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A KFF News analysis estimates that nursing home state-directed payments total $3.7 billion annually, including $2.2 billion in federal funds that could be affected by limits in the 2025 federal budget reconciliation law. The scale and timing of any impact remain uncertain, particularly as federal rules are still being developed and states use different payment structures.
A KFF News analysis estimates that $2.2 billion in federal funding for nursing home payments could be exposed to new Medicaid limits under the 2025 federal budget reconciliation law. The analysis puts total annual state-directed payments to nursing homes at $3.7 billion, but the eventual reductions and their effects on care remain uncertain as federal rules are developed.
The payments, known as Medicaid state-directed payments (SDPs), are used by states to increase payments to nursing homes and other health care providers. KFF estimates that nearly 60% of the $3.7 billion annual total comes from federal funding, and says at least 15 states use nursing home SDPs. The law, commonly called OBBBA, sets new limits on these payments.
Pennsylvania accounts for an estimated $1 billion of the federal nursing home funding identified by KFF, or nearly 47% of the national $2.2 billion estimate. Payments in Texas, New Mexico, Rhode Island, Illinois and Indiana may also be affected, though the analysis does not establish the amount at stake in each state.
The report warns that reduced payments could put pressure on nursing home finances, Medicaid bed availability and residents’ access to care. Those are potential effects, not confirmed outcomes. Experts cited by Skilled Nursing News said more detailed state-level payment information and comparisons with Medicare rates are needed to estimate how individual facilities or services could be affected.
Potential Pressure on Medicaid Beds
Medicaid pays for care for many nursing home residents, and state-directed payments are one way states supplement provider reimbursement. If those payments fall, facilities could face a larger gap between what Medicaid pays and the cost of care. Providers say that could affect their ability to maintain services or the number of Medicaid-funded beds they make available, although no specific closures or service reductions are established by the analysis.
The issue carries particular weight in Pennsylvania because of the state’s share of the estimated federal funding. A change there could affect a substantial amount of nursing home financing, but the size and distribution of any impact would depend on the final federal requirements and the state’s payment arrangements. The national total indicates potential exposure, not a confirmed cut of $2.2 billion.
For residents and families, the relevant outcome is whether facilities can continue to offer care to people relying on Medicaid. For state officials, providers and federal regulators, the challenge is to understand how the limits apply while maintaining access. The available analysis does not yet quantify how many residents or beds could be affected.
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How State-Directed Payments Work
States use state-directed payments to supplement Medicaid payments to health care providers, including nursing homes. The federal government contributes to Medicaid spending, which is why limits on state payments can have implications for both state and federal funding. The new restrictions stem from the 2025 budget reconciliation law, but the specific effects depend on how federal regulators write and implement the rules.
KFF’s Pennsylvania estimate draws on the state’s 2025 payment rate of 74.6% of average commercial rates, combining county and nonpublic facilities, according to the Pennsylvania Health Care Association’s president and CEO. He said Pennsylvania’s 2026 filing instead separates those categories, reporting rates of 48.5% for nonpublic facilities and 97.5% for county facilities. That difference matters when interpreting an estimate that combines provider types.
The state association said the final effects will depend on the outcome of the proposed federal rule and how it is implemented. The figures in the analysis are estimates of payments and potential exposure, rather than a facility-by-facility forecast of future losses.
““Overall, it’s still too early to determine the specific impact these changes will have on Pennsylvania’s Medicaid program or individual nursing facility providers, as much will depend on the final outcome of the proposed federal rule and how it is implemented.””
— President and CEO of the Pennsylvania Health Care Association, speaking to Skilled Nursing News
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Final Cuts and State Effects Unknown
The $2.2 billion figure is an estimate of federal funding associated with nursing home SDPs that could be affected by the new limits; it is not a confirmed amount of funding that will be removed. The available information does not specify the final payment caps, the size of any reductions in each state, or how those changes would be phased in for individual providers.
It is also unclear how the proposed federal rule will be finalized and applied. Pennsylvania’s different 2025 and 2026 rate presentations illustrate why state-level comparisons may be difficult: provider categories and rate calculations can produce different estimates. The analysis does not provide a confirmed count of residents, Medicaid beds, facilities or services that would be affected.
Industry representatives have warned about possible pressure on access and operations, but those concerns are forecasts rather than documented effects of reductions already implemented. More detailed payment data and comparisons with Medicare rates are needed before the financial consequences can be estimated with greater precision.
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Federal Rulemaking Sets the Next Milestone
The next major step is the federal rulemaking process: the proposed requirements must be finalized and their implementation clarified before states and providers can determine how the limits will apply. The Pennsylvania Health Care Association said the effect there will depend on the final rule and how it is carried out.
States, nursing home providers and industry groups are likely to examine their payment structures as more details emerge. Kane said his association is working with state affiliates, Medicaid agencies, governors and state lawmakers on possible approaches, including protecting base Medicaid reimbursement rates and preserving access to care. Shamberg said Saber Healthcare wants to work with Congress and Pennsylvania officials as the changes take shape.
Although Shamberg said payments may begin to shrink each year starting in 2028, the source material does not establish a final state-by-state reduction schedule. The amounts affected, the timing and any consequences for residents will depend on the final federal requirements and decisions made by states.
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Key Questions
Is $2.2 billion in nursing home funding confirmed to be cut?
No. KFF estimates $2.2 billion in federal funding is associated with nursing home state-directed payments that could be affected by new limits. The analysis does not say that this full amount will be cut.
Which state has the largest estimated share?
Pennsylvania accounts for an estimated $1 billion annually, nearly 47% of the $2.2 billion federal total in the KFF analysis. The final effect on the state remains unknown.
What are Medicaid state-directed payments?
They are payments states use to direct or supplement Medicaid reimbursement to providers, including nursing homes. The payments help fund care for residents covered by Medicaid.
Could nursing home access be affected?
Providers and industry representatives warn that lower payments could put pressure on services and Medicaid bed availability. Those are potential effects; the analysis does not confirm that beds will close or services will be reduced.
When could payment reductions begin?
Saber Healthcare government affairs chief Zach Shamberg said payments may begin shrinking each year starting in 2028. The final schedule and impact for individual states and facilities have not been established in the available information.
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