Many of you may be well acquainted with nursing home payment models – but a short primer can refocus us on important facts or familiarize colleagues newer to the industry. Let’s review how nursing homes get paid – and especially how that affects how pharmacies get paid for serving their residents.

Roughly 80 percent of all nursing home services in the U.S. are paid for by public benefit programs, such as Medicare and Medicaid. The Medicaid program covers roughly 60 percent of nursing home costs, while Medicare accounts for about 20 percent. Most facilities rely more heavily on Medicaid than Medicare.

Nursing homes have long complained, with justification, that Medicaid reimbursement is inadequate, covering only 60 to 80 percent of the costs incurred for caring for residents. Medicare pays much better but covers fewer residents and only for short periods of time, usually following inpatient hospitalization.

Medicare Part A

Nursing home payments under the Medicare program are covered under a prospective payment model, known as the Patient-Driven Payment Model (PDPM), where the facility is paid based on a formula that includes money required to cover the basics of room and board and variables that consider how much the resident’s condition will cost to care for. The variable part is called case-mix adjustment and is intended to closely match resources with expected costs based on resident diagnosis and limitations. Read More >>