|Craig F. Walker—The Boston Globe/Getty Images|
The Biden administration is considering a requirement that the
nation’s 15,500 nursing homes spend most of their payments from Medicaid
on direct care for residents and limit the amount that is used for
operations, maintenance, and capital improvements or diverted to
If adopted, it would be the first time the federal
government insists that nursing homes devote the majority of Medicaid
dollars to caring for residents.
The strategy, which has not yet been formally proposed, is among several steps officials are considering after the COVID-19 pandemic hit vulnerable nursing home residents especially hard. During the first 12 months of the pandemic,
at least 34% of the people killed by the virus lived in nursing homes
and other long-term care facilities even though residents of those
facilities make up fewer than 1% of the U.S. population.
the federal-state health insurance program for low-income people, pays
the bills for 62% of long-term care residents in nursing homes. In 2019,
that totaled $50.8 billion. Medicare, which covers short-term nursing
home visits for older adults or people with disabilities, spent $38.2
billion that year. (Officials have not included Medicare payments in
their discussions of a direct care spending mandate.)
“The absolutely critical ingredient” for good care is sufficient staffing, Dan Tsai, a deputy administrator at the Centers for Medicare & Medicaid Services and Medicaid director, told KHN.
requested public comments on a possible direct care spending mandate in
its proposed update of nursing home payment policies and rates for next
year. Tsai also spoke about it at a meeting with Illinois state
officials, nursing home workers, residents, and relatives in Chicago in
Studies have found a strong connection between staffing
levels and care. CMS doesn’t require specific numbers of nurses and
other staff members, although some states do.
“We want to make sure that the dollars get to the direct care workforce to ensure high-quality care,” Tsai told KHN.
receive a government paycheck, nursing homes must follow dozens of
requirements aimed at ensuring high-quality care. They can be penalized
for violations. But federal investigations have found
that inspectors can miss serious problems and that inspections don’t
consistently meet CMS standards. Infection control has been one of the
most common violations.
its request for public comment, CMS asked several questions, including:
“Is there evidence that resources that could be spent on staffing are
instead being used on expenses that are not necessary to quality patient
The federal interest follows laws enacted in three states—Massachusetts,
New Jersey, and New York—to mandate spending on care. Massachusetts
requires nursing homes to spend at least 75% of revenue on residents’
care. New Jersey’s nursing homes must spend at least 90% of Medicaid
payments on resident care, and no more than 5% can go to profits. New
York mandates that at least 70% of nursing home revenue—including
payments from Medicaid, Medicare, and private insurance—be used to care
for residents and that at least 40% of the money for direct care pay for
“resident-facing” staff. Profits are capped at 5%. All three states
promise a boost in state Medicaid payments to facilities that comply
with the laws.
In April, the National Academies of Sciences, Engineering, and Medicine endorsed the direct care spending strategy in a report about improving nursing home care.
“When you’re taking public dollars, those dollars should be put back into direct care,” said David Grabowski,
a professor of health care policy at Harvard Medical School and a
member of the committee that wrote the report. “We’re expecting that the
nursing home will make the best judgment as to the right kind of share
of spending on labor and materials and capital to really produce the
highest level of quality, but that just hasn’t been the case. So this
recommendation is really an opportunity to put up some guardrails.”
nursing home industry groups oppose such requirements. And in New York,
two trade associations and about half the state’s homes have filed two
lawsuits to block the state’s spending directive.
already “the No. 1 expense” for nursing homes, said Stephen Hanse,
president and CEO of the New York State Health Facilities Association,
which represents 350 nursing homes and spearheaded one of the lawsuits.
“We’re a hands-on industry.”
The 239 nursing homes that joined the
association’s lawsuit claim that if New York’s law had been in effect
in 2019, the facilities would have been forced to provide residents with
an additional $824 million in direct care or return that amount to the state.
objects to the state’s telling nursing home administrators how to do
their jobs. “You can have an amazing dietary program, for example, and
this law would mandate that you lay off dietary workers and hire
front-line workers to meet the staffing requirement,” he said.
bringing the lawsuits argue that forcing owners to spend more money on
direct care leaves less money for maintaining their facilities and that
the quality of care will suffer. They also claim Medicaid doesn’t cover
the cost of caring for residents. Advocates for residents say facilities
can hide their profits by overpaying related businesses they own, such as laundry or food-service companies.
a spending mandate is new for nursing homes in the three states, it has
become routine for health insurers nationwide. Under the Affordable
Care Act’s “medical loss ratio”
provision, health insurance companies must spend at least 80% of
premiums on beneficiaries’ medical care. A maximum of 20% can be spent
on administrative costs, executive salaries, advertising, and profits.
Companies that exceed the limit must refund the difference to
In addition to a direct care spending mandate, Tsai
said CMS is interested in a slightly different approach underway in
Illinois, which made changes to nursing home regulations this year. Its
nursing home rate reform law
raises Medicaid funding and then requires each home to hire at least
70% of the staff that the state’s analysis shows the residents need. The
state then uses payroll and other data to verify that the facility
complied. If not, the difference will be deducted from its next payment.
are states across the country trying a range of approaches to make sure
that dollars in the system from nursing facility reimbursement rates
are actually—one way or another—getting to sufficient, high-quality
staffing,” Tsai said. “That's our primary goal.”