A report, published October 11, 2024 by the Department of Health and Human Services (HHS) Office of the Assistant Secretary for Planning and Evaluation (ASPE), assesses Medicaid payment rates and costs of caring for nursing homes’ Medicaid populations. The purpose: to understand the relationship between state Medicaid payment rates to nursing homes and providers’ costs of providing care to Medicaid residents.

Using Medicaid payment data collected from individual states and Medicare Cost Reports for freestanding nursing homes in 44 states, researchers calculated the national average and median per diem Medicaid payment rates, per diem costs of caring for the Medicaid population, and the Medicaid payment-to-cost ratios. They also analyzed data for the nation as a whole, by nursing home characteristics, and by state Medicaid payment policies, to gain insight into factors that affect the differences between payments and costs.

Authors found that Medicaid reimbursements fell short of covering the costs of care for providing services, with many variables affecting the rates.

According to the report, which used 2019 data (the latest pre-pandemic data), Medicaid payment rates for the average or median nursing home covered about 82 cents per every dollar of costs that nursing homes reported incurring in caring for Medicaid residents. For approximately 40% of nursing homes, Medicaid per diem payments covered 80% or less of their estimated per diem Medicaid costs, the report says.

The majority, or 52% of nursing homes, had 80-100% of their Medicaid per diem costs covered and the remaining 8% of nursing homes had Medicaid payments exceeding their Medicaid per diem costs.

Nonprofit nursing homes were found to have a lower mean Medicaid payment-to-cost ratio (0.76) than for-profit and government-owned nursing homes (0.83 and 0.80, respectively).

On average, Medicaid rates paid were 82% of costs to provide services, though variables were evident based on staffing patterns, ownership type, and occupancy. For example, the report found that nursing homes with total nursing staff levels less than 3.00 hours per resident day (HPRD) had the highest average Medicaid payment-to-cost ratio (0.85), while nursing homes with nursing staff levels above 4.00 HPRD had the lowest average Medicaid payment-to-cost ratio (0.77).

The study made good faith efforts to compare costs to payments based on per diem rates and supplemental payments paid through the per diem rates. According to the report, the mean and median all-payer payment-to-cost ratio is 1.0, indicating that, on average, nursing homes had all their reimbursable costs covered after all revenue sources were included. Within the analysis, authors suggest there was an inability to correct for costs associated with related party transactions (those that occur within organizations under the same ownership umbrella).

The report provides a comprehensive overview of Medicaid reimbursement across the United States. However, it does “not assess the sufficiency or determine the optimal and most efficient Medicaid payment-to-cost ratio,” the accuracy and completeness of data in Medicare Cost Reports, or whether nursing homes are operating efficiently with appropriate staffing levels based on resident acuity. Additionally, the study does not analyze the federal regulation (42 CFR § 447.204), which requires states to set Medicaid payments that are “consistent with efficiency, economy, and quality of care” and sufficient to ensure that services are available to beneficiaries at the same level as the general population. Specifically, it does not examine whether nursing homes are adequately staffed to meet the needs of their residents. The authors note that, “additional transparency around labor costs would be helpful and would satisfy the CMS requirement to document spending on direct care staffing for its proposed rules on Minimum Staffing Standards for Long-term Care Facilities.” (Those rules are now final.)

The findings from this study can inform Medicaid payment reforms, provide the data needed to assess the impact of potential changes in Medicaid payment policy on the financial performance of nursing homes at both the state and nursing home levels, and highlight potential disparities in Medicaid payments and nursing home costs. The authors of the report, Assessing Medicaid Payment Rates and Costs of Caring for the Medicaid Population Residing in Nursing Homes, include Marc A. Cohen, Ph.D, the co-director of the LeadingAge LTSS Center @UMass Boston.

The full report can be accessed here.