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Average Medicaid Nursing Home Payment Rates Outpace Inflation,
Although Some States Are More Stingy, Health Affairs Article Says


But Researchers Caution That Increasing Resident Acuity Could Absorb Much Of Those Increases


BETHESDA, MD--Despite fears that states would cut payments, states raised their Medicaid nursing home fees by an average of 3.8 percent a year after inflation in the five years following enactment of a federal law that allowed states more flexibility in setting their payment rates, according to a new article published today on the Health Affairs Web site.

The paper summarizes findings from a state survey of Medicaid policies regarding nursing homes between 1999 and 2002 conducted at the Brown University Center for Gerontology and Health Care Research, as part of a National Institute of Aging–funded grant to professor Vincent Mor to examine state policy effects on nursing home residents.

The Balanced Budget Act (BBA) of 1997 repealed the “Boren amendment,” which linked Medicaid nursing home payment policy with minimum federal and state quality-of-care standards. The repeal of that law triggered fears that states would slash nursing home payments to achieve budget savings.

But the new Health Affairs paper, authored by a team of researchers headed by David Grabowski, assistant professor in the Department of Health Care Organization and Policy at the University of Alabama at Birmingham, finds that on average states have given healthy increases to nursing home fees.

The average Medicaid per-day fee rose from an inflation-adjusted $105.80 in 1999 to $117.73 in 2002, according to the paper. By comparison, between 1995 and 1998, before the Boren amendment was repealed, the inflation-adjusted annual increase was 0.4 percent, according to Grabowski.

“Based on these two trends, it would be difficult to conclude that the repeal of the Boren amendment caused a sizable decline in the generosity of state Medicaid payment rates,” Grabowski says. “In fact, the 1999-2002 period was a time of incredible growth in payment rates compared with the prior four years.”

However, the article also cites several states—Illinois, New York, and Missouri—that didn’t raise their rates at all during the period. Illinois’s average inflation-adjusted payment rates actually sank 1.4 percent a year, New York’s fell 0.7 percent, and Missouri’s stayed the same. On the other end of the spectrum, Delaware increased its nursing home payment rates at an annual inflation-adjusted rate of 12.4 percent a year over the period studied.

The authors also note that the states that started with a lower baseline payment rate in 1999 saw a greater increase. The states in the lowest third of payments in 1999 increased their payments an inflation adjusted average of 4.7 percent. The middle group increased by 3.9 percent and the high group increased rates by 2.9 percent.

The article warns, however, that changes in long-term care may mean that nursing home residents are, on average, sicker and are more expensive to care for, rendering some of the payment increases less significant.

Because of substitute services such as assisted living, and home and community-based care that are treating the less acutely disabled elderly, the nursing home population in many states is becoming more acute, requiring nursing homes to increase the intensity of care. Indeed, the authors show that all but four states saw an increase in the “case-mix”--a measurement of acuity of a resident population--among their new admissions, and all but two saw an increase in case-mix for their long-stay residents.

“When evaluating Medicaid payment generosity over time, it is important to acknowledge the increasing care needs of a more disabled nursing home population,” Grabowski says.

“To meet these increasing care needs, nursing homes must hire additional staff,” Grabowski continues. “With the decline over the past twenty years in the number of younger women entering the nursing profession, we are experiencing the initial phase of a potentially severe nurse workforce shortage. A decrease in the supply of nurses will lead to higher nursing home wages and an even greater strain on state Medicaid budgets for nursing home care.”

Grabowski’s coauthors are Zhanlian Feng, a project analyst at the Center for Gerontology and Health Care Research at Brown University; Orna Intrator, an assistant professor at the Center for Gerontology and Health Care Research at Brown University; and Vincent Mor, a professor and head of the Department of Community Health in the Brown University School of Medicine.

The article can be read at content.healthaffairs.org/cgi/content/abstract/hlthaff.w4.363.

Health Affairs, published by Project HOPE, is a bimonthly multidisciplinary journal devoted to publishing the leading edge in health policy thought and research. Additional peer-reviewed papers are published weekly online as Health Affairs Web Exclusives at www.healthaffairs.org. Health Affairs Web Exclusives are supported in part by a grant from the Commonwealth Fund.

©2004 Project HOPE–The People-to-People Health Foundation, Inc.