Nursing facilities are institutions certified by a state to offer 24-hour medical and skilled nursing care, rehabilitation, or health-related services to individuals who do not require hospital care. Nursing facility services are mandatory benefits that must be covered by all state Medicaid programs.
Medicaid is the primary payer of nursing facility services. Nationally, Medicaid covers over 60 percent of nursing facility residents (CDC 2016). In fiscal year 2014, Medicaid spending on institutional long-term services and supports (which includes nursing facilities) was approximately $60.1 billion, or about 11 percent of total program benefit spending (MACPAC 2017).
States have broad flexibility to determine payments to nursing facilities. Federal rules do not prescribe how nursing facilities should be paid or how much they should be paid, but require that Medicaid payment policies should promote efficiency, economy, quality, access, and safeguard against unnecessary utilization. Under fee-for-service (FFS) payment arrangements, state Medicaid programs typically pay nursing facilities a daily rate, called a per diem. States often apply a variety of adjustments and incentives to the base payment (MACPAC 2016), and there is considerable variation in rates both within and across states. Nursing facility FFS payment policies differ on many dimensions, such as the inflation adjustments used in rate setting, how many days Medicaid pays for bed holds due to hospitalization or therapeutic leave, and adjustments made based on resident acuity levels (MACPAC 2014).
The quality of care provided in nursing facilities has been an ongoing issue of concern to policymakers. The U.S. Department of Health and Human Services Office of Inspector General and the U.S. Government Accountability Office have called attention to nursing home quality deficiencies and identified opportunities for improvement in patient care, information shared with consumers, and federal oversight (OIG 2018, GAO 2016, GAO 2015). Among the programs the Centers for Medicare & Medicaid Services (CMS) uses to address nursing facility quality concerns and share information with consumers are the:
- Special Focus Facility Initiative, which requires corrective actions for nursing facilities with a history of serious quality issues (CMS 2018a);
- Five-Star Quality Rating System, which uses nursing facility inspections, staffing data, and quality measures to assign ratings to nursing facilities (CMS 2018b); and
- Nursing Home Compare website, which shares information including the ratings system results to consumers to aid in their selection of a nursing facility (CMS 2018c).