Medicare Cost Reports for freestanding nursing homes in 44 states.
The following are key takeaways from the study:
- On average, Medicaid payments covered about 82 cents for every dollar of reported costs for caring for Medicaid residents in nursing homes.
- The mean Medicaid payment rate was $198 per resident per day, while the mean cost was $253 per day.
- About forty percent of nursing homes had Medicaid payments covering 80% or less of their reported Medicaid costs. Fifty-two percent had 80-100% of costs covered, and eight percent had payments exceeding costs.
- Nursing homes with lower nursing staff levels had higher payment-to-cost ratios than those with higher staffing levels. For example, nursing homes with total nursing staff levels below 3.00 hours per resident day had a ratio of 0.85, while those staffing above 4.00 hours had a ratio of 0.77.
- Nursing homes with higher proportions of Medicaid residents had higher payment-to-cost ratios. The report mentioned this is consistent with nursing homes with less reliance on Medicaid having expenditures that exceed those of nursing homes more reliant on Medicaid.
Readers should note the study does have limitations as mentioned within the release, including the fact that the data used was from 2019 and the Medicaid rates used were the states’ statutory Medicaid payment rates, which may not capture all payments made to nursing homes via Medicaid. Many states have increased Medicaid reimbursement, and nursing home operators have experienced higher operating costs since 2019. Hence, there is a need for further analysis with more recent data.
This study provides critical insights into the challenges facing Medicaid-funded nursing homes, highlighting significant disparities between payment rates and the costs incurred for resident care. Addressing these gaps is essential not only to sustain the nursing home industry but also to improve care quality for older Medicaid beneficiaries. Given the vital importance of this topic, all stakeholders—policymakers, healthcare providers, and industry leaders—should be deeply invested in the outcomes of discussions stemming from this report. As stakeholders explore Medicaid payment reforms, these findings underscore the need for payment systems that promote both financial sustainability and high care quality standards. This report serves as a valuable resource for furthering the conversation that will shape future Medicaid policies and ensuring the long-term viability of America’s healthcare system.
The full report is available here.