COVID-19-driven labor cost increases were identified as the primary driver of the disconnect. This OIG data brief relied on Payroll-Based Journal (PBJ) submissions alongside Medicaid cost reports to evaluate direct care staffing levels.
Analysis of Selected Nursing Facilities’ Use of Medicaid Reimbursement for Direct Care Compensation
We determined that 17 of the 26 selected nursing facilities increased the percentage of funds received through Medicaid reimbursement that they spent on direct care compensation between 2018 and 2021. In addition, we determined that 9 of the 26 selected nursing facilities decreased the percentage of funds received through Medicaid reimbursement that they spent on direct care compensation between 2018 and 2021. Between 2018 and 2021, the percentage of Medicaid reimbursement spent on direct care compensation increased for 17 of the 26 selected nursing facilities. Of these 17 nursing facilities, 12 had decreases in their nursing hours per resident day.
United States, Department of Health and Human Services, Office of Inspector General. “Analysis of Selected Nursing Facilities’ Use of Medicaid Reimbursement for Direct Care Compensation.” HHS OIG, 30 July 2025. https://oig.hhs.gov/reports/all/2025/analysis-of-selected-nursing-facilities-use-of-medicaid-reimbursement-for-direct-care-compensation/
“[L]ack of a clear, strong correlation between higher direct care compensation and higher nursing HPRD suggests that other factors — such as ownership structures — may play an outsized role in enhancing, or detracting from, quality of care provided by nursing facilities,” report authors wrote, while also acknowledging other cost factors during the public health emergency appeared to have rationally influenced spending patterns. “Further work and analysis are needed to draw conclusions about possible correlations between these and other factors as they relate to the quality of care in nursing facilities … ”
— McKnight’s Long-Term Care News, August 6, 2025
OIG swings, misses and hits … itself
The comparison years were 2018 and 2021. That end date was, well, year two of the deadliest public health emergency in more than a century. A time when more than 100,000 nursing home workers had simply left the sector, and thousands had died or fallen ill at the hands of COVID-19. Such conditions led to horrible workforce shortages and a gold rush of wildly expensive agency nurses, sign-on bonuses and overtime pay.
— McKnight’s Long-Term Care News, August 6, 2025
OIG: Higher Medicaid Spending Didn’t Boost Direct Care Worker Hours at Nursing Homes
All in all, the OIG’s review found no consistent relationship between higher Medicaid spending on direct care compensation and increased nursing HPRD. While many facilities increased their spending, it often went toward higher labor costs rather than more staffing. The study also suggested that factors such as ownership structure, use of contract labor, and pandemic-related pressures deeply influenced how Medicaid funds were allocated.
— Skilled Nursing News, August 4, 2025
