Medicaid payment rates are insufficient to cover the costs of care, according to a new study that highlights the growing financial challenges faced by nursing homes serving Medicaid residents.

The research, conducted by the LeadingAge LTSS Center at the University of Massachusetts Boston and Miami University, reveals a widening gap between Medicaid reimbursement rates and the true cost of providing long-term care.

Medicaid payments covered, on average, only 82% of the costs associated with caring for Medicaid beneficiaries in nursing homes in 44 states during 2019, the report states. Moreover, nearly 40% of nursing homes reported that Medicaid payments covered 80% or less of their estimated daily costs, placing them in a precarious financial position. Some facilities even reported Medicaid rates falling below 80% of their per diem costs.

The report was commissioned and funded by the U.S. Department of Health and Human Services (HHS) and published last month by the Assistant Secretary for Planning and Evaluation (ASPE).

Marc A. Cohen, co-director of the LeadingAge LTSS Center and a member of the research team, said proper funding was critical to improving outcomes in nursing homes.

“This (study) shows that nursing homes are struggling financially, and it would appear to me that if you want to influence better outcomes in nursing homes, then you want to ensure proper funding,” said Cohen. “Greater numbers of people are retiring. They are living longer. They are living long enough to experience long-term care needs. The demand for care will increase significantly.”

The study also found significant variations in cost coverage depending on ownership type. Nonprofit nursing homes received the lowest Medicaid payment-to-cost ratio at 0.76, compared to for-profit (0.83) and government-owned facilities (0.80). Additionally, staffing levels were found to influence cost coverage, with nursing homes that employed fewer nursing staff per resident day seeing slightly higher ratios.