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Improving the Financial Accountability of Nursing Facilities

Nursing facility service expenditures in the U.S., primarily paid by Medicaid and Medicare, have increased over the last decade. This report examines nursing facility expenditures by cost category to assess relative spending increases in areas such as nursing services, administrative costs, and profits.  The report first provides a short background on nursing facility financing, expenditures and profit margins.  It then analyzes California nursing facility expenditure data by cost category from 2007 to 2010 and profit margins from 2003 to 2010 as a case study to describe nursing facility expenditure patterns.  Finally, the report explores two financial policy options designed to improve nursing facility financial accountability and care quality: (1) reimbursement by cost category and (2) a standard medical loss ratio (MLR) option.  The analysis of California nursing facility profits, administrative costs, and other service costs is used to illustrate the feasibility of both options.  Nursing facility quality and nurse staffing issues that also may be impacted by the implementation of either of these two policy options are briefly described in the Appendix.