Kevin Tholke

The majority of an assisted living provider’s revenue has historically come from private pay. That continues to be the case, but over the past decade there has been an expansion in the number of states that contribute Medicaid dollars for assisted living services. Currently, 44 states offer some form of Medicaid reimbursement.

States commonly use home and community-based services (HCBS) waivers, which permit the reimbursement of long-term-care services provided in a community setting. This allows states to test new methods of care delivery on a limited and temporary basis. It is an alternative to amending the state’s Medicaid plan, which would create an entitlement and a permanent change to the program.

On a macro level, expanding Medicaid reimbursement for assisted living will result in higher demand across the board. Residents who previously had no other option but to live in a nursing home may now choose assisted living instead. As a result, some demand may shift from SNFs to ALFs. The effect will be even greater in states that amend their Medicaid programs to create an entitlement as this makes the pie even bigger.

HCBS Waivers: Eligibility and Coverage

In general, participants must be elderly, require a level of care that typically is provided by a SNF and meet financial eligibility requirements. Programs generally pay for personal care services, such as medication assistance, housekeeping, laundry, social/recreational activities, transportation and supervision. The resident pays for room and board. 

Reimbursement methods vary by state. They include flat monthly rates, tiered rates based on level of ADLs required, case-mix rates based on the acuity of the resident, fee-for-service rates or negotiated rates. The most common reimbursement schemes are tiered rate or flat rate. An HCBS waiver is assigned to the resident, not the provider. So while a facility must be approved to serve Medicaid residents, the waivers themselves are not “project based.”

Political Environment

States are increasingly looking to stretch the dollars they have, and allowing Medicaid residents to receive care in ALFs is a way to achieve that goal. Lower acuity residents who do not need the level of care offered by a SNF can be served in a lower cost setting. It appropriately matches the resident’s acuity with the level of care. As such, a well-crafted state plan could be a budget reduction mechanism in the long-term. 

However, this could create a surge in the number of residents in the near term. Residents who delayed seeking care because they did not want to live in a SNF may decide to enter an ALF. While the per-resident costs of providing care in an ALF are lower, adding more people to the system has the potential to increase total Medicaid expenditures sooner. 

That said, there are tailwinds supporting the initiative. The Affordable Care Act created an incentive for states to spend a higher proportion of their Medicaid long-term care funds on home and community-based services. This program, known as the Balancing Incentive Payment Program, provides higher federal matching payments if the state dedicates resources to increasing access to HCBS.

Upshot for Providers

Serving Medicaid residents is not for every assisted living provider, but may be very beneficial to some. New, high-end facilities with waiting lists would not see the benefit that a mature facility with lower occupancy might. Facilities with lower occupancy have the most to gain by serving Medicaid residents. Units that otherwise would be vacant could be filled, albeit at a lower margin.

Providers who accept Medicaid stand to benefit from more stable occupancy. A Medicaid resident’s ability to pay is not dependent on income or assets. Demand is driven solely by the need for assistance with ADLs. While private pay demand decreases in a down economy for financial reasons, Medicaid demand should be more stable. Consistent demand leads to less volatile occupancy and, therefore, lowers risk. Revenue diversification can soften the blow in the event of another shock to the real estate market or the broader economy. 

But there are drawbacks as well. While reimbursement varies by state, Medicaid rates are typically below the available private pay rate. They are also subject to change at the whim of legislators, whereas the market determines private pay rates. Additional regulatory and reporting requirements will accompany Medicaid residents. For example, facilities would have to meet quality assurance standards, keep resident records and have a mechanism for feedback. A facility may be required to set aside a certain number of units for Medicaid residents. There also may be physical plant requirements, such as a kitchenette, adequate common space and single-occupancy units. But many of these requirements will be met by default.

This is an ever-evolving topic, but the trend seems to be moving in the direction of expanding Medicaid reimbursement for assisted living. It is state specific, so providers should evaluate the programs in the states where they are located. Agile providers who position their facilities to accept Medicaid residents could stand to benefit from more stable occupancy and consistent revenue. 

Kevin Tholke is an associate with Lancaster Pollard in Los Angeles. He may be reached at [email protected]