New research is sharpening concerns that Medicaid underpayments are squeezing nursing homes — and that the facilities most reliant on Medicaid often have the least room to absorb the hit.
The authors of a 2024 national analysis that found Medicaid covers an average of about 82 cents of every dollar spent on nursing home services released a new paper this week using similar data to take a closer look at cost pressure inside individual facilities.
In the study, published in Medical Care, the researchers argue that when Medicaid payments fall short of costs, nursing homes typically have to make up the difference elsewhere. “Because Medicaid is not covering the full cost of care, other revenue sources are covering the financial losses associated with caring for Medicaid residents,” the authors wrote. They added: “Not-for-profit NHs may be better able to find these higher-paying sources or can utilize non-operational income, such as funds from endowments or donations, which are not available to for-profits.”
Why the Payer Mix Matters
The new paper highlights how payer mix can shape financial stability. Researchers found that 18% of for-profit nursing homes served a resident mix that was 80% to 100% Medicaid, compared with 8% of nonprofit facilities. In lower-rate states, that dependence can leave for-profits with fewer higher-paying residents to help offset losses tied to Medicaid stays.
Even facilities that run efficiently may still face hard choices if Medicaid covers too little of the cost of care. “Medicaid-dependent nursing homes may still need to cut back on important operational elements and amenities, which could adversely impact resident safety and care quality,” the researchers wrote.
Staffing and Quality Connections
The authors also pointed to how payment adequacy can influence staffing investment and quality outcomes. “Limited financial resources hinder the ability of nursing homes to invest in nursing staff and thus, low Medicaid payment rates are likely driving the lack of investment in nursing and quality in facilities with high Medicaid payment-to-cost ratios,” they wrote.
At the LeadingAge annual meeting in early November, Edward Miller of the University of Massachusetts Boston said the relationship between Medicaid rates and quality becomes even clearer when facilities rely heavily on Medicaid revenue. “It matters. It matters particularly for those that rely more on Medicaid,” Miller said. “Policymakers should consider the adequacy of Medicaid payment when seeking to improve quality of care. Payment policy is a critical lever for strengthening nursing homes.”
Policy Shifts Could Add Pressure
The researchers warned that facilities could face additional strain from federal policy changes that reduce Medicaid funding and shift more pressure to states. The paper said the issue would likely be “exacerbated” by the One Big Beautiful Bill Act, describing it as including nearly $1 trillion in federal Medicaid cuts by 2034. (Independent estimates have generally put the Medicaid reductions in the hundreds of billions over a decade, depending on what’s counted and how the provisions are scored.)
The authors said if states respond by lowering provider payment rates or tightening eligibility, it could worsen what they called the “financial precarity of the nursing home industry.”
