How Paying Nursing Homes Upfront Fees for New Patients Could Drive Medicaid Savings

Paying nursing homes an upfront fee for new Medicaid patients could help save the government insurance program money.

That’s according to recently published research paper in the National Bureau of Economic Research, which found that patients whose nursing home costs are covered by Medicaid have no financial incentive to leave because they do not incur costly copayments. The findings were summarized in a research brief posted this week by UCLA Anderson Review.

Researchers Martin Hackmann from UCLA, R. Vincent Pohl from Mathematica, and Nicolas R. Ziebarth from Cornell conducted an in-depth analysis of more than 500,000 nursing home stays across four states.


They found that nursing homes can be financially motivated to retain Medicaid patients, but when more profitable Medicare or private payers seek their services, nursing homes tend to discharge less-profitable Medicaid patients, implying that these patients stay longer than medically necessary.

Researchers concluded that one strategy shows particular promise in terms of cost-effectiveness for Medicaid: Paying nursing homes an upfront fee for new Medicaid patients.

“In the current reimbursement model, nursing homes collect a per-diem fee for each Medicaid patient — the same fee for day 100 as for day 1. The researchers find that shifting 10% of Medicaid reimbursements into an upfront fee for a new Medicaid patient reduces the length of Medicaid stays by 17% and spending falls by 8.4%,” Carla Fried wrote in the UCLA Anderson Review


In other words, This approach could effectively reduce the nursing home’s financial incentive to prolong a patient’s stay, making new Medicaid patients more profitable than long-term patients, according to the researchers.

“We find that targeting provider incentives is more cost effective than increasing patient cost-sharing in shortening the length of Medicaid SNF stays,” researchers wrote. “However, note that this paper does not explicitly quantify patient welfare.”

There is increasing concern over how payment frameworks influence what patients receive nursing home care and for how long. For example, providers have raised concerns that Medicare Advantage plans, for cost savings, unnecessarily deny nursing home coverage to residents who would benefit from longer lengths of stay.

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