Some state legislatures are taking a closer look at the sustainability of long-term care, with their eye on a rapidly aging population and an increased need for such services in the coming years.

In Pennsylvania, nursing home associations testified on reimbursement during a legislative hearing this spring as the state discussed its 2025-26 budget. Pennsylvania’s Budget Adjustment Factor (BAF), which widens the gap between cost of care and payments among operators, represents a major setback to sustainability, some industry associations said.

Iowa Gov. Kim Reynolds is expected to call for a full rebasing of Medicaid, which would very closely align with actual costs of care, according to Brent Willett, president and CEO of the Iowa Health Care Association. The state is in support of determining a path forward for rebasing through a study, he said, which may include a value-based purchasing component to the nursing home Medicaid system.

Iowa is also a certificate of need (CON) state, a process that has been in moratorium for more than a year and in need of an overhaul, Willett said.

It can be hard for state legislatures to look past next year’s budget, added Stuart Lindeman, president and CEO of Florida-based Mission Health Communities.

“If you look at the demographics within many states, the population that’s growing is 75 and above. I doubt there’s very many states where that population is dropping,” said Lindeman. “I don’t think many states have a futuristic view … you do sometimes see it happen when the minority party in that state comes with all these great ideas, but they can’t be implemented because they had no vote.”

All the while, states recognize that action on sustainability must keep “fiscal realities” in mind, said Zach Shamberg, president and CEO of the Pennsylvania Health Care Association (PHCA). He referred to the looming $880 billion potential cut to Medicaid as part of the Congressional reconciliation budget proposal as among those fiscal realities.

While a moratoria on Medicaid provider taxes and the federal staffing mandate are temporary wins for the industry, nothing is set in stone yet.

“Any change, any reduction would definitely undo a lot of the good things that are happening at the state level,” added Willett. “There’s no doubt that pressure on the federal budget, which is not going away anytime soon, is going to necessitate states and the federal government finding innovative ways to care for an ever growing needy population, needy in the context of Medicaid enrollment for long term care.”

Outdated budget adjustments against today’s costs

Shamberg said BAF is an outdated funding mechanism. It was put in place in the early 2000s and originally only intended to last a year.Nursing home costs at the time rose 30% over five years. As an example, if the state only budgeted 90% of what nursing homes are owed, the state reduced the rate by 10% to make the math work, Shamberg said. This is all set against today’s inflationary costs, higher acuity among this rapidly aging population, more costly staff and even costlier agency staff, he said.

Pennsylvania currently has the fifth-highest population of older adults in the country, and about 2,000 people per day await a nursing home bed, PHCA said. The state’s nursing home resident population is expected to double by 2035. Meanwhile, 30 nursing homes have closed in the state since 2021 as the nursing home population grew with higher acuity.

“Dozens have filed for bankruptcy, numerous reorganizations and changes of ownership have occurred, and that’s because caring for seniors in Pennsylvania is like trying to walk up a down escalator,” said Shamberg. “It is like trying to swim against a rising tide, because the system, as it is currently constructed, is set up to ensure that providers fail.”

The state’s Medicaid reimbursement rate trails neighboring states at $256 per resident per day, compared to $275 in New Jersey, $299 in New York and $375 in Maryland, according to the PHCA.

The Pennsylvania state legislature has taken action, including introducing a bill which would infuse the system with $140 million for long-term care. The bill would also require accountable funding and an update to the BAF – a 0.9 reimbursement floor ensuring the BAF doesn’t dip below that percentage.

More recently, PHCA and SEIU Healthcare PA announced a labor-industry partnership on the sustainability of nursing home jobs, working together to advocate for this legislation.

Sustainability through aligning quality of care and reimbursement

Willett said the Iowa state House and Senate is developing a plan to identify certain funding streams inside the incumbent Medicaid system to align quality of care, with a certain amount of funding set aside for providers.

“We’re all passionate about finding ways to make sure that not only the state is aligning quality incentives with payment, but also assuring the general public at large that providers are participating in a system where a certain amount of their funding is at risk based on their quality performance,” said Willett.

In terms of any type of overhaul to the state’s CON law, Willett said proposed legislation would involve a new “bed-need formula” focused on ensuring an adequate number of nursing home beds are available in markets throughout the state.

“Our bed-need formula has not been updated for more than 40 years,” said Willett. “A focus on a new market dynamic, ensuring that we’ve got the beds where we need them and that we don’t have beds where we don’t need them is a pretty big step here in our state.”