The Impact of Federal & State Reimbursement Rates on Nursing Homes

November 9, 2023

The occupancy shock, labor crisis, and inflationary pressures caused by the COVID-19 pandemic have had a unique impact on the seniors housing industry and its ongoing recovery. While communities reliant on private-pay revenue sources can enact rent increases in response to inflation, seniors housing and healthcare communities reliant on governmental payor sources, specifically Medicaid and Medicare, have their rates set by the state or federal government, respectively. Roughly 85 percent of total revenue at nursing homes is derived from these two payor sources and affordable Assisted Living/Memory Care communities rely heavily on Medicaid reimbursements as well.

Medicare vs. Medicaid:

Below are useful explainers on the role of Medicaid and Medicare in nursing homes from ‘The Appraisal of Nursing Facilities’ written by James K. Tellatin:

“Medicaid patients constitute the largest portion of a nursing facility’s patient census and are generally the least profitable. Medicaid is the payor of last resort and pays the portion of the nursing home bill that the patient is unable to cover with his or her Social Security and pension income. To qualify for Medicaid, a person must have a medical need and have spent down nearly all of their personal assets. The program is a federal-state partnership administered at the state level. The program is very costly to states, which fund their share of the program through various tax revenues. There are as many different Medicaid programs as there are states.” (Appraisal of Nursing Facilities, page 4).

“Medicare plays a very significant role in the operations and value of nursing facilities…Competition is most intense for patients receiving Medicare because this component is highly profitable. Medicare is a federal entitlement program that provides medical insurance coverage for U.S. citizens aged 65 and older. While Medicare has four benefit components (Parts A, B, C and D), nursing facilities focus on Medicare Part A. Part A provides short-term coverage for those who require skilled nursing or rehabilitative care after a qualified discharge from a hospital. It pays the operator for restorative care, i.e. physical, speech, and occupational therapies, and for pharmacy and medical supply expenses, which collectively are referred to as ancillary services. This federal program is administrated by the Centers for Medicare & Medicaid Services (CMS) and a single reimbursement method is applied nationally.” (Appraisal of Nursing Facilities, page 3).

Recent and upcoming rate increases will allow certain operators to return to profitability, albeit at a slightly lower margin than prior to the outbreak of COVID, while operators reliant on Medicaid in states that have not implemented such Medicaid rate increases (or utilize methodologies resulting in rates woefully insufficient to cover costs) will continue to struggle staffing their buildings and turning a profit, resulting in community closures or conversions to a separate use.

2023 Medicare Rate Increase:

Medicare rates are re-based annually by CMS. Effective 10/1/2023, the aggregate impact of the new rate calculations will result in a net increase of 4.0 percent in Medicare Part A payments to nursing homes in FY 2024. For a Nursing Home with 5,000 annual Medicare days and achieving a rate of $550/day prior to the increase, this will result in their rate increasing to $572/day and $110k in additional annual revenue.

Sample of enacted and upcoming Medicaid Rate Increases:

As mentioned above, Medicaid rates and reimbursement methodology vary by state. Proactive states will typically re-base Medicaid rates annually or semi-annually based on recent cost reports and set Medicaid rates at a level sufficient to cover (or come close to covering) costs; states which are not as proactive re-base less frequently, use dated cost reports which do not reflect current expenses, and set rates which do not allow operators to cover costs.

Impact of rate increases to proceeds:

Utilizing HUD’s minimum DSCR of 1.45x, a 6.50 percent rate, 0.65 percent of annual MIP, and 35-year fully amortizing term, $300k in additional revenue less a Management Fee of 5 percent will increase potential proceeds by $2.5 million.

Below we highlight some states which have recently enacted Medicaid rate increases for Nursing Homes and/or Assisted Living and Memory Care communities as well as the potential impact of these increases to the bottom line:


Nursing Homes:

  • Effective July 1, 2023, Oregon increased their Basic Medicaid rate from $419.83 to $478.15, for an increase of 13.90 percent from the rate effective July 1, 2022. This included making permanent a temporary 5% COVID increase and 4 percent wage add-on. Since this income was previously received (just not on a permanent basis) the net increase was 4.30%. For a community with 10,000 annual Medicaid days, the net increase represents an annual estimated net revenue increase of $197k and gross increase of $583k (when excluding the temporary add-ons from the 2022 rate).

