Long term care providers in Pa. are calling for more state dollars and predictable funding

Nursing homes and long-term care facilities charged with caring for the Commonwealth’s oldest and most vulnerable residents have detailed how a state funding quirk is reimbursing providers below the cost of care, pushing some operators to the financial brink.

At the same time, state lawmakers seemed uncertain about the ability to allocate more dollars to rapidly growing spending, noting budget constraints in a rapidly aging state.

Sen. Tim Kearney (D-Delaware) expressed sympathy for the Department of Human Services, which sets Medicaid rates based on appropriations from the General Assembly.

“I understand it from a DHS perspective because money is what money is,” Kearney said. “But… it doesn’t address the real issues we’re dealing with. We’re dealing with a growing population, more people who will be seeking care – not fewer – and we’re already losing nursing homes at an alarming rate as they close for business reasons.”

Testimony given Thursday before a Senate committee showed that nearly 40 nursing facilities have closed since 2020, and some facilities are limiting bed space due to budget pressures and labor shortages.

“Access to care is shrinking in real time,” said Chuck Quinnan, senior vice president and chief government affairs officer at Leading Age PA. “Behind these numbers are older people who are in hospital because care homes cannot take them, families desperate for care close to home that does not exist, and volunteers going above and beyond their capacity.”

Leading Age PA and the Pennsylvania Health Care Association represent hundreds of long-term care providers and have long urged the state to reform its reimbursement system. PHCA President and CEO Michael Jacobs emphasized the importance of Medicaid, saying nearly 70% of nursing home residents employ it to pay for their services.

“Medicaid is a demanding payer because it consistently fails to cover the costs of providing care. Skilled nursing facilities have little ability to absorb underpayments because they cannot make up the difference with other pay, and residents continue to require the same basic daily care,” Jacobs said.

Medicare does not pay for long-term stays, leaving private payment as the only alternative dearest and the most intensive form of care.

What is BAF?

Two decades ago, the Rendell Administration introduced a tool to control long-term care spending under Medicaid, using a budget adjustment factor (BAF) to reduce payments.

Once the state calculates the cost of caring for residents, the BAF formula redistributes that amount using dollars allocated within the state budget. If the Community does not boost this item, BAF will reduce the actual reimbursement rate to match this amount on a quarterly basis.

“In other words, the system already has a way to determine provider payment, but once that rate is calculated, BAF reduces it to match budgeted funds rather than the actual cost of care,” Jacobs said.

In practice, that means a facility like Fellowship Community Hall in Lehigh County was losing an estimated $125 per day per resident in the first quarter of 2026, according to President and CEO Mary Kay McMahon. The BAF rate at that time was 80% of the cost.

“My nursing facility loses money every year,” McMahon said. “From a purely business perspective, it’s not sustainable.”

DHS has not yet released rates for this quarter, but providers have estimated they have dropped to 77-78%.

Even though service providers don’t like him, BAF saved the government money. According to the data, in the first decade of its employ, per diem rates for care facilities increased by approximately 20.75%. state calculationsbut without BAF it would have increased by 42.27%.

The commonwealth submits calculations for federal approval every three years, and the BAF will expire by June 30, 2026, without legislative action.

Claiming that the state likely “does not have the budgetary capacity to eliminate BAF,” Jacobs insisted on adopting a minimum level, meaning reimbursements would never fall below 90% of costs. Setting the floor at 80%, he continued, could cost an additional $188 million, while setting the floor at 90% would require more than $400 million.

“2026 is the moment to act. This legislature has the opportunity to stop balancing nursing home budgets based on frail elderly and disabled people and the workers who care for them,” Jacobs said. “Given that the sector has been flat-rate funded for 8 of the last ten years… it is right to ensure predictability and stability and stop this budget ax from cutting the payments these suppliers deserve.”

Other cost control measures

While much of Thursday’s testimony focused on BAF reform, operators noted other potential areas of change.

Due to the nature of the work, long-term care is a highly regulated industry, but providers like McMahon have found that some requirements – such as staffing rates – have not performed as expected in an industry that is experiencing some of the highest job losses following the Covid-19 pandemic.

“Sometimes we have more staff than enough residents on a given shift, but it’s not the right mix,” McMahon said, referring to nurses’ varying licenses. “It doesn’t make sense.”

Staff relations were there tightly was debated at the federal level, especially after reports of residents waiting two or more hours to be helped to employ the bathroom, falls and lack of assistance for hours, and sexual assaults.

McMahon also described problems with making some Medicaid funds available to providers during the lengthy application process, additionally flagging outside resources for review. To protect their funds, some people they put their money in a mutual funda legal maneuver that shields him from Medicaid consideration.

“There are people with significant financial resources who could pay for their care who, by hiding money in these funds, qualify for Medicaid benefits,” McMahon said. “I don’t think it’s fair to people who are legally exhausting all their funds.”

Additional operational challenges: The Republican-backed federal One Big, Beautiful Bill Act last year, through which the Trump administration imposed cuts to Medicaid that critics say will devastate hospital providers and challenge a better health care system.

“We are all interconnected… when another aspect of the system suffers, generally speaking, it ripples through the entire system and affects everyone,” Jacobs said. “I think there is a concern that we are creating a scramble for food with limited resources within the Medicaid budget.”

Lawmakers in Harrisburg are weighing in proposed budget who spends more than expected but doesn’t do it boost support for nursing homes.

“There’s a lot to talk about between funding, process efficiency and workforce. It’s a lot of challenges,” said Sen. Nick Miller (D-Lehigh). “But here in Pennsylvania, we have no other choice. We have to really dig into this and continue to work on solutions.”