Medicaid Underpays Nursing Homes By $9 Per Patient Day


A new study commissioned by the American Health Care Association confirms what most senior advocates have long suspected: funding for long-term care services (and particularly nursing home care) is insufficient to pay the actual cost of care. While there is significant variation among the states, the federal-state Medicaid partnership program underpays providers by more than $3 billion each year.

The AHCA study was actually completed by accounting firm BDO Seidman, based on data collected from individual state Medicaid agencies. Arizona’s AHCCCS program failed to respond to the study, but 36 states did provide information from which the accounting firm could determine rough national figures for the Medicaid underpayment.

Most analysts agree that slightly less than half of all 65-year-olds can expect to spend at least some portion of the rest of their lives in a nursing home, so the payment system for nursing home care is important to a large portion of the senior population. A majority of nursing home residents (over 67% nationally and 63% in Arizona) receive Medicaid benefits, making the program’s reimbursement rates critically important for ensuring future quality in long-term care facilities.

The AHCA study looked at 1999 reimbursement rates for the 36 states providing data. On average, Medicaid’s shortfall was a little more than $9 for each day a Medicaid patient spent in the nursing home; with just over a million Medicaid patients in nursing homes nationwide on any given day, the annual shortfall exceeds $3.3 billion nationwide.

New Jersey and New York showed the largest shortfall per patient and total shortfall, respectively. Alabama was the only state which paid more in Medicaid benefits than the cost of patient care; its reimbursement of $102.78 per Medicaid patient day was actually $2.48 more than the facility’s costs.

Although most states in the West (notably Nevada, Oregon, and Utah) underpaid by more than the national average, Colorado, California and New Mexico helped keep the region’s average underpayment lower than the national figure. The South (including Texas, Alabama and Virginia, three of the states with the lowest underpayment rates) demonstrated regional rates closest to the allowable Medicaid costs—despite including Florida, one of the least generous states. Underpayments in the Northeast exceeded the national average in every state except Connecticut and West Virginia. The average shortfall for states in the Midwest was almost identical to (and slightly below) the national average shortfall.

The AHCA website ( contains more detail about the study as well as other statistical details.

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