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

Prospective reimbursement systems allow greater control of increase in rate levels, as they did in prior analysis (Swan, Harrington, and Grant, 1988). There is new evidence that adjusted systems (those setting prospective rates but allowing upward ward adjustments during the rate period) also show greater control over rates than do retrospective systems. Case-mix-systems States do not show higher rate increases than other States do, suggesting that case mix might not tend to inflate rates.

The major thrust of these State Medicaid nursing home reimbursement policies has been oriented primarily to keeping rates low in order to contain expenditures. Rates and methods appear to be more reflective of State budget balances and overall State resources, which vary with times of scarcity and abundance, than tied to the actual costs of providing nursing home care or the need for more staff and more highly trained staff to improve the quality of care.

Recent changes in the policy environment since 1989 can be expected to have important impacts on future Medicaid nursing home rates and methods. First, the nursing home act in OBRA 1987 (Public Law 100-203) (implemented in 1990) has added to the costs for Medicaid (McDowell, 1992). OBRA eliminated the distinctions between SNF and ICF levels of care for Medicaid certification and imposed new requirements for resident assessment and new staffing requirements, all of which must be accommodated in Medicaid reimbursement methodology and rates. Those States that had different reimbursement methods for SNF and ICF have now had to somehow merge or otherwise accommodate these methods into a single system. OBRA 1987 also mandated more pre-admission screening for mental and developmental treatments needs, which may also change the acuity mix of nursing home residents.

Second, there has been a flurry of legal actions under the Boren Amendment provisions that establish the Federal standard for the Medicaid rates (42 U.S.C. section 1396(a)(13)(A)) (Hamme, 1990). Many of these actions have challenged both the procedures and substance of State reimbursement methodology. More recently, the Supreme Court affirmed the right of health care providers to challenge a State's Medicaid reimbursement plan (Wilder v. Virginia Hospital Association, 1990). These actions may further alter State Medicaid nursing home reimbursement methods and increase rates.

The pressures under Medicaid prospective payment for hospitals should continue to increase the acuity mix for nursing home residents. The Health Care Financing Administration is currently conducting a case-mix demonstration project in four States to examine a system for Medicare and Medicaid reimbursement based on resident acuity and resource needs. States such as Minnesota, Massachusetts, and Oregon have adopted State health reform legislation, which could have future impact on provider reimbursement rates (U.S. General Accounting Office, 1992).

Another policy option is for States to mandate uniform nursing home methodology for private and public payment, such as the requirements in Minnesota. This may remove the shifting of costs from Medicaid to the private sector and should improve access for Medicaid residents.