Given Pennsylvania’s rapidly aging population, the demand for long-term care is growing throughout the commonwealth; however, we do not have the skilled caregivers or resources needed to meet that demand. The residents entering our facilities have more complex and specific needs than ever before, which require more time, skill, and individual attention.
We’re also running dangerously short on basic infrastructure, as 30 nursing homes have closed since the start of 2019. Not to mention the acceleration of nursing home sales, changes of ownership, reorganizations, and bankruptcies – all contributing to market volatility and negatively impacting the continuity of care for thousands of Pennsylvania seniors.
Why is this happening?
For one, Medicaid – the state program that funds care for more than 70% of nursing home residents statewide – is still failing to sufficiently reimburse providers, especially when compared to our neighboring states. At a rate of $256 per resident per day, Pennsylvania is significantly behind Maryland ($375), West Virginia ($355), Delaware ($326), New York ($299), and New Jersey ($275).
Pennsylvania’s Medicaid rate affects where providers can and cannot invest – and workforce is chief among those investments.
Today, providers are spending at least 70% of their total costs at the resident bedside. But that requirement is becoming more difficult to meet as costs rise and reimbursement remains stagnant. To truly create family-sustaining jobs in long-term care, we first need to invest in Medicaid – so providers can, in turn, invest in recruiting and retaining caregivers.
So, how do we begin to fix this issue?
Modernize the Budget Adjustment Factor (BAF): An Outdated, Arbitrary Budgeting Tool
The Budget Adjustment Factor (BAF) was introduced during the Rendell administration in 2005 to control costs, but has transformed into a budget gimmick that artificially lowers Medicaid reimbursement to nursing homes.
Instead of fairly funding all providers based on audited, allowable Medicaid costs, the BAF arbitrarily reduces Medicaid payments every quarter, creating an unpredictable and unfair
payment system.
This outdated policy forces nursing homes to operate with financial uncertainty, limiting their ability to invest in long-term workforce development strategies, which can affect resident care.
Why is the BAF so baffling?
Over the years, the BAF has transformed into a convoluted budget tool. In FY 2005-06, the BAF was set at 0.95122, and since then, it has become wildly volatile.
Last year, the BAF dropped from 0.90182 in January to 0.78233 in October. This means providers’ Medicaid rates were reduced by an additional 12% in October compared to the 10% reduction they were already facing at the start of the year.
The BAF does not affect providers equally, creating winners and losers within the industry, and penalizing those who are more efficient and serve higher Medicaid populations.
Where do we go from here?
House Bill 1310, an initiative of PHCA and SEIU Healthcare PA, is designed to stabilize the system and enable more accurate budget forecasting for providers, establishing a stable BAF floor of 0.9. This proposed floor would limit annual reductions to a maximum of 10%, ensuring that costs remain controlled while giving nursing home providers the ability to more effectively deliver care to our seniors.
Implementing a 0.9 BAF floor is projected to infuse the system with an estimated $139 million in new funding for Fiscal Year 2025-26. This significant financial infusion will provide much-needed resources to support and enhance access and care for individuals in need.
This approach supports long-term sustainability, reducing the number of providers forced to close due to unpredictable and insufficient reimbursements and allowing greater flow of appropriated dollars to nursing home care for seniors and reducing the need for large year-over-year funding increases - creating more predictability for providers and the commonwealth.
