$2.2 Billion in Federal Nursing Home Funding Now Hangs on a Single Medicaid Rule

Harrisburg, Pennsylvania — A funding stream that keeps thousands of nursing home beds afloat is about to shrink, and no one can say yet by how much. An analysis published this week estimates that states now pour roughly $3.7 billion a year into nursing homes through Medicaid state-directed payments, with about $2.2 billion of that coming from federal coffers. Under the 2025 budget reconciliation law known as OBBBA, those dollars face new caps starting in 2028 — and industry leaders are warning the timing could not be worse.

State-directed payments are agreements that let states push Medicaid rates closer to what care actually costs, particularly for the residents whose stays Medicaid covers. At least 15 states rely on them for nursing home services. Pennsylvania sits at the center of the fight: the analysis, from KFF, estimates the state alone draws about $1 billion in federal funding annually — nearly 47% of the national total for nursing facilities. Texas, New Mexico, Rhode Island, Illinois and Indiana also have arrangements that could take a hit, though the scope there remains unclear.

Why providers are alarmed

For an industry where Medicaid is the largest payer, the arithmetic is unforgiving. Zach Shamberg, chief of government affairs at Saber Healthcare Group, which supports more than 160 affiliated facilities across five states, said federal regulators have acknowledged they don’t yet know how deep the reductions will run.

“Pennsylvania potentially has more at stake than any state in the country, as payments will be capped that help close the gap between what Medicaid pays and what care actually costs,” Shamberg said. He pushed back hard on any suggestion the payments are a budget trick. “These payments are not loopholes or budget gimmicks. They are federally approved, transparent payments that keep nurses and aides at the bedside for Pennsylvania’s seniors. Starting in 2028, they may begin to shrink each year.”

His message to Washington was direct: get the details right before the final rule is written. He also pointed to Gov. Josh Shapiro and state lawmakers as key players in protecting resident care as the phase-in begins.

The uncertainty problem

Leaders at the Pennsylvania Health Care Association said it’s too early to game out the full impact, since much depends on how CMS finalizes and implements the proposed rule. But as drafted, they warned, the consequences for the state’s Medicaid program could be substantial, with ripple effects well beyond nursing facilities.

Part of the confusion stems from how Pennsylvania reports its rates. The KFF estimate uses the state’s 2025 payment rate of 74.6% of average commercial rates, blending county and nonpublic facilities. The 2026 filing splits them apart — 48.5% for nonpublic homes and 97.5% for county facilities — a distinction that matters greatly when weighing which providers absorb the deepest cuts.

At the American Health Care Association, senior reimbursement policy executive John Kane struck a measured tone, saying the impact will differ by state and depend on each one’s payment structure. Still, he acknowledged the stakes: Medicaid funding is what makes caring for residents possible, and his organization is working with state affiliates to protect base reimbursement rates and preserve access to care.

The bottom line for operators: with Medicaid already falling short of care costs, a fresh squeeze on the payments designed to bridge that gap leaves little room left to absorb another hit. Detailed state-level payment data hasn’t been published yet, and until it is, facilities are left planning for a cut whose size remains an open question.