Although most nursing homes increased direct care spending, staffing levels still declined at many facilities between 2018 and 2021, according to the latest analysis of Medicaid reimbursement for direct care compensation released Monday by the Office of Inspector General (OIG).

The study also focused on the percentage of Medicaid funds allocated to direct care workers, how this changed over time, and whether the change was a result of ownership shift from nonprofit to for-profit, measured by nursing hours per resident day (HPRD), the OIG report stated.

All in all, the OIG’s review found no consistent relationship between higher Medicaid spending on direct care compensation and increased nursing HPRD. While many facilities increased their spending, it often went toward higher labor costs rather than more staffing. The study also suggested that factors such as ownership structure, use of contract labor, and pandemic-related pressures deeply influenced how Medicaid funds were allocated.

“[L]ack of a clear, strong correlation between higher direct care compensation and higher nursing HPRD suggests that other factors – such as ownership structures – may play an outsized role in enhancing, or detracting from, quality of care provided by nursing facilities,” the OIG report stated. “Further work and analysis are needed to draw conclusions about possible correlations between these and other factors as they relate to the quality of care in nursing facilities, which serve such a critical role in America’s health care system.”

Of the 26 facilities reviewed by OIG, 17, or 65%, increased the proportion of Medicaid reimbursement they spent on direct care compensation during the three-year period. These included government-owned, nonprofit, and for-profit facilities. The remaining 9 facilities in the sample decreased the percentage of Medicaid funds used for direct care worker pay.

Among those facilities which contributed more to direct care worker pay, but it went to fewer workers.

“Most of these nursing facilities attributed the increase in direct care compensation to an increase in labor costs because of the difficulties in hiring and retaining staff during the COVID-19 public health emergency,” the OIG’s report said. The facilities generally reported using higher wages and retention bonuses to overcome these difficulties. In addition, nursing facilities had to hire more expensive contract workers but overall fewer workers, which meant declining HPRD but higher labor costs.

The largest increase in spending was 58.88% reported by a government-owned facility, which cited the need to hire contract nurses at higher costs due to labor shortages. Conversely, the largest decrease, at 17.11%, was reported by one for-profit facility in the sample that stated it had to cut direct care costs to remain financially viable.

Facilities were categorized as government-owned, nonprofit, or for-profit. Originally 30 facilities were selected across 10 states, but four were excluded due to data issues. Ownership changes were verified through Centers for Medicare and Medicaid Services (CMS) records and facility questionnaires. The analysis compared two data snapshots to identify changes in spending, staffing, and potential effects of ownership transitions, without tracking data continuously across the four-year period.

The analysis was based on data gathered from Medicaid cost reports, payroll-based journal (PBJ) data, and responses to questionnaires that we sent to the Medicaid State agencies and the 26 selected nursing facilities.

Direct care workers for the purposes of the report include nurses such as registered nurses, licensed practical nurses, nurse practitioners, and clinical nurse specialists, certified nurse aides (CNAs) as well as licensed physical therapists, occupational therapists, speech language pathologists, and respiratory therapists, and their assistants, and social workers, among others.

Nonprofit SNFs

Government-owned facilities showed mixed results. Of the 9 nonprofit facilities reviewed, 5 increased their spending on direct care compensation, and three of these also increased their nursing HPRD. One facility increased spending but saw a decline in HPRD due to needing to pay more for contract staff during the pandemic.

Nonprofit facilities also tended to increase their spending, with nine of 10 reporting such increases. However, 8 of those 9 also experienced decreases in nursing HPRD. These facilities often cited the need to use contract staff, as well as staffing shortages caused by COVID-19 outbreaks among employees. One nonprofit facility, for instance, increased its direct care compensation by nearly 19% but saw a drop in HPRD due to increased reliance on contracted labor.

For-profit SNFs

Among the 7 for-profit facilities reviewed, 4 decreased the percentage of Medicaid reimbursement spent on direct care compensation, with 3 of those also reducing nursing HPRD. One facility reduced its spending by over 15% and its HPRD by nearly one hour. Although explanations varied, many cited difficulties recruiting staff, leading to greater use of overtime, bonuses, and contract workers.

Two of the 26 facilities changed ownership between 2018 and 2021, shifting from nonprofit to for-profit status. One of these slightly increased its spending on direct care compensation while its HPRD declined modestly. The other had the largest decrease in direct care compensation but only a minor drop in HPRD. This facility attributed the decline in spending to the conversion of contract positions into lower-cost in-house roles.

The OIG noted the difficulty of tracing ownership and management structures in nursing homes, citing one facility with six organizations and ten individuals involved. While CMS has strengthened ownership disclosure rules, these complex structures still present challenges in accountability and transparency, OIG noted.