DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, Maryland   21244-1850 
 
CMCS Informational Bulletin 
 
DATE:   August 22, 2022  
 
FROM:   Daniel Tsai, Deputy Administrator and Director  
    Center for Medicaid and CHIP Services 
 
SUBJECT:  Medicaid nursing facility payment approaches to advance health equity and 
improve health outcomes. 
    
Introduction 
 
Millions of Americans, including children, non-elderly adults, and older adults, need long-term 
services and supports (LTSS) because of disabling conditions, chronic illness, and other factors.  
Medicaid, which is the primary payer across the nation for these services, allows for the 
coverage of LTSS through several authorities and programs and over a continuum of settings
ranging from institutional care, such as in nursing facilities, to home and community-based 
services (HCBS).  The Biden-Harris Administration, including CMS, is committed to ensuring 
that all older adults and people with disabilities have access to high quality services in the setting 
of their choice.  
 
Over the last decade, CMS and states have worked and continue to work closely together to 
reduce the reliance on institutional services and expand access to high-quality HCBS.  Today, 
most Medicaid LTSS spending is on HCBS, accounting for $125 billion, while institutional 
services accounted for $75 billion in Medicaid expenditures in 2020.1  
 
In February 2022, the White House and CMS announced a comprehensive set of reforms to 
improve safety and quality of care in our nations nursing homes through the action plan 
Protecting Seniors by Improving Safety and Quality of Care in the Nations Nursing Homes 
(Biden-Harris Administrations Nursing Home Reform Action Plan).2  Improving health equity 
in nursing facilities is a priority for CMS to not only improve the quality of care, but also quality 
of life for nursing home residents.3  As of 2019, two million Medicaid beneficiaries received 
                                                            
1 Medicaid LTSS expenditures totaled approximately $200 billion in FY 2020, with HCBS accounting for $125 
billion (62.5 percent) and institutional services accounting for $75 billion (37.5 percent). Source: Murray, Caitlin, 
Michelle Eckstein, Debra Lipson, and Andrea Wysocki. Medicaid Long Term Services and Supports Annual 
Expenditures Report: Federal Fiscal Year 2020. Chicago, IL: Mathematica. Forthcoming. 
2 https://www.whitehouse.gov/briefing-room/statements-releases/2022/02/28/fact-sheet-protecting-seniors-and-
people-with-disabilities-by-improving-safety-and-quality-of-care-in-the-nations-nursing-homes/.  
3Ibid. 
  CMCS Informational Bulletin  Page 2 
 
institutional services.4  Medicaid is a key lever for accomplishing the goals of strengthening 
quality of care, accountability, and transparency.  
 
This Center for Medicaid & CHIP Services (CMCS) Informational Bulletin (CIB) describes 
actions that states can implement using existing Medicaid authority.  CMS encourages states to 
assess their approach to payments to long-term care providers and utilize flexibilities provided 
by section 1902(a)(30)(A) of the Social Security Act (the Act) in establishing Medicaid base and 
supplemental payments, as appropriate, to provide adequate, performance-driven nursing facility 
rates to ultimately achieve better health care outcomes and address longstanding inequities for 
Medicaid beneficiaries residing in nursing facilities.  States can implement a number of 
initiatives immediately through the Medicaid state plan, waiver, or demonstration process, which 
are highlighted below.  Through initiatives like these, we expect that Medicaid beneficiaries 
residing in nursing facilities will receive better care through the collaboration of CMS and states 
to realize the goals outlined in the White House Biden-Harris Administrations Nursing Home 
Reform Action Plan.   
 
In addition to the actions below, CMCS continues to encourage states to rebalance their LTSS 
systems to achieve a more equitable and person-centered balance between the share of spending 
and use of services and supports delivered in home and community-based settings relative to 
institutional care.5  A key priority of the Biden-Harris Administration is strengthening the 
availability of Medicaid-funded HCBS, as an alternative to institutional care.  Funding made 
available to expand, enhance and strengthen HCBS under section 9817 of the American Rescue 
Plan Act (ARP) has resulted in approved state actions to include expanding the scope of HCBS 
available to targeted populations and increasing payments to the direct service workforce.6  In 
addition, implementation of the 2014 home and community-based settings regulation continues 
to ensure the reimbursement of HCBS is happening in settings that facilitate person-centeredness 
and individual decision-making. 
 
