A recent report from the Office of the Assistant Secretary for Planning and Evaluation highlights Medicaid underfunding for nursing homes. Here’s 5 things you can do now to respond.
Prior to the COVID-19 pandemic, approximately 1.37 million Americans resided in over 15,000 nursing homes across the country. These facilities provide a wide range of services, primarily to older adults requiring personal, custodial, and medical care. Classified as either nursing facilities (offering long-term care) or skilled nursing facilities (providing short-term rehabilitative services), most serve both long-term residents and short-term patients.
Medicaid’s role in the nursing home ecosystem
Medicaid is a crucial public insurance program that combines federal and state funding to bridge nursing home costs for individuals with limited financial resources. Medicaid spending is a major state expenditure, accounting for 27.6% of state budgets in fiscal year 2022, second only to education. Of that percentage, over one-third is allocated to long-term care in nursing homes and community-based settings. On the provider side, Medicaid is the largest single-payer for nursing home care, covering about two-thirds of residents, many of whom require long-term custodial care due to cognitive or physical impairments. While all state Medicaid programs are required to cover these residents, states have significant flexibility in determining payment rates and policies.
Medicaid payments versus cost of care in nursing homes
A recent report from the Office of the Assistant Secretary for Planning and Evaluation (ASPE) assessed Medicaid payment rates and the cost associated with caring for the Medicaid population in nursing homes. It provides a comprehensive picture of pre-COVID-19 state Medicaid payment rates and the costs of caring for Medicaid residents, supporting the concern shared by many that the state Medicaid programs are underfunding nursing homes.
By creating a comprehensive national database, the ASPE linked facility-level payment, cost, staffing, and quality information to build a detailed analysis of critical metrics. This enabled them to address the following questions:
- What’s the average cost of caring for Medicaid residents, by state and provider characteristics?
- What are the average reimbursement rates to nursing homes by state and provider characteristics?
- What factors influence cost and payment variations across states?
- How do Medicaid payments compare to reported costs?
In answering these questions, the ASPE analyzed Medicaid payment data from 44 states alongside Medicare cost reports for freestanding nursing homes and calculated national averages and medians for per diem Medicaid payment rates, costs, and payment-to-cost ratios (see Appendix Table 7) for the period July 2018 to June 2019 — a time period occurring prior to COVID-19 and the cost escalation and staffing crisis the industry is currently facing.
Key findings
The report found that on average, Medicaid payments cover about 82% of the costs incurred by nursing homes for Medicaid residents. This indicates a significant shortfall, especially for around 40% of nursing homes, where payments cover 80% or less of their costs. The study highlights that 52% of nursing homes have their costs covered between 80–100%, while only 8% receive payments that exceed their costs.
Not-for-profit nursing homes tend to have the lowest payment-to-cost ratios compared to for-profit and government-owned nursing homes, raising questions about sustainability and service quality in these facilities (See Appendix Table 9).
Nursing homes with lower staffing levels (below 3.00 hours per resident day) had a higher average payment-to-cost ratio (0.85), while those with more robust staffing (above 4.0 hours) had a lower ratio (0.77) (See Appendix Table 9). This could imply that better-staffed facilities might be more efficient or effective in managing costs.
The mean and median all-payer payment-to-cost ratios were nearly 1, indicating that payments from all sources (Medicare, Medicaid, etc.) weren’t fully covering provider reimbursable costs.
It’s important to note that the study didn’t evaluate whether the Medicaid payments are adequate or if nursing homes are operating efficiently based on resident acuity — critical factors for understanding the overall care quality.
Takeaways for nursing home providers
The insights gained from the ASPE research are valuable to inform policy discussions supporting assessments and Medicaid payment reforms and help stakeholders understand the implications of potential changes.
In particular, the report’s impact analysis is useful for examining how modifications in Medicaid payment policies could affect the financial performance of nursing homes at both the state and facility levels. This analysis also addresses Medicaid payments and costs across different nursing homes, highlighting areas that may require further attention and reform.
Overall, the research contributes to a deeper understanding of the financial landscape of nursing homes while underscoring the importance of aligning Medicaid payments with the actual costs of care to ensure quality and sustainability in the long-term care sector.
Actions you can take today
In response to the findings of the ASPE report on Medicaid payments and nursing home costs, here are five actions your organization can take now.
1. Advocate for payment increases
Partner with state-level nursing home associations to present unified arguments for higher Medicaid reimbursement rates. Leverage the cost reports and data from the ASPE study to highlight the gap between payment rates and the actual cost of care.
2. Optimize your staffing strategies
Consider implementing flexible scheduling to minimize overtime costs while maintaining care standards. Invest in staff training to improve efficiency and reduce turnover, which can in turn lower recruitment and onboarding expenses.
3. Investigate options for cost management
Engage experts to conduct an operational assessment to identify staffing and operational inefficiencies and other cost-saving measures.
Review vendor contracts, and where appropriate renegotiate with suppliers to secure more favorable terms for essential goods and services. Evaluate whether contracting for services such as dietary, laundry, housekeeping, etc., are viable options for your organization.
4. Explore alternative funding sources
Seek federal or state grants aimed at improving long-term care facilities. Look for philanthropic partnerships; engage with nonprofit organizations or local charities that support healthcare initiatives. Maximize participation in institutional special needs plan partnerships or Accountable Care Organization or other pay-for-performance programs that may provide additional revenue streams.
5. Evaluate quality improvement initiatives
Align care practices with metrics that can qualify the facility for value-based incentives. Demonstrate commitment to quality through community outreach and transparent reporting to stakeholders.
These measures can help your nursing home address financial challenges and sustain quality care delivery amid Medicaid reimbursement shortfalls.
If you have questions regarding the direct impact on your organization, submit a contact us form today, and Plante Moran reimbursement expert will follow up with you soon.
As summarized in Table 7 of the report only three states appear to cover Medicaid costs (Delaware, Louisiana and North Dakota) while Nevada and New Hampshire appear to have the lowest payment to cost ratio.
As summarized in Table 9 below non-profit and continuing care retirement community nursing homes have the lowest payment to cost coverage ratio. While bed size and occupancy rate did not have a significant impact to the cost coverage. However, operators with a lower Medicaid population were able to have more of their costs covered, as private pay and Medicare provide more appropriate reimbursement of costs.
