Use of Intergovernmental Transfers-based Medicaid Supplemental Payments to Boost Nursing Home Finances: Evidence From Indiana Nursing Homes

Abstract

Background: Indiana provides intergovernmental transfers-based supplemental payment to nursing homes owned/operated by the nonstate governmental organization (NSGO) but NSGOs may divert substantial supplemental payments away from participating nursing homes.

Objective: The aim of this study was to estimate the effect of participation in the intergovernmental transfers-based Medicaid supplemental payment program on nursing home revenue and expenditures.

Research design: Difference-in-differences regressions using Callaway and Sant'Anna method accounting for treatment effect heterogeneity across groups and over time.

Subjects: All 410 Medicare and Medicaid-certified nursing homes in Indiana from 2009 to 2017 with nonmissing data (N=3170).

Measures: The key independent variable is a binary variable indicating NSGO ownership. Outcome variables include total revenue, total operating, clinical, hotel, and administrative expenses as well as profit margins extracted from Medicare Cost Report. Control variables include facility and resident characteristics from Nursing Home Compare and LTCfocus data.

Results: Supplemental payments increased nursing home revenues by about $0.58 million on average but payments were larger in later years. On a per-person per day basis, nursing home revenue increased by $21.9 dollars with an increase in administrative ($11.3), and hotel ($6.9) expenses but a decrease in clinical ($4.67) expenses.

Conclusions: NSGO-owned/operated nursing homes received only a fraction of the total supplemental payments on average, but we observed increased payments to nursing homes in later years. Participating nursing homes did not increase clinical expenses. Our findings raise questions on the transparency of the financing arrangements between NSGOs and nursing homes and the need to link supplemental payments to clinical expenses.

Figure 1.

C&S Event Study Estimates of the Effects of Medicaid Supplemental Payments on Nursing Home Financial Outcomes Notes: Figures show event study point estimates (dots) and 95% confidence intervals (bars) of the effect of Medicaid supplemental payments on various nursing home financial outcomes generated from Callaway and Sant’Anna (C&S) model.