$1B in Supplemental Nursing Home Funds Diverted to County Health Systems in Indiana

Hospital executives in the state of Indiana redirected at least $1.17 billion in extra Medicaid dollars, drawn down from the state’s supplemental payment program to boost nursing home reimbursement, toward projects to expand their own health systems, an investigation by the IndyStar published on Thursday revealed.

The multi-part series — which tackled the funding system in Indiana and how the extra Medicaid funds are used, why Utah became wary of following Indiana’s lead on supplemental payment accountability, and the staffing levels of Indiana’s nursing homes — emphasized the opacity and uncertainty around one of the largest Medicaid supplemental payment programs for SNFs in the entire country.

Indiana pulled down approximately $1.02 billion in supplemental Medicaid payments to nursing facilities (NFs) and intermediate care facilities for people with intellectual disabilities (ICF/IDs) in fiscal 2018. But according to the IndyStar, the hospitals and health systems that own the nursing home licenses, in an arrangement designed to bolster SNF reimbursement, have used those funds to construct their own projects rather than invest in the SNFs.


In Indiana, non-state government entities— often county hospitals, though not always — become the license holder of SNFs, for Medicare regulatory and statutory purposes, Kevin Pahud, a partner in the health care group of consulting firm BKD, explained to Skilled Nursing News earlier this year. By taking over the licenses, the hospitals and health systems render the SNFs eligible to participate in Indiana’s supplemental payment program.

The result is that county hospitals technically own 499 of the 534 nursing homes in Indiana, the IndyStar reported, drawing down almost $4.5 billion in total extra Medicaid funds. Only seven of 22 participating hospitals would reveal the amount of the funds they had diverted from the nursing homes; the IndyStar placed that number at $1.17 billion, according to the IndyStar.

Some hospitals did reveal how they spent their diverted nursing home funds: Daviess County Hospital, which owns 30 nursing homes, built a $5 million rehabilitation center, while “money from its 43 homes helped Major Hospital construct a new $89 million medical center.”


Indiana’s program also fell short in terms of oversight of those funds, according to the IndyStar, with officials from the state of Utah — which also has a supplemental Medicaid program for nursing home payments — unsettled by what they saw in the Hoosier State. Leaders, including Kade Minchey who is now the auditor general of Utah, were concerned about the growth in that state’s supplemental payment program that saw almost half of Utah’s 98 nursing homes enroll in the program within four years, according to the IndyStar.

When Utah officials went to Indiana in December 2017, they did so with the goal of finding out solutions to the potential issues with the program.

“We were a little surprised at the way they ran the program just knowing the risks in our system,” Minchey told the IndyStar. “We came back and kind of had to work on our own unique Utah solutions.”

The Centers for Medicare & Medicaid Services (CMS) proposed new rules in November 2019 to overhaul the growth in supplemental payments to hospitals, doctors and nursing homes. CMS administrator Seema Verma strongly defended the proposed rule in the face of provider pushback in a blog post in February, and IndyStar noted that she would be familiar with Indiana’s system given her prior role as a prominent health care consultant in the state.

In fact, Verma specifically singled out arrangements where under the intergovernmental transfer system, nursing home owners sell their properties to a local government entity but retain operational control.

“Everyone wins — except the patient and the federal taxpayer,” Verma said, noting that federal law generally prohibits more direct attempts to boost federal matching funds, such as donations from providers.