Trends in Medicaid nursing home reimbursement: 1978-89

Health Care Financing Review, Summer, 1993 by James H. Swan, Charlene Harrington, Leslie Grant, John Luehrs, Steve Preston

INTRODUCTION

Medicaid nursing home reimbursement policy has strong implications for expenditures, which remain high despite decreasing proportions of Medicaid dollars for nursing home care (Swan, 1990) and decreases in the early 1980s in the proportions of nursing home costs covered by Medicaid (Letsch, Levit, and Waldo, 1988). Nursing home expenditures were 66 billion dollars in 1992, 44 percent paid by Medicaid, representing a stable Medicaid share since the mid-1980s (Burner, Waldo, and McKusick, 1992).

Reimbursement has been of growing concern to nursing homes in recent years, as clientele, services, and costs of care have changed. Disability levels of residents increased from 1976 to 1984, with numbers of totally bedfast residents increasing from 21 to 35 percent of discharges and those dependent in mobility and continence increasing from 35 to 45 percent (Sekscenski, 1987). The average resident has about four of six limitations in activities of daily living, and 66 percent have some type of mental impairment or disorder (Hing, Sekscenski, and Strahan, 1989). Part of the increase in acuity is attributable to Medicare's prospective payment system (PPS) for hospital reimbursement (Neu and Harrison, 1988).

Swan, Harrington, and Grant (1988) reported State Medicaid nursing home reimbursement for the period 1978-86. This article presents new data on State Medicaid nursing home reimbursement, refining earlier data and updating them through 1989.

Nursing Home Care and Costs

The locus of complex, high-tech medical care has, in part, shifted from the hospital into the nursing home, making care more difficult and costly (Harrington and Estes, 1989; Shaughnessy and Kramer, 1990). Although nursing home staffing and education levels are low compared with acute care (American Nurses' Association, 1986; Strahan, 1988), new Federal legislation (Omnibus Budget Reconciliation Act of 1987) mandates additional registered nurses and nursing time. Greater nursing time is associated with better quality of care (Spector and Takada, 1989).

High-staffing ratios are essential for high-acuity patients, about 7 hours of daily nursing time for the "functionally dependent with complex needs" (U.S. Department of Health and Human Services, 1987). AIDS patients in a freestanding skilled nursing facility (SNF) in California were found to need 7 hours of daily nursing time, nursing costs alone accounting for the full Medicaid per diem payment (Swan and Benjamin, 1990).

Of importance to expenditures are State Medicaid nursing home reimbursement methods and per diem rates. Rates are the major predictor of Medicaid nursing home expenditures per aged population (Harrington and Swan, 1987), and methods are determinants of rates (Swan, Harrington, and Grant, 1988). In States with either retrospective or prospective facility-specific reimbursement, routine nursing home operating costs tend to be higher when their percent of Medicaid patients are higher; but in States with prospective-class reimbursement, these costs tend to be lower with more Medicaid patients (Cohen and Dubay, 1990). Class-reimbursement methods may be adopted by States with historically higher nursing home costs or with higher nursing home costs outside the Medicaid market (Cohen and Dubay, 1990).

Reimbursement policies are important for reasons other than expenditures. Rates affect Medicaid recipient access to nursing home beds (Scanlon, 1980; Philips and Hawes, 1988). Cohen and Dubay (1990) found higher coverage of Medicaid nursing home patients in States with prospective facility-specific systems, but found States with prospective-class methods to have lower Medicaid proportions of nursing home patients, compared with States with retrospective Medicaid methods. Both severity and mental disorientation of patients were lower in States with prospective-reimbursement systems, whether class or facility specific. interestingly, having case-mix adjustment for rates did not show any effects on average severity and mental disorientation of patients. Thus, compared with retrospective methods, prospective-class methods are associated with greater difficulty, prospective facility-specific methods with less difficulty, of admitting Medicaid patients; whereas prospective payment generally appears to make it harder to admit higher acuity patients.

Likewise, Kenney and Holahan (1990) showed hospital discharge delays to be related to Medicaid reimbursement policies. In particular, they found State Medicaid nursing home prospective-reimbursement methods to be related to longer hospital discharge delays. Unfortunately, they did not include reimbursement rate in the analysis, so there is no assessment of any effects of payment methods net rate levels, nor of rate levels net payment methods. Given our earlier findings of strong payment-method effects on rates (Swan, Harrington, and Grant, 1988; Harrington and Swan, 1984), this is an important issue.

Issues of provider equity also arise. For example, most States include some ancillaries as parts of daily rates, rather than separately reimbursing their provision (Swan, Harrington, and Grant, 1988). In such cases, change in patient need may present financial risks to facilities reimbursed under outdated assumptions about average levels of and costs of providing an ancillary. Likewise, reimbursement limits on cost centers may not reflect changes in the provision of services.