Medicaid Reimbursement and Nursing Home Quality – a Case Study of Inter-governmental Transfers and Supplemental Payments in Indiana

Federal Medicaid reimbursement guidelines allow states to make supplemental payments up to the difference between the Medicaid rate and Medicare rate to certain nursing homes to ensure that nursing homes have enough revenue to provide quality care. Most nursing homes in Indiana currently benefit from the state’s supplemental payment program to nursing facilities owned by non-state governmental organizations (NSGOs); NSGOs are often county hospitals or city governments. About 90% of the nursing homes in Indiana changed the ownership in the last 10 years and currently operate under the NSGOs. Under the program, NSGOs contribute state’s share of the supplemental payment in the form of intergovernmental transfers to bring in additional federal matching dollars. In 2017, NSGOs in Indiana received about 700 million dollars in additional funds under this program; NSGOs and nursing homes share these additional funds based on their contract and nursing home expenditures.

However, 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. The extent to which these additional reimbursements have been used to improve quality in nursing homes is unclear. In this paper, we combine information on change in ownership and quality of nursing homes in Indiana from 2013 to 2017 to evaluate whether nursing homes that are operating under the NSGOs have better quality in terms of deficiency citations and adjusted staffing (registered nurse and total direct care staffing) compared to nursing homes that did not change ownership. Using difference-in-difference estimation method, we found that there was no improvement in quality for nursing homes operating under NSGOs compared to other nursing homes. These findings reinforce the concern among policymakers that additional Medicaid reimbursement may not have been used to improve quality of nursing homes; instead, NSGOs may be using the supplemental payment program for nursing homes to boost their own revenues.