National Study Confirms Medicaid Payments Fall Short of Costs, Shows Links to Staffing Levels and Ownership

A new study on Medicaid payment rates from 44 states shows Medicaid payment rates among nursing homes on average don’t adequately cover today’s costs.

Meanwhile, higher staffing levels often correlate with lower Medicaid payment-to-cost ratios. And, nonprofits appear to have the lowest payment-to-cost ratio for Medicaid.

Medicaid rates only covered bout 82 cents per every dollar of reported cost, with Medicaid per diem payments covering 80% or less of an operator’s estimated per diem Medicaid costs, according to a study published by the Office of the Assistant Secretary for Planning and Evaluation (ASPE), which advises the Department of Health & Human Services (HHS) on policy development in health, disability, human services, data and science.

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“This study is unique because unlike previous work it examined the relationship between payment and costs on a facility-by-facility basis, rather than, say, state average reimbursement levels,” Edward Miller, professor of gerontology and public policy at the University of Massachusetts Boston, told Skilled Nursing News. Miller was a co-author for the study. “We also bring an independent and unbiased eye to this issue, thereby alleviating concerns with prior industry-led analyses.”

Miller said the study acts as foundational work, and hopefully will open the door for more conversations about the correlation between Medicaid payment rates and nursing home efficiency, staffing makeup, and ownership status. More studies building off of this one are in the works already, he said.

About 52% of nursing homes had 80 to 100% of their Medicaid per diem costs covered, and only 8% had payments exceeding their per diem costs, the study found. Meanwhile, 40% of nursing homes had per diem Medicaid payments that covered less than 80% of their per diem reported Medicaid costs. 

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Authors used Medicaid payment data collected from individual states and Medicare cost reports for freestanding nursing homes in 44 states in 2019, meaning the inadequate coverage was present pre-pandemic.

“This study did not address the adequacy of the Medicaid payment, the accuracy and completeness of the data in the Medicare Cost Reports, or whether nursing homes were operating efficiently or were adequately staffed based on the acuity of their residents,” authors noted. “Nonetheless, this study does provide additional data on state Medicaid payment rates and costs that can be useful in current discussions assessing potential Medicaid payment policy reforms.

Findings from the study can also be used to examine the impact of potential changes in Medicaid payment policy and financial performance of nursing homes at the state and facility level.

Nonprofit nursing homes had the lowest payment-to-cost ratio, authors found, compared to government-owned and for-profit providers.

There appeared to be a correlation between total nursing staff levels and Medicaid payment-to-cost ratios as well, with levels below 3 hours per resident day having the highest average at 0.85 Medicaid payment-to-cost ratio.

“This suggests that these nursing homes that rely more heavily on Medicaid revenue have a higher payment-to-cost ratio not because the payments are necessarily adequate, but because they don’t staff as high for their cost; the denominator is lower,” Miller said.

Nursing homes with staffing levels above 4 hours per resident day had the lowest average Medicaid payment-to-cost ratio of 0.77, the study found.

“Nursing homes need adequate resources to recruit and retain nursing staff and to implement quality improvement efforts to assure proper care,” said Miller. “Our findings suggest that Medicaid payments for most nursing homes are alone not sufficient enough to cover the costs of caring for Medicaid residents, let alone needed investments such as these.”

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