Nursing homes got more Medicaid money out of Pennsylvania’s new budget
Pennsylvania's budget sets a new floor of Medicaid funding of nursing homes and updates a formula used to determine whether nursing homes are spending enough on resident care.
Pennsylvania’s new budget has two significant changes for nursing homes.
In a long-sought victory for the nursing-home industry, lawmakers altered how the Medicaid long-term care budget is set, increasing the state’s share of nursing home funding by $162 million next year.
Lawmakers also amended the formula used to calculate whether nursing homes are complying with a 2022 law that required them to devote 70% of their expenses to resident care. The changes will make it easier to comply.
Change to 20-year-old Medicaid funding rule
For two decades, Pennsylvania Medicaid has paid nursing homes less than their audited costs, according to Michael Jacobs, CEO of the Pennsylvania Health Care Association, a trade group for nursing homes and other long-term care providers.
In 2005, when lawmakers decided they could only afford to pay nursing homes 95% of their costs, the measure was supposed to be temporary. But 20 years later, what was called the “budget adjustment factor” remains in place. The gap between funding and audited costs grew to 20% from 5%, Jacobs said.
This year, lawmakers agreed to raise the factor from 80% to 86% of costs and guarantee that it won’t drop below that level for two years.
“It’s a monumental victory for long-term care to get predictability and stability by putting in a floor,” Jacobs said.
That translates to a $162 million increase in state funding next year. (The change takes effect Jan. 1, because that’s when the fiscal years for Medicaid insurers begins.)
The floor on the budget adjustment factor “provides much-needed resources and stability to help nursing homes recruit and retain the experienced caregivers residents depend on,” Matt Yarnell, president of SEIU Healthcare Pennsylvania, said in an email.
“Now it’s critical that nursing home operators put these additional resources where they belong: into the quality of care for residents and into the frontline workforce,” said Yarnell, whose union represents thousands of nursing home workers.
Including a federal match of more than $200 million, nursing homes are expected to see a roughly $20 to $25 per day increase for residents with Medicaid, Jacobs said. He did not provide a percentage for the total state and federal increase.
Current minimum daily Medicaid rates range from $236.56 for Burgh Care Center in Pittsburgh to $573.92 for Fox Subacute in South Philadelphia, which specializes in caring for patients who need ventilators to breathe, according to state data.
A new formula for calculating 70% rule
In 2022, Pennsylvania became the fourth state to require nursing homes to devote a specific percentage of expenditures to resident care. Pennsylvania’s law set the threshold at 70%, with fines for nursing homes that didn’t comply.
When the state Department of Human Services began evaluating nursing homes under the new law, the analysis resulted in what the agency described last year as “distorted” penalties that it considered “inconsistent” with the intent of the law, known as Act 54 of 2022.
The agency found a lack of consistency in how nursing homes were reporting expenses. Some facilities, “mistakenly reported items that would be considered costs for resident care and services as administrative operating costs,” making it seem like they owed big fines, the agency said.
The original formula for overall costs also included things over which the nursing home operators had no control. Examples are property taxes, a nursing-home assessment, and depreciation. These items elevated total costs, making it harder for nursing homes to comply with the 70% rule.
The new law excludes those items from total expenses. Rent, which is often paid to related parties and has been found to be inflated in some cases, remains part of total costs.
One expense — excess administrative costs — was added to the new formula. That figure frequently topped $1 million per nursing home last year, according the cost report data.
Jacobs welcomed the formula changes, saying the industry was particularly interested in removing nursing home assessments and property taxes from total costs.
“We’re happy to be held accountable for the dollars that are being paid to the facilities and making sure they go where they need to be,” he said.