Assisted Living/Memory Care:

  • Effective July 1, 2023, Oregon provided funding to make temporary 5 percent COVID Add-On and 10 percent Wage Add-On permanent, integrating them into the base rate. The result is a base rate increase of 15 percent although since these funds were already being received, the net rate increase was 0%. Assuming Assisted Living and Memory Care Medicaid rates of $3,000 and $4,000 respectively prior to the increase has resulted in current rates of $3,450 and $4,600 respectively.


Nursing Homes:

  • Effective July 1, 2023, the state of Washington increased their weighted average maximum Medicaid rate for nursing homes approximately 23 percent from the rates effective July 1, 2022. For a community with 10,000 annual Medicaid days and a rate prior to both increases of $250/day, the current rate is now $307.50; resulting in an annual estimated revenue increase of $575k.

Assisted Living/Memory Care:

  • Effective July 1, 2023, standard Assisted Living rates increased an average of 20 percent from the rates effective July 1, 2022, while Memory Care rates increased by an average of 35 percent over the same period. Assuming Assisted Living and Memory Care Medicaid rates of $3,000 and $4,000 respectively prior to the increase has resulted in current rates of $3,600 and $5,400 respectively.


Nursing Homes:

  • Over the summer, Texas passed laws which made the temporary COVID add-on of $19.63 per day effective through August 31, 2023, and provided $900 million in for general Medicaid rate increase effective 9/1, marking the first Medicaid base rate increase in ten years. Operators believe the new rates will capture the temporary add-on and potentially add another $2-4/day to the Medicaid rate. Texas originally enacted the temporary COVID rate increase effective 4/1/2020 but this was set to conclude at the end of the federally declared public health emergency. For a community with 10,000 annual Medicaid days, an increase of $24/day represents $240k in additional revenue.


Nursing Homes:

  • Effective October 1, 2023, average nursing home Medicaid rates increased 3.28 percent As of October 1, 2022, rates had previously increased 8.1 percent from the year prior as the April 2022 state budget allow providers to increase minimum wage for nurses to $15 PRD and help support staffing struggles. For a community with 10,000 annual Medicaid days and a rate prior to both increases of $225, the current rate is now $251.20; resulting in a revenue increase of $262k.


Assisted Living, Residential Care, Memory Care:

  • Effective January 1, 2023, the state of Idaho Medicaid program increased the payment for rent, utilities, and food by $64 per resident per month. More significantly, Idaho changed the parameters for assessments and reimbursements associated with residents whose behavior is unscheduled/unpredictable, which is much of the population. According to operators, that has resulted in a significant increase in revenue for communities that can accept those residents and properly document their care needs. For a 75-bed community this can result in upwards of $25k in additional revenue per month, or $300k annually.


Nursing Homes:

  • Effective October 1, 2023, average nursing home Medicaid increased roughly 13.3 percent from 4/1/2023. Based on state regulations, nursing facility Medicaid rates are supposed to be rebased annually using the most current cost report data available. However, prior to 2023, this typically has not occurred. For a community with 10,000 annual Medicaid days and a rate prior to both increases of $225, the current rate is now $254.93; resulting in an annual revenue increase of $299k.


Nursing Homes:

  • According to McKnight’s Long-Term Care, Executive Director of the Montana Health Care Association, Rose M. Hughes says that facilities will see an increase in their base Medicaid rate from $209 per resident per day to $268 in fiscal year 2024 (about a 28 percent increase) and another increase from $268 to $278 per resident per day will come in 2025. This will amount to a net increase of roughly 33 percent from today’s rate. For a community with 10,000 annual Medicaid days an increase of $69/day will result in $690k in additional annual revenue.

This is not an exhaustive list, but a sample of how some states are reacting to the rapid increase in expenses that has occurred since early 2020. Heightened regulation will continue to drive expenses higher, resulting in a need for states to continue to increase Medicaid rates in response.

Connect with one of our trusted seniors housing advisors today.

-Andrew Lanzaro, Associate Director, Berkadia Seniors Housing & Healthcare