Billions in Medicaid Payments at Stake, Are SNFs Safe?

Federal limits to state-directed payments (SDPs) included in the 2025 budget reconciliation package ((One Big Beautiful Bill Act (OBBBA)) could reduce Medicaid payments to nursing homes in states using this form of federal funding, according to a KFF report last week.

However, the state with the most to lose – Pennsylvania – says it’s too early to tell if the limits will impact SNFs, and there are nuances to the payments that the report missed.

First, the KFF analysis includes 20 preprints from 15 states, from SDPs that were publicly available and approved from Jan. 1, 2024, through May 12, 2026.

KFF said preprints are application forms submitted to the federal government that document how states direct Medicaid managed care plans to pay providers using SDPs. “Preprints are the only national source of data on SDPs but are limited because there are gaps in data provided by the preprints. Other preprints for nursing home services may have been approved since May 12, 2026,” the report said.

Key takeaways, KFF said, include:

• Annual spending on SDPs for nursing home services is estimated at $3.7 billion in total spending and $2.2 billion in federal spending, which is about 3 percent of total SDP spending and 2 percent of total federal SDP spending.

• At least 15 states have SDPs that pay for nursing home services, and many of those payments could be reduced under new limits for SDPs from the 2025 reconciliation law.

• Much remains unknown about how forthcoming policy changes for SDPs will affect states, nursing homes, and nursing home residents (two-thirds of whom have Medicaid as a primary payer), but data about existing SDPs highlight states and services for which changes could be most substantial.

Keystone State Answers

Now, of the states using SDPs for Medicaid, Pennsylvania has the largest share by far. To answer what they see coming on the issue, Michael Jacobs, president and CEO of the Pennsylvania Health Care Association, responded.

Overall, he said, it's still too early to determine the specific impact these changes will have on Pennsylvania's Medicaid program or individual nursing facility providers, as much will depend on the final outcome of the proposed federal rule and how it is implemented.

“That said, as proposed, the impact on Pennsylvania's Medicaid program could be substantial, with ripple effects extending well beyond nursing facilities,” Jacobs warned.

“Our healthcare delivery system is an interconnected ecosystem, and significant reductions in Medicaid funding to one sector inevitably create additional pressures throughout the continuum of care. For nursing facilities, the concern is how potential funding reductions could affect their ability to maintain access to care, support their workforce, and continue serving an increasingly complex Medicaid population,” he said.

Clarifying the KFF Report

Jacobs also said the KFF report needs clarification. “I also want to clarify an important distinction regarding the Pennsylvania figures cited in the KFF analysis. The numbers referenced in the study are based on Pennsylvania's calendar year 2025 state-directed payment preprint, which reflects payments at 74.6 percent of the Average Commercial Rate [ACR]. That figure represents the combined payment methodology for both nonpublic and county nursing facilities,” he said.

In Pennsylvania's 2026 preprint, the state separated those provider classes, with nonpublic nursing facilities at 48.5 percent of ACR and county nursing facilities at 97.5 percent of ACR. This distinction is important when evaluating the potential impact on different types of nursing facility providers in Pennsylvania, Jacobs stressed.

He added that while providers are certainly paying close attention to these developments, it would be premature to quantify the financial impact or speculate about specific operational changes until there is greater clarity regarding the final federal requirements.

Pennsylvania Medicaid Rates

The association said Pennsylvania has published nursing facility Medicaid payment rates through the fourth quarter of calendar year 2026. “At this point, we have not seen any impact on those published rates attributable to OBBBA,” Jacobs said.

“Given the symbiotic relationship between the acute care sector and our post-acute members, the impact to hospitals and the ripple effect throughout the healthcare continuum is of a far greater concern as we sit here today,” he explained.

“We are squarely focused on the potential long-term impact of the federal Medicaid changes on Pennsylvania's ability to maintain adequate reimbursement for nursing facility care and how the Medicaid program overall will respond to the federal pressures in other areas outside of long-term care that then results in collateral damage to the long-term care sector.”

Paying Close Attention

Another state watching the SDP situation closely is Texas. There, Eddie Parades, executive director of the Texas Nursing Home Coalition, said, “We are hopeful that Texas nursing homes are not directly impacted as we are not an expansion state and both our ACR and UPL calculations are below what we understand as the identified ‘caps.’ The impact to Texas hospitals is yet to be determined,” he said.

At the national level, John Kane, senior vice president of reimbursement policy, American Health Care Association, said, “Medicaid funding is critical to nursing homes’ ability to care for residents. Changes to state-directed payments could create additional financial pressure for affected providers, but the impact will depend on each state’s payment structure and implementation. It is too early to determine what these changes could mean for specific services.”

He said the association remains “focused on supporting our state affiliates who are working closely with state Medicaid agencies, governors, and state lawmakers to identify practical solutions, including opportunities to protect base Medicaid reimbursement rates and preserve access to care.”

Read the KFF report at A Closer Look at State Directed Payments for Nursing Home Services | KFF

Questions or comments? Contact Patrick Connole at pconnole@parkplacelive.com.