States moving to case-mix Medicaid reimbursement are launching fresh audits of nursing homes, citing coding errors and gaps in Minimum Data Set (MDS) documentation that could lead to tens of millions in repayment demands, according to state reports and industry sources.
At least a dozen states — including Pennsylvania, New York, Texas, Ohio and Illinois — have initiated or expanded reviews in 2025 as they roll out systems modeled on Resource Utilization Groups (RUG-IV) or Medicare’s Patient-Driven Payment Model (PDPM). Early findings show discrepancies in 15% to 20% of reviewed claims, with nationwide clawbacks projected between $150 million and $200 million over fiscal years 2025 and 2026.
The transition marks a major shift in how Medicaid pays for nursing home care. Case-mix models aim to match reimbursement to resident acuity rather than rely on flat rates, a move supporters say better reflects real-world care needs. But operators and regulators are wrestling with the complexity of new coding rules and workload demands — a growing pain that is now drawing auditors’ attention.
Why the audits are ramping up
Thirty-six states have adopted some form of case-mix as of October 2025, up from 28 in 2020, covering roughly 85% of Medicaid skilled nursing spending. The push aligns with federal policy that has encouraged data-driven payments since Medicare replaced RUGs with PDPM in 2019.
State reviews are zeroing in on MDS accuracy, acuity scoring and potential overcoding, particularly in areas such as activities of daily living and therapy needs. Regulators say they are not alleging widespread fraud, but they want to ensure taxpayer dollars match documented care. “We’re not accusing providers of fraud, but the system’s newness means errors are rampant — facilities must adapt quickly or face adjustments,” a Pennsylvania Department of Human Services auditor said in a recent briefing.
Early findings: Pennsylvania and Texas
Pennsylvania, which fully implemented a RUG-IV-based model in July 2024, has audited 150 facilities and reviewed more than 50,000 MDS assessments this year. Preliminary results flagged inconsistent coding in about 18% of claims and could result in roughly $25 million in adjustments, according to state summaries.
Texas, using a PDPM-style approach, has reported a 12% error rate in acuity scoring across a sample of facilities, prompting an expansion of its review program this fall. New York and Ohio have also widened their audits after spotting what regulators described as systemic documentation issues tied to the transition.
Operational strain for providers
For many operators, the audits add pressure to a workforce still stretched by post-pandemic shortages. Case-mix reimbursement depends on detailed, timely MDS submissions that capture cognition, mobility and behavioral health, among other factors. Missed items or late filings can move a resident into a lower-paying category — or draw an audit flag.
“It’s a paperwork nightmare,” an Ohio-based operator said, noting audits had delayed reimbursements by two to three months and forced cuts to therapy hours. In a 2025 survey, nearly two-thirds of administrators reported heightened audit scrutiny since adopting case-mix models, and four in ten said they fear revenue losses tied to recoupments and payment delays.
Regulators press accuracy; providers ask for support
Federal officials say the case-mix approach can work — if states pair it with provider training and clear guardrails. CMS Administrator Chiquita Brooks-LaSure has pointed to PDPM’s track record in Medicare, which she said reduced improper payments by about 25%, while urging states to invest in education to avoid disparities in Medicaid implementation.
Advocates for nonprofit and independent facilities warn that rushed enforcement could penalize homes still learning new rules. They have urged states to offer grace periods, technical assistance and standardized guidelines as models are phased in.
What it means for residents and families
Done well, case-mix can channel more resources to residents with higher needs and strengthen care planning. But aggressive recoupments and prolonged payment holds may push some facilities to limit admissions of complex Medicaid patients, especially in rural markets already short on beds. Consumer groups say audits should prioritize outcomes and continuity of care to avoid disruptions for families.
What’s next
Audit activity is expected to broaden through 2026 as more states refine systems, with additional guidance anticipated from federal oversight agencies. Industry analysts say the sector will likely see short-term turbulence — including increased compliance costs and potential consolidation — before stabilizing around more consistent, data-driven payment practices.
