Medicaid payment policies for nursing home care: a national survey

Health Care Financing Review, Fall, 1991 by Robert J. Buchanan, R. Peter Madel, Dan Persons

To gain additional perspectives on the differences between private payments and Medicaid payments for nursing home care, this same question was asked of the State affiliates of the American Health Care Association. Thirty-two of these State nursing home affiliates replied with usable data for 1987. The Medicaid programs in four of these States did not respond to this question, allowing comparisons of these estimates of payment differences between the Medicaid programs and the State nursing home affiliates in 28 States. The estimates of the differences between private payments and Medicaid payments made by the State affiliates and the Medicaid programs were remarkably similar for 1987. In 10 States, the estimates made by the Medicaid programs of the differences between Medicaid payments and private payments were identical to those made by the nursing home affiliates for both skilled care and intermediate care. In an additional six States, the Medicaid estimates of payment differences were the same as those of the State affiliates for either SNF care or ICF care, but not for both types of care. In eight States, the Medicaid estimates of differences between Medicaid payments and private payments were lower than the estimates of the affiliates for both skilled care and intermediate care. In four other States, the estimates of the Medicaid program were higher than those of the affiliates for both skilled care and intermediate care. In these 28 States, with estimates from both the Medicaid programs and the State nursing home affiliates of the differences between Medicaid payments and private payments, the average estimate from the Medicaid programs of the 1987 payment difference to SNFs was $11.41 per day, compared with the average estimate of $11.78 per day made by nursing home associations. The Medicaid programs estimated an average payment difference of $10.19 per day to ICFs in 1987, compared with an average estimate of $10.00 made by the nursing home affiliates.

Note that the Minnesota Medicaid program responded that "No difference" exists between the Medicaid level of payment and the rate charged to private-care patients for either skilled care or intermediate care. In Minnesota, by State law, the rate charged to private-pay patients cannot exceed the Medicaid level of payment for nursing home care. Equalization laws are an effective policy approach to the elimination of cross-subsidization. However, if the Medicaid level of payment is inadequate, then the range and quality of services all nursing home residents receive, not just Medicaid patients, would decline is a State using this equalization approach.

Capital component

Capital-related expenses are a significant component of total nursing home costs. Studies have projected these costs of depreciation, leases, and interest expenses at 13-15 percent of total costs of care (Grimaldi, 1982; Birnbaum et al., 1981b; Cohen and Holahan, 1986).

During the 1988 survey of Medicaid programs, States were asked to provide the average Medicaid payment for the property component of payment for both skilled care and intermediate care during 1987. The responses are presented in Table 1. For the States reporting these data, the average payment for capital-related costs during 1987 was $5.95 per day for skilled care and $5.33 per day for intermediate care. (3) Comparing these average payments for property-related costs with the total average per diem payment for care demonstrates that Medicaid payment of capital expenses averaged 10.2 percent of the 1987 Medicaid payment for skilled care and 11.9 percent of the 1987 Medicaid payment for intermediate care. However, studies have put these costs of depreciation, leases, and interest expenses at 13-15 percent of care. This indicates that, typically, levels of Medicaid payment for nursing home care, especially skilled care, do not adequately reflect the capital costs of providing this care.