In addition, on behalf of those Medicaid beneficiaries who receive and will continue to require 
care through nursing facilities and other institutional long-term care settings, states are 
encouraged to use the tools available through Medicaid to improve safety, accountability, 
quality, and overall resident experience in alignment with the measures established by CMS, 
such as the Nursing Home Five-Star Quality Rating System.    
 
 
 
 
                                                            
4 In 2019, nearly 9 million Medicaid beneficiaries received LTSS. Of these, 7.4 million (84 percent) received HCBS, 
1.7 million beneficiaries (19 percent) received institutional services, and 0.3 million (3 percent) received both. 
Source: Kim, Min-Young, Edward Weizenegger, and Andrea Wysocki. Medicaid Beneficiaries Who Use Long-
Term Services and Supports: 2019. Chicago, IL: Mathematica, Forthcoming.  
5 https://www.medicaid.gov/medicaid/long-term-services-supports/downloads/ltss-rebalancing-toolkit.pdf.   
6 https://www.medicaid.gov/medicaid/home-community-based-services/guidance/strengthening-and-investing-
home-and-community-based-services-for-medicaid-beneficiaries-american-rescue-plan-act-of-2021-section-
9817/index.html   CMCS Informational Bulletin  Page 3 
 
Using Provider Payment Structures to Encourage Quality of Care  
 
CMS is launching new initiatives in both Medicare and Medicaid to ensure that nursing facility 
residents get the quality care they need.  These initiatives are intended to help ensure adequate 
staffing, dignity, and safety in resident accommodations, as well as high-quality care, including: 
establishing a minimum nursing home staffing requirement; undertaking efforts to reduce 
resident room crowding; strengthening the Medicare Skilled Nursing Facility (SNF) Value-
Based Purchasing (VBP) program; and reinforcing safeguards against unnecessary 
medications and treatments.   
 
In the Medicaid program, states have broad flexibility to design their provider payment structures 
to incentivize providers for implementing or performing highly on the types of initiatives listed 
above.  Medicaid payments based on improvements to performance on quality measures have 
already been approved in numerous Medicaid State Plan Amendments (SPAs), such as:  
  Californias long-standing quality and accountability supplemental payment initiative 
provides increased payments to facilities that improve quality of care to their residents, using 
quality indicators defined by CMS to reward facilities whose performance is at or above 
statewide average.7   
  Illinoiss new nursing facility payment initiative includes robust facility staffing incentives.8  
In 2022, Illinois implemented a data-driven staffing ratio target program and a wage 
incentive initiative which supports nursing facilities in increasing and maintaining the wages 
of Certified Nursing Assistant (CNAs) through the CNA Tenure and Promotion Payments 
to increase retention of direct care staff in the facility, which, studies suggest, leads to better 
outcomes for residents of the facilities.9   
 
Similarly, to help reduce resident room crowding, states can implement Medicaid payment 
initiatives that adjust provider payment rates based on resident room occupancy, or set a higher 
payment rate for Medicaid residents in a single occupancy room.  Whether integrated into the 
base rate or established as a separate value-based payment program, these efforts link payment to 
improved health care quality and shift from a focus on volume to value.  
 
 Accountability in Nursing Facilities 
 
It is in the states and federal governments best interest, and in the best interests of our 
beneficiaries, to direct taxpayer dollars to nursing homes that support patient safety.  In an effort 
to increase accountability, oversight, and transparency, CMSs planned initiatives include: 
increasing scrutiny on more of the poorest performing nursing facilities; expanding financial 
penalties and other enforcement sanctions when warranted; increasing accountability for chain 
owners of substandard facilities; providing technical assistance to nursing homes to help them 
                                                            
7 https://www.medicaid.gov/medicaid/spa/downloads/CA-20-0021.pdf.  
8 https://www.medicaid.gov/medicaid/spa/downloads/IL-22-0009.pdf  
9 https://www.cms.gov/medicare/provider-enrollment-and-
certification/certificationandcomplianc/downloads/usersguide.pdf.   CMCS Informational Bulletin  Page 4 
 
improve; improving transparency of facility ownership and finances; and enhancing Medicares 
Nursing Home Care Compare website. 
 
