Adequacy of New York State's Medicaid Payments to A. Holly Patterson Extended Care Facility

The objectives of this review were to ascertain whether (1) Medicaid payments to Patterson were adequate to cover its operating costs and (2) a link could be drawn between the quality of care that Patterson provided to its residents and the amount of Medicaid funding received. We found that total, or gross, Medicaid payments to Patterson were adequate to cover Medicaid-related costs, but net payments were not. During the 3 years ended September 30, 2001, Patterson's Medicaid operating costs were about $190 million. During the same period, gross Medicaid payments totaled $348 million- $145 million in per diem payments and $203 million in enhanced payments available under the upper-payment-limit regulations. However, the State established per diem rates that were significantly lower than actual costs, and the State and the county required Patterson to return about 90 percent of its upper-payment-limit funding. Accordingly, the Medicaid funding that Patterson retained was $25 million less than its total Medicaid operating costs.

As designed, the State's upper-payment-limit funding approach using intergovernmental transfers benefited the State and the county more than Patterson. We are concerned that the Federal Government provided almost all of Patterson's Medicaid funding, contrary to the principle that Medicaid is a shared responsibility of the Federal and State Governments. Another result was that Patterson was understaffed, which may have affected the quality of care provided to its residents. Patterson officials believed that they could improve quality of care if they had more funds to hire additional nursing and specialized staff, provide more training, and improve security and resident safety. We recommended that the State (1) consider revising Patterson's Medicaid per diem rate to more closely reflect operating costs, and (2) allow Patterson to retain sufficient funding to cover the costs of providing an adequate level of care to its residents. The State did not agree with our conclusions and recommendations.