This study found that a $10 a day increase in Medicaid reimbursement rates was associated with significant reductions in rates of ADL decline and persistent pain in long-stay NH residents but had a weaker effect on reducing the incidence of PUs. In the face of a strong secular trend in falling physical restraint use, facilities in states that increased Medicaid payment rates most did not reduce restraint rates as much as did facilities in states with lower rates of Medicaid payment increase, perhaps because these states had much higher payment rates at baseline, particularly because the absolute restraint use rates declined substantially across all types of facilities and states. On the whole, this is good news. Medicaid payment rates have been rising, and this study suggests that these increases have resulted in benefits for the long-stay NH population.6
The identification of a clear association between increases in Medicaid payment and important quality measures has timely policy implications. State Medicaid programs are facing pressures to reconsider the dollars allocated to NH care. Recent state budget shortfalls have provided state policymakers with the impetus to revisit overall Medicaid spending.29
States look to NH care as a potential area to cut spending.30
Indeed, recent evidence reveals a relatively stable Medicaid NH population between 1999 and 2007 but one that consumed 15% more in spending.31
This pattern is consistent with increasing case-mix acuity of NH residents that has been associated with the introduction of Medicaid case-mix reimbursement.10
Given rising acuity, the findings of the current study suggest that Medicaid payment rates may need to continue to increase if quality of care is not to suffer.
State Medicaid programs are also trying to invest in home- and community-based settings, but decisions concerning long-term care expenditures often take place within a zero-sum framework, with increases in spending in home-and community-based settings presumably corresponding to decreases in NH spending.32
Although experience suggests that institutional and community-based spending tends to increase, the primary finding—that an increase in Medicaid payments to NHs is related to the quality of NH care—must be considered in light of the demands to transfer funds to NH alternatives.31
As legislative efforts to direct scarce state resources into home and community-based programs are pursued, the frailest and neediest recipients of long-term care (individuals for whom NH residence may not be reversible) face greater risk of receiving poor-quality care in settings where Medicaid payments are inadequate.
Although it is encouraging that by greater resource investment appears to translate into positive resident outcomes, more-efficient strategies for further improvement are needed, but with approximately 1 million Medicaid residents on any given day, that nominal amount quickly adds up to a high cost—roughly an extra $3.65 billion per year. The real, but modest, improvements associated with higher Medicaid spending observed here suggest that it is necessary to better understand how best to target the added resources. Because most nursing facilities care for a combination of long-stay Medicaid patients and postacute patients for whom Medicare more highly reimburses, it is increasingly important to understand the mechanisms by which these differing revenue sources are used to subsidize care for Medicaid patients or not. Because Medicare’s share of NH patients and spending has been increasing dramatically, it is increasingly important to understand whether there are spillover effects with respect to quality.31
Policies that can focus additional resources on specific areas, such as staffing, technology, and management, may achieve comparable benefits more efficiently. One policy being tested in many states is to mandate that payment increases be devoted to increases in staffing—for higher wages or more staff. Based on prior research, there is reasonably good evidence that increases in Medicaid payment tend, on average, to translate into higher staffing levels; recent evidence suggests that payment increases targeted to staffing yield increases in the number of direct care staff in a facility but still unknown is the extent to which these policies reduce turnover.17
Further improvements in NH quality, in conjunction with concurrent diversification of long-term care spending into community services, will be contingent on the implementation of efficiently targeted policies. This is worth further investigation with well-designed demonstration projects.
The challenge of improving NH quality while expanding state-funded home- and community-based services will be considerable. Policies introduced in the Deficit Reduction Act that aim to discharge or deflect admission of Medicaid-supported residents whose care needs are minimal would reduce total Medicaid payments to NHs. There are indications that between 5% and 13% of all long-stay residents do not require NH level of care.33
Because most of these individuals are Medicaid recipients, even with increases in payment rates, total Medicaid NH payments could decline, or at least remain stable. Nonetheless, consistent with the results of the current study, as such “low care” cases are discharged or deflected, resident acuity rises, and with it the plea for increasing average daily payment levels, particularly in states with case-mix reimbursement.
This study has limitations that should be considered. First, quality indicators that focus on clinical care were chosen, and other important domains such as quality of life and resident satisfaction were not examined.34
In addition, the analysis was limited to broadly applicable quality measures, and those that may be pertinent to particular subgroups such as those who are dying or have severe cognitive impairments were not considered. Nonetheless, the process and outcome measures that were chosen are nursing sensitive and highly relevant to the long-stay population. Second, MDS data, which have documented measurement limitations, were relied on, especially for items such as pain intensity,23,35
although the facility fixed-effects design minimizes systematic measurement biases that may exist because of interfacility variation in assessment practices. Third, state average Medicaid payment was used rather than facility-specific measures for payment. Numerous policies affecting reimbursement were instituted over the study period, but only the annual Medicaid NH payment rate and the introduction of case-mix reimbursement were assessed. Some state policies, such as the provider tax, resulted in making more money available for MA payments for NHs because taxes on private pay and Medicare bed days effectively subsidize MA payments because these added funds are “re-cycled” through general revenue and made available for increases in MA payments.36
The way MA payments were defined at the state level effectively includes all manner of specific policies designed to increase reimbursement because the “gross,” inflation adjusted amount was used regardless of which types of policies made more funds available. Furthermore, because a panel study was used, the effects of increases in MA payments on the average quality change were estimated. Although less precise in terms of understanding how individual facilities responded to increased payment, this approach improves the ability to test the effect of policies because they are exogenous to the outcomes of interest. The actual variations in state Medicaid NH reimbursement levels even within a state are substantial, meaning that even states using case-mix reimbursement formulae do not pay the same rates to facilities with the same case mix.37
Although some may argue that the complex interplay of various changing state policy interventions needs to be better understood, the finding that the greatest improvements in outcomes were experienced in states that increased payment rates most lends credence to the interpretation, particularly because quality improvements, albeit less substantial, were also found in states with higher absolute payment rates at baseline.
It was decided to evaluate changes in quality by examining whether facilities were able to meet what was considered to be a relatively high-quality threshold in any given quarter and not whether facilities were able to maintain that level of quality over time. NH-level quality indicators exhibit substantial volatility over time, so further investigation into the influence of increased funding on sustained improvement is warranted. This study provides useful baseline information that can inform policy regarding community placement and pay-for-performance strategies.