CMS Reportedly Exploring Nursing Home Medicaid Spending Requirement Tied to Patient Care

The federal government could soon require nursing homes across the country to spend most of their Medicaid payments on direct patient care, according to a Kaiser Health News report.

While not yet formally proposed, the Biden administration’s strategy would limit the amount of Medicaid dollars used on operations, maintenance and capital improvements or considered profits.

If the measure is in fact enacted, this would be the first time the federal government will have had a say on where nursing homes should spend their federal funding, according to the KHN article.

“We want to make sure that the dollars get to the direct care workforce to ensure high-quality care,” Daniel Tsai, deputy administrator and director of the center for Medicaid and CHIP Services, told KHN.

While such a mandate is relatively new for states and federal agencies, spending provisions have become “routine” for health insurers, the article noted.

The Affordable Care Act’s medical loss ratio provision already requires insurance companies to pay at least 80% of premiums to beneficiary medical care and 20% max on administrative costs, executive salaries, advertising and profits.

CMS in April requested stakeholders submit their thoughts on the potential spending mandate as part of the proposed payment rule for next year.

CMS officials also foreshadowed the possibility of a Medicaid requirement at a nursing home roundtable in April hosted by the agency in Chicago. State officials, nursing home workers, residents and their families participated in discussions with CMS Administrator Chiquita Brooks-LaSure and CMS Principal Deputy Administrator and COO Jonathan Blum, along with Tsai.

During the roundtable discussion Tsai told reporters at the event, including SNN, that CMS was “contemplating and eager for discussion on how we might create either transparency or standards for a minimum amount of reimbursement to actually flow to the direct care workforce versus all sorts of other things.”

That same month, the National Academies of Sciences, Engineering, and Medicine (NASEM) endorsed the Medicaid spending strategy in its wide-ranging report.

David Grabowski, a professor of health care policy at Harvard Medical School and NASEM committee member, considers the Medicaid mandate to act like industry “guardrails.”

“We’re expecting that the nursing home will make the best judgment as to the right kind of share of spending on labor and materials and capital to really produce the highest level of quality, but that just hasn’t been the case,” Grabowski told KHN.

The federal agency continues to closely watch states like Illinois, Massachusetts and New York, who have already tied Medicaid funding to staffing measures.

Illinois House Bill 246 was passed by the legislature earlier this month, providing a $700 million increase to nursing home funding in the state. Facilities would need to meet at least 70% of federal staffing level guidelines to get a bonus reimbursement; pay is based on their CMS quality star rating.

New York also passed legislation that went into effect April 1 which stipulates that 70% of a nursing home’s revenue is to be spent on direct resident care and at least 40% spent on staffing.

Two lawsuits have already been filed to block the New York directive, led by major industry trade groups like the New York State Health Facilities Association.

Massachusetts requires nursing homes to spend at least 75% on resident care.

So far, CMS has said it plans to incorporate three staffing turnover measures into its five-star rating system — the percentage of registered nurses that have left over a year’s time frame; the total number of nurses that have left over the year, including RNs, licensed practical nurses (LPNs) and nursing assistants; and the percentage of administrator turnover.

Weekend staffing data will also be published on the Care Compare website but will not be part of the five-star system for now.

Doubling down on Medicaid mandate discussion after the April roundtable, Tsai this month told KHN that adequate staffing is a “critical ingredient” to good direct care.

“There are states across the country trying a range of approaches to make sure that dollars in the system from nursing facility reimbursement rates are actually — one way or another — getting to sufficient, high-quality staffing,” Tsai said. “That’s our primary goal.”

The shift in how Medicaid dollars may be spent is part of White House reforms introduced in February; a federal minimum staffing ratio, increased scrutiny on private equity ownership, financial support for surveys and rigid penalties were other major aspects of the Biden initiatives.

Medicaid pays for 62% of long-term care residents in nursing homes – in 2019, that payout was $50.8 billion, according to KHN. CMS hasn’t included Medicare payments in discussions of a direct care spending mandate, the publication said; Medicare spending was $38.2 billion in 2019.

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