To support these accountability initiatives, CMS recently implemented a number of efforts that 
aim to increase accountability, oversight, and transparency.  In 2021, CMS implemented new 
Medicaid supplemental reporting requirements for states as required under the newly added 
section 1903(bb) of the Act.10  Likewise, CMS recently made a large volume of Medicare 
provider data available, including nursing home quality data and a database showing changes in 
ownership of facilities.11  States are encouraged to use any federal or state data at their disposal 
to improve and better target oversight of the facilities located in their own states.  For example, a 
number of states use the CMS Nursing Home Five-Star Quality Rating System as part of their 
calculation of bonus payments to nursing facilities.  States may also develop incentives to 
encourage provider participation in Medicaid-specific quality improvement activities based on 
state-developed program goals. 
  
Supporting High Quality Staffing 
 
Low nursing home wages contribute to frequent turnover and staffing shortages.12  Research has 
long demonstrated a clear association between nurse staffing ratios and nursing home quality of 
care, with evidence showing higher staff turnover associated poorer quality of care.13  
Leveraging payment approaches to strengthen staffing further aligns with and complements the 
new minimum staffing requirements for nursing homes which, per the Action Plan, CMS plans 
to propose within a year of announcing the Biden-Harris Administrations Nursing Home 
Reform Action Plan. 
 
Consistent with these efforts to establish minimum staffing requirements, CMS advises states to 
continue developing long-range solutions for training and improving staffing and workforce 
sustainability issues in nursing facilities.  Individual states should look to state-specific data 
sources for measurable metrics by which improvements can be monitored and incentivized.  
CMS has already approved a number of different staffing improvement incentives in state 
Medicaid programs.  For example, Connecticut14 designed a 2% rate increase for nursing 
facilities to be used for increases to employee wages or salaries, increases to the health or dental 
benefit or retirement plans or for a combination of these.  Additionally, Rhode Island recently 
increased nursing facility rates to support new minimum staffing and wage requirements, 
whereby 80% of any base rate increase paid to a nursing facility must be dedicated to increase 
base salary or hourly wage increases, benefits, and other compensation for all eligible direct-care 
workers.15   
                                                            
10 https://www.medicaid.gov/federal-policy-guidance/downloads/smd21006.pdf. This effort was mandated by 
Division CC, Title II, Section 202 of the Consolidated Appropriations Act, 2021 (CAA). 
11 https://data.cms.gov/provider-data/dataset/y2hd-n93e.  
12 https://www.macpac.gov/wp-content/uploads/2021/12/State-Policy-Levers-to-Address-Nursing-Facility-Staffing-
Issues.pdf.  
13 https://www.cms.gov/medicare/provider-enrollment-and-
certification/certificationandcomplianc/downloads/usersguide.pdf.  
14 https://www.medicaid.gov/State-resource-center/Medicaid-State-Plan-Amendments/Downloads/CT/CT-19-
0022.pdf.  
15 https://www.medicaid.gov/medicaid/spa/downloads/RI-21-0015.pdf   CMCS Informational Bulletin  Page 5 
 
 
States are encouraged to work with facilities and CMS to determine if there are any costs, such 
as continuing education training for CNAs, that can be included in the payment rate for Medicaid 
services.  We also encourage states to seek out other solutions to training and testing capacity 
issues within the nursing facilities through collaboration with the states Departments of Public 
Health that certify Nurse Aide Training and Competency Programs (NATCEPs) to promote 
funded training opportunities for nursing facility staff.   
 
 Safety Issues during Emergencies and Pandemics 
 
Residents of nursing homes face longstanding care, quality, and safety issues which have been 
exposed and exacerbated during the pandemic.  The federal and state governments must work 
together to ensure that risks associated with pandemic and emergency preparedness issues are 
mitigated as much as possible to ensure the safety of vulnerable nursing home residents.  To this 
end, the Biden-Harris Administrations Nursing Home Reform Action Plan includes a list of 
pandemic and emergency preparedness initiatives that will help ameliorate future risks in these 
settings, including: the continuation of COVID-19 testing in long-term care facilities; the 
continuation of COVID-19 vaccinations and boosters in long-term care facilities; strengthening 
requirements for on-site infection preventionists; enhancing requirements for pandemic and 
emergency preparedness; and integrating pandemic lessons into nursing home requirements. 
 
