Medicaid Underpayments Strain Nursing Home Financials, Impact Care Quality

New research highlights the impact of Medicaid underpayments on the financial stability and care quality of nursing homes, revealing significant cost pressures tied to state reimbursement rates. A 2024 national report established that Medicaid reimburses roughly 82 cents per dollar for nursing home services, which forces facilities to rely on alternative revenue sources to cover the shortfall. Not-for-profit nursing homes tend to have diversified funding streams, including endowments and donations, allowing for more financial flexibility, while for-profit facilities are more dependent on Medicaid revenues and thus more vulnerable in states with low payment rates. The study found that 18% of for-profit nursing homes have patient mixes heavily reliant on Medicaid compared to 8% of nonprofits, underscoring a disproportionate financial burden on for-profit providers. This dependency can lead to operational cutbacks affecting staffing and amenities that are crucial for maintaining resident safety and care quality. The researchers caution that reductions in higher-paying residents, whether through shifts from traditional Medicare to lower-paying Medicare Advantage plans or policy changes, could strain even nonprofit providers. Additionally, potential federal Medicaid cuts projected by the One Big Beautiful Bill Act could exacerbate financial challenges if states respond by reducing provider payments or narrowing eligibility. Recent presentations at the LeadingAge conference further linked higher Medicaid payment rates—close to or at cost—to improved CMS star ratings and better inspection outcomes. Policymakers are urged to consider the adequacy of Medicaid reimbursement as a key lever to enhance nursing home quality, particularly for facilities with high Medicaid dependency.