Unless service rates are considered reasonable by residential care settings, they will not be willing to contract with Medicaid, particularly in states where private pay rates are very high. It is important for states to recognize that payment levels will likely need to vary based on residents current needs (called tiered rates). Doing so will enable people whose condition deteriorates to stay in the setting rather than having to move to a nursing home. A number of states use tiered rates (including Arizona, Delaware, Ohio, Oregon, Vermont, and Washington). Rates set by case mix (as used in Minnesota, Maine, Wisconsin, and New York) also create incentives to accept people with high needs and retain people whose needs increase. Flat rates, in contrast, tend to force facilities to discharge residents whose needs exceed what can be covered under the rate.
Many states use tiers or levels of payment in group homes for individuals with developmental disabilities to account for individual needs within a single setting, allowing increased payments for individuals who have intensive medical or behavioral support needs requiring a higher staffing ratio or specialized expertise. For example, Ohio uses payment rates that account for the size of the setting, the staffing ratio, and residents specialized needs. This allows for individualized services that are tailored to the support needs of persons in group settings. Alabama and Utah use an assessment process that costs out the hours of support an individual needs, while Missouri establishes rates by category of facility, with higher payment rates going to settings serving individuals with more intensive support needs. As payment rates are set, consideration should be given to what aspects of the supports are included in the rate versus other supports that are billed outside the rate.
Whatever the specific process, states will want to allow for individualization of rates to ensure that individuals receive the level of support appropriate to their needs. This type of individualized rate can also be applied to foster homes as well. For example, some states operate medical foster homes that support children with intensive medical needs. The costs for operating these specialized homes--and their highly specialized personnel--are reflected in the payment rates.
Payments to licensed foster care settings may be tax exempt. If so, individualizing rates allows states to adjust the payment rate to account for the increased revenue to the provider because they may not have to pay Federal income taxes.43 As with larger residential care settings, the foster care payment rates can be individualized and tailored to meet the needs of the individuals and/or target group served.