CMS advises states to review their emergency preparedness policies and look for areas where 
state Medicaid agencies can improve their practices.  States are encouraged to build incentives in 
their provider licensure requirements or Medicaid payment structures to gather information and 
reward providers according to how well the targets set by the state are met by the facilities.   
Currently, we do not have an example of an incentive payment or methodology for encouraging 
pandemic or emergency preparedness, but CMS encourages states to submit SPAs aimed at 
ensuring preparedness in nursing facilities to begin establishing a precedent for this type of 
proposal.  
 
Implementation Options 
 
CMS is committed to working with states to identify existing Medicaid authority to work 
towards solutions to improve safety and quality of care in nursing facilities.  We challenge states 
to leverage state and federal data and stakeholder insights to inform innovative payment policies 
that help strengthen safety and quality of care in nursing facilities and provide for adequate 
staffing over the long term in a way that is specific to the state and geographic areas where care 
for Medicaid beneficiaries is being provided.  
 
As noted earlier, states have considerable flexibility through the Medicaid program to develop 
payment methodologies, including base and supplemental payments, to implement incentives to 
drive positive change.  When implementing the proposals described in this CIB through 
Medicaid payment methodologies, it is important to remember that Medicaid requirements 
establish parameters for Medicaid provider payments.  Section 1902(a)(30)(A) of the Act 
requires states to assure that payments are consistent with efficiency, economy, and quality of 
care and are sufficient to enlist enough providers so that care and services are available under the  CMCS Informational Bulletin  Page 6 
 
plan at least to the extent that such care and services are available to the general population in the 
geographic area.  These requirements are implemented, in part, through the Medicaid Upper 
Payment Limits (UPLs) with which states must comply.16  Payment for nursing facility 
services17 are subject to the Medicaid UPL requirements.  These requirements limit nursing 
facility payments, in the aggregate, to a reasonable estimate of the amount that would be paid for 
the same services provided by the facility under the Medicare program.  In general, states are 
allowed to make base and supplemental payments up to that limit.  If a state needs a SPA to 
implement a new incentive payment, states are encouraged to work with CMS, noting that any 
new or modified payment methodologies generally require a submission of a SPA or proposed 
amendment to a waiver or demonstration authority.18   
 
Additionally, where states need additional data to develop staffing and quality measures in future 
periods, CMS, as discussed in the Value-Based Care Opportunities in Medicaid SMDL,19 
supports states approaches to building data collection infrastructure to support these types of 
payment programs prior to full implementation of the value-based care arrangement.  Building 
transparency and evaluation into these value-based payment arrangements helps build the 
evidence base to support effective policymaking in the future.  
 
CMS recognizes that state Medicaid agencies may have additional ideas for ways to use nursing 
facility payments to improve safety and quality of care that work best for their state.  CMS 
welcomes innovative approaches that meet the urgent challenge of improving quality of care and 
safety for residents of our nations nursing homes and will continue to provide technical 
assistance to states interested in developing nursing facility payments to ensure compliance with 
federal statutes and regulations while maximizing flexibility. 
 
Conclusion 
 
CMS is committed to working in partnership with states to develop payment methodologies that 
address initiatives to improve health care quality and equity in the Medicaid program.  CMS 
encourages states to utilize the flexibilities available to support the provision of high-quality care 
to residents of nursing facilities. 
 
If states have questions about this informational bulletin or need technical assistance regarding 
these flexibilities, please contact Andrew Badaracco, Technical Director in the Division of 
Reimbursement Policy at Andrew.Badaracco@cms.hhs.gov. 
 
 
                                                            
16 42 Code of Federal Regulations (C.F.R.)  447 Subpart C 
17 Authorized under section 1905(a)(4)(A) of the Act. 
18 See for example, 42 C.F.R.  440.200, et seq., sections 1902(a)(13), 1902(a)(73)(A), 1902(a)(30), 1902(a)(2) of 
the Act, and 42 C.F.R.  447 Subpart B 
19 https://www.medicaid.gov/Federal-Policy-Guidance/Downloads/smd20004.pdf