Medicaid Supplemental Payments and Nursing Home Quality – a Case Study of Indiana

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Project Summary: More than a million residents live in nursing homes in the United States at a cost of about 55 billion dollars to Medicaid. Nursing home quality has been a longstanding concern among policymakers. Adequate reimbursements are essential to improve quality in nursing homes. Although state and the federal governments jointly finance Medicaid, states have created various supplemental payment programs that rely on funds from the providers and local governments to finance the non-federal share. Supplemental payment program for nursing homes owned/operated by non-state governmental organizations (NSGOs) is one such program under which NSGOs contribute the state’s share of the supplemental payment to the state government through intergovernmental transfers. The state then claims federal matching dollars for the supplemental payment and transfers the supplemental payments to the NSGO-owned nursing home. Nursing homes and NSGOs share these funds based on their contract and nursing home expenditures. This program allows states to increase Medicaid reimbursement for NSGO-owned nursing homes without substantial burden on state budgets. Indiana offers a unique opportunity to study the effectiveness of the supplemental payment program to NSGO- owned/operated nursing homes because NSGOs bought/leased about 90% of nursing homes in Indiana during the past decade. In 2017, NSGO-owned nursing homes in Indiana received about 700 million in additional federal dollars under this program. Anecdotal newspaper articles suggest that NSGOs keep a large portion of the supplemental payments and that staffing has not improved in NSGO-owned nursing homes. Policymakers are increasingly concerned that NSGOs are using the supplemental payment program to boost their own revenues instead of helping improve the quality of nursing homes. Our objective is to evaluate the effectiveness of Indiana’s supplemental payments to NSGO-owned nursing homes in increasing nursing home revenue and expenditures and improving nursing home staffing and patient safety. To achieve this goal, we propose an econometric analysis for three specific aims: 1) To estimate the effect of supplemental payments to NSGO-owned facilities on nursing home revenue/expenditures, 2) To estimate the effect of supplemental payments to NSGO-owned facilities on direct care staffing (RN, LPN, and Nurse-aide); and 3) To estimate the effect of supplemental payments to NSGO-owned facilities on patient safety outcomes (pressure ulcers, infections, falls, and medication errors). Our results have the potential to affect CMS policies on states’ use of nursing home supplemental payment program by providing rigorous estimates on whether these payments had the intended effect of improving nursing home quality. Our results will provide empirical evidence for state and national policymakers on whether these programs represent efficient allocation of resources to improve nursing home quality.