For each dollar a nursing home spends providing daily care to a Medicaid recipient, the average nursing home receives just 82 cents in reimbursement. This was the top-level finding of a study published this week, led by multiple researchers, including research faculty, staff, and graduate students with the Gerontology Institute at the University of Massachusetts (UMass) Boston. The report was commissioned by the Assistant Secretary for Planning and Evaluation at the U.S. Department of Health and Human Services.

“If we really care about our most vulnerable citizens and we require nursing homes to provide high-quality care to them, then it’s incumbent on us to assure that they have the sufficient resources to provide that high-quality care,” says Marc A Cohen, Ph.D., one of the authors of the study and the co-director of the LeadingAge LTSS Center at UMass Boston, which initiated this study. “It is important that if we want to have nursing homes provide high-quality care to our most vulnerable citizens, we should make sure they have the resources to do so,” adds Edward Alan Miller, Ph.D., another author of the study and professor and chair of the Department of Gerontology at UMass Boston.

The report, “Assessing Medicaid Payment Rates and Costs of Caring for the Medicaid Population Residing in Nursing Homes,” involved three years of research. Researchers collected detailed information on 9,543 nursing homes across 44 states, examining the direct relationship between payments, costs, staffing, and a high-level quality outcome measure on a facility-by-facility basis.

When Medicaid spending accounts for the second-highest expenditure for state budgets, allocating the proper amount is crucial. Allocating too much would mean an unnecessary burden on taxpayers, while allocating too little could compromise access to quality care. Yet there’s been a lack of data that quantifies how closely Medicaid reimbursements align with actual costs. It’s a crucial time to examine the adequacy of these reimbursements.

“Greater numbers of people are retiring. They are living longer. They are living long enough to experience long-term care need. The demand for care will increase significantly,” Dr. Cohen says. “What this shows is that nursing homes are struggling financially, and it would appear to me that if you want to influence better outcomes in nursing homes, then you want to ensure proper funding.”

The study found that for each dollar a nursing home spends providing care to a Medicaid recipient, the average nursing home receives just 82 cents in reimbursement. That is, the ratio of reimbursements to costs was .82. A payment-to-cost ratio of 1 indicates that the amount of reimbursement received just equals the amount it takes to care for an individual. In nursing homes that had higher Medicaid payment-to-cost ratios—mostly for-profit facilities—the study found lower nursing staff levels, indicating that because the reimbursement rate is fixed, these homes were able to improve the payment-to-cost ratio by having lower staff costs. This is in contrast to nursing homes that had lower Medicaid payment-to-cost ratios—mostly not-for-profit facilities—where the study found higher nursing staff levels, indicating that these homes support higher staffing levels by drawing on other more lucrative payment sources.

“This study provides a baseline for conversations around the adequacy of payment for the costs that are incurred for caring for Medicaid residents,” says Dr. Miller. “The question is: How can we encourage efficiency while promoting sufficient access and quality in nursing homes?”