Richmond, VA — Virginia’s Medicaid agency will stop awarding quality bonus payments to the state’s lowest-rated nursing homes beginning July 1, 2026, a move officials say will better align incentives with real improvements in care.
The Department of Medical Assistance Services (DMAS) said the change will exclude facilities with one- and two-star ratings under the federal Five-Star Quality Rating System from its Value-Based Purchasing (VBP) program. Instead, those dollars will be shifted to higher-performing providers.
“It is clear that our Value-Based Purchasing Program must better align with its goal of improving care. Starting FY 2026, the lowest-performing facilities will no longer receive these incentives, allowing us to redirect funds to those demonstrating real progress in staffing, infection control, and resident outcomes,” DMAS Director Carmen Murphy said in a statement.
What changes and when
Virginia launched the nursing home VBP program in 2023 to distribute roughly $20 million to $25 million a year in incentive payments tied to staffing levels, resident outcomes, and readmission rates. But media investigations and legislative scrutiny this fall found millions in bonuses were still flowing to homes with poor federal ratings and repeated care deficiencies.
According to state data reviewed by lawmakers, one- and two-star facilities received more than $4.5 million in bonuses in fiscal year 2025. Fifteen of the 20 lowest-rated homes took in $2.8 million alone, despite scores that signal below-average quality.
Under the policy shift, those funds will be redistributed to stronger performers — generally homes with four- and five-star ratings — with state officials estimating a 10% to 15% increase in awards for top scorers. DMAS expects 30 to 40 of Virginia’s roughly 260 nursing homes to lose access to the bonus pool. A six-month transition period will allow facilities to appeal and attempt to improve ratings before the new rules take effect for the fiscal year that begins July 1, 2026.
Why now
The announcement follows months of heightened oversight, including creation of the Virginia Nursing Home Accountability Board in September. The board, chaired by Secretary of Health and Human Resources John L. Brownlee, has been auditing VBP distributions and urging stricter eligibility to ensure taxpayer dollars reward quality, not poor performance.
“Virginia’s nursing homes are in crisis,” Brownlee said at a November board meeting, calling the tighter rules a necessary step while broader reforms move forward.
The state’s pivot also tracks with national changes. Federal updates to the Skilled Nursing Facility VBP program for fiscal 2026 place greater emphasis on staffing hours, infection control, turnover, and readmissions — areas where low-rated homes have lagged. Virginia officials say aligning the state’s Medicaid incentives with those measures is intended to push sustained improvement.
Who’s affected
The policy will primarily hit facilities in rural regions and low-income urban neighborhoods, where workforce shortages have been most severe. Industry reports indicate nursing homes statewide face a roughly 20% staffing shortfall, higher in some rural areas, and many have struggled to meet federal staffing-hour benchmarks.
Medicaid pays for care for about 60% of Virginia nursing home residents, making the VBP dollars an important part of operating budgets. Providers warn that cutting off bonuses for low performers without new support could trigger closures or service reductions.
Reaction from advocates and providers
Consumer advocates largely welcomed the shift. “This is a step forward, but we need more than penalties — invest in training and wages to prevent closures that displace residents,” said AARP Virginia State Director Jim Toyota, urging lawmakers to pair accountability with workforce funding and stronger home- and community-based alternatives.
Provider groups pushed back, saying the state is moving too fast. “These bonuses were meant to encourage improvement, not punish,” said Barry King, CEO of Leading Voices for Virginia’s Seniors, at a legislative hearing earlier this fall. He warned that without transition assistance, up to 10% to 15% of facilities in rural areas could be at risk.
What comes next
DMAS said facilities will be notified of their status by mid-December, with appeals opening in January 2026. Homes that raise their federal ratings by June 2026 could regain access to incentives in the first year of the new policy. The Accountability Board plans to deliver additional recommendations to lawmakers by March, including possible workforce grants and targeted oversight for chronically low-performing providers.
State officials frame the changes as a recalibration, not a cut to care. The goal, they say, is to ensure bonus dollars follow measurable gains in staffing, infection prevention, and resident outcomes — and to stop paying extra for subpar care.
