SD28 - Virginia's Medicaid Reimbursement to Nursing Facilities


Executive Summary:
Senate Joint Resolution 463 from the 1999 General Assembly Session requires that JLARC review Medicaid reimbursement to nursing facilities (see Appendix A). Nursing facilities are the major providers of long-term care services. Long-term care is an increasingly important and rapidly changing component of today's health care system. Four out of every ten people turning 65 will use a nursing home at some point in their lives, and many will need long-term home care as well. The Congressional Budget Office projects that the nursing home population will increase 50 percent between 1990 and 2010, double by 2030, and triple by 2050. A variety of social and medical factors have impacted the need for long-term care services and the concomitant rise in long-term care costs. These factors include: growth in the population needing long-term care due to increased longevity and an aging society; the diminishing capacity of families to provide long-term care to family members on a full-time basis; inflation in health care costs; medical technology which has prolonged life; and the fact that most individuals are not adequately preparing themselves for retirement, especially for the potential need for long-term care.

Expenditures for long-term care are steadily increasing. In 1995, the national average annual cost of nursing home care was $46,000. Most older persons cannot afford these high rates. Only five percent of the elderly have any private long-term care insurance because it was not available in their younger years, and was too costly to afford in their later years. Further, the general private health care insurance coverage obtained by most individuals does not cover long-term care to any significant extent, and Medicare does not either. Therefore, once their own resources are depleted, the elderly and disabled must turn to Medicaid to pay for long-term care services. Medicaid is the dominant source of public financing for long-term care, and expenditures are projected to more than double between 1993 and 2018.

In 1996, the nation spent $79 billion for nursing facility care. Of this, the states and the federal government spent about $47 billion, much of which ($31 billion) came from Medicaid (about 68 percent of nursing home residents depend on Medicaid to pay for their care). Medicare still basically covers only short-term nursing home and home health care after a serious illness or accident. In 1996, Medicare spent $16 billion on these services.

Clearly, one of the most important issues in the nursing industry today is financing. Because of the growth in community-based alternatives for private paying seniors and the recent reductions in Medicare payment for nursing facility care, nursing facilities claim they can no longer subsidize low Medicaid reimbursement rates. In recent months, two large national nursing home chains have declared bankruptcy due to a variety of reasons, including inadequate reimbursement for nursing facility care. The state and federal governments, on the other hand, continue to target cuts toward Medicaid and Medicare rates for nursing facility care in order to control the growth rate of long-term care expenditures.

The level of reimbursement also has implications for quality of care in nursing facilities. The nursing home industry has warned that any further reductions in already low reimbursement rates will adversely affect their ability to provide quality care. The federal government has also turned its attention to quality of care in nursing homes through recent reforms in regulations and enforcement, which focus on ways to improve the quality of nursing facility services.

Therefore, the key questions before State-level policymakers include whether the methodology used to reimburse nursing facilities appropriately recognizes costs, and the extent of the compatibility between the goals of nursing facility reimbursement cost control and quality assurance. This report addresses these questions through an analysis of the State's current reimbursement methodology, as well as the factors that are associated with Virginia nursing facilities' costs, their Medicaid reimbursement level, and their ability to provide quality services.

The remainder of this chapter provides an overview of Medicaid payments for nursing facility services, the current Virginia nursing facility payment system, and past studies of Virginia's reimbursement system. Further, the approach and organization of this study are outlined at the end of this chapter.