Residential Care and Assisted Living Compendium: 2007. State Approaches to Reimbursing Services

11/30/2007

The extent to which low income older people have access to residential care settings as an alternative to nursing homes depends in large part on the extent to which states use Medicaid to cover services in these settings, and providers’ views on the adequacy of Medicaid’s service reimbursement rates. In addition to the amount of the payment, the reimbursement approach can also serve as an incentives or disincentives for providers.

Data from the 2004 report suggested that states increased their payments over the prior four years, although they are still quite low relative to private-pay rates, and may not fully cover services to meet residents’ needs. However, key informants suggested that providers’ willingness to accept Medicaid rates is increasingly driven by an over-supply of facilities and difficulty finding private-pay residents.

States face a number of major challenges in developing Medicaid payment methodologies for residential care services, including: (1) defining and distinguishing between types of services, (2) collecting data on which to base payments while avoiding complex and burdensome new data collection requirements, (3) developing rates that support quality care and aging-in-place, and (4) providing reimbursement that is sufficient to ensure provider participation within state budget constraints.

States use five primary approaches to set rates for Medicaid services provided in residential care settings:

  • Flat rates;
  • Flat rates that vary by type of setting;
  • Tiered rates;
  • Case-mix rates; and
  • Cost-based reimbursement and fee-for-service rates.

Table 1-13 lists the states that use Medicaid to cover services in residential care settings according to their rate-setting approach. Descriptions of each state’s reimbursement approach and rates can be found in Section 3 under the heading public financing.

TABLE 1-13. State Rate-Setting Approaches

  Flat Rates     Tiered Rates     Case-Mix     Modified Case-Mix     Cost-Based and Fee-for-Service  
Colorado
Florida
Georgia
Illinoisa
Massachusetts
Mississippi
Nebraska
New Hampshire  
New Jerseyb
New Mexico
Rhode Island
South Dakota
Alaska
Arizona
Arkansas
California  
Delaware
Indiana
Maryland
Nevada
Ohio
Oregon
Texasc
Vermont
Minnesota 
New York
Mainee
North Carolinae  
Washington
Arkansasf
Idaho
Iowa
Kansas
Mainee
Michigan
Missouri
Montana
North Dakota  
Wisconsin
  1. Illinois’ rates vary by region.
  2. New Jersey has flat rates that vary by setting.
  3. Texas has tiered rates that vary by setting.
  4. Minnesota uses a combined case-mix and cost-based approach. Counties have basic payment rates that are based on case-mix, and a variable payment rate that is based on each client’s service plan. The variable payment is negotiated with providers.
  5. Maine’s reimbursement system combines fee-for-service and case-mix components, depending on the type of residential care setting. ALPs are paid based on a service plan, and residential care facilities are paid on a cost-based system. North Carolina has a modified case-mix payment system.
  6. Arkansas uses tiered rates for its waiver program and a fee-for-service system for state plan services.

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