Minimum Spending Thresholds for Nursing Homes: Evidence from Two States

• In Event: Policy Incentives, Resource Allocation, and Organizational Behavior in Health Care

Abstract

Introduction: Nursing homes receive the bulk of their revenue through Medicaid and Medicare but there is little current federal oversight on whether these dollars are being spent on direct patient care.  

Research Question: This study evaluates whether state-level minimum direct care spending requirements for nursing homes are associated with greater financial accountability and higher staffing investments in nursing home care.  

Methods: We conducted a facility-level observational study using administrative spending and reporting data obtained through Freedom of Information Act requests, nursing home quality data from Nursing Home Care Compare, and staffing data from the Payroll Based Journal. The analysis examines trends over time and compares facility characteristics and staffing levels among nursing homes above and below state minimum spending thresholds in Massachusetts and New Jersey from 2022 to 2024. In Massachusetts, nursing homes must meet a Direct Care Cost Quotient (DCC-Q) of at least 75%, defined as the share of total facility revenue spent on direct care workforce expenses, with facilities failing to meet this threshold subject to Medicaid payment reductions (up to 5%). In New Jersey, nursing homes must meet a Patient Care Ratio (PCR) requirement to spend at least 90% of Medicaid revenue on patient care or pay a rebate to the state. The analytic sample includes approximately 320–335 facilities annually in Massachusetts (2022–2024) and 316–319 facilities annually in New Jersey (2022–2023). 

Results: In Massachusetts, between 11% and 22% of nursing homes failed to meet the 75% DCC-Q threshold between 2022 and 2024 and were subject to Medicaid payment penalties. Facilities which did not meet the spending threshold were more likely to be for-profit but had a higher overall star rating. Staffing levels were modestly lower among facilities which did not meet the spending threshold. In 2024, penalized facilities averaged 3.59 total hours per resident day (HPRD), compared with 3.81 HPRD among facilities meeting the threshold. In contrast, no nursing homes in New Jersey fell below the 90% PCR threshold in 2022 or 2023, indicating universal compliance during the early years of implementation.

Conclusions: We found that minimum spending thresholds were associated with modest changes in staffing levels, when comparing nursing homes which did and did not meet the spending threshold in Massachusetts. The universal compliance in New Jersey further provides evidence that minimum spending thresholds must be carefully designed to ensure that the regulations meaningfully affect care delivery and practice.  

Implications for Policy: Minimum direct care spending requirements are an important step toward improving financial accountability in nursing homes, but our findings suggest that their impact on staffing and resident outcomes depends critically on policy design. As currently structured, minimum spending thresholds may not be sufficiently binding to create meaningful changes in frontline care delivery, allowing facilities to comply with the state requirements without altering staffing levels or care practices. To translate financial accountability into improvements in care quality, future policies may need stronger enforcement mechanisms alongside targeted requirements that more directly link spending to patient care and outcomes.

Author

• Amanda Chen, University of Southern California
  Presenting Author