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.
Nursing facility services are the second-largest category of Medicaid spending (after hospital services), and Medicaid is the primary payer for nursing facility care in the country. In 2016, Medicaid spent $56.7 billion on nursing facility care and was the primary source of coverage for 62 percent of nursing facility residents (Eiken et al. 2018, Harrington et al. 2018). Although states are increasing access to home- and community-based services (HCBS) as an alternative to institutional care, nursing facilities still accounted for 34 percent of Medicaid spending on long-term services and supports (LTSS) and 10 percent of total Medicaid spending in 2016 (Eiken et al. 2018).
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 2019), 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 2019).
In 2019, approximately 84 percent of Medicaid-covered nursing facility residents were dually eligible for Medicare and Medicaid (Abt 2020). For these individuals, Medicare pays for skilled nursing care during the initial portion of their stay and Medicaid pays for subsequent days of care after the Medicare benefit is exhausted, including both skilled care and custodial care without skilled therapy services.
Medicare and Medicaid have a joint responsibility for monitoring the quality and safety of care provided in nursing facilities. Specifically, in order for nursing facilities to be certified to serve Medicare or Medicaid patients, they must be inspected regularly by state survey agencies in accordance with the Centers for Medicare & Medicaid Services (CMS) guidance. CMS issues fines for facilities that do not meet its standards and can terminate participation in certain cases. CMS also uses state survey results along with information on nursing facility staffing and quality measures to rank nursing facilities on its Nursing Home Compare website.
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).
The novel coronavirus (COVID-19) pandemic has drawn further attention to the quality of care and infection control standards at nursing facilities across the country. The Centers for Medicare and Medicaid Services (CMS) requires nursing homes to inform residents and their families of COVID-19 cases in their facilities. Nursing homes are also required to report COVID-19 cases and deaths to the Centers for Disease Control and Prevention. CMS has made those data publicly available.
CMS activities to address nursing facility quality concerns and share information with consumers include:
- 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);
- 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); and
- COVID-19 Nursing Home Data, which includes the number of confirmed COVID-19 cases and deaths at nursing homes, as well as information about facility capacity, supplies, and personal protective equipment (CMS 2020).