Pennsylvania is facing a widening gap between a rapidly aging population and a shrinking long-term care infrastructure, a crisis that industry leaders say can only be solved through fundamental Pennsylvania nursing home compensation changes.
During a recent roundtable in the Lehigh Valley, nursing home administrators, union representatives, and healthcare executives warned state legislators that the current reimbursement system is not merely inadequate—We see actively driving facilities out of business. The hearing, hosted by Pennsylvania Senate Democratic Policy Committee Chair Nick Miller and Senators Patty Kim, James Malone, and John Kane, highlighted a systemic failure to align state funding with the actual cost of resident care.
The stakes are high: while seniors are the fastest-growing demographic in the Commonwealth, the capacity to care for them is retreating. According to data from LeadingAge PA, the state has seen a net loss of 37 nursing homes and more than 4,000 certified beds since 2020. This contraction comes at a critical juncture, as the population of Pennsylvanians over the age of 84 is projected to triple by 2050.
The result is a precarious environment where some facilities are intentionally leaving beds unfilled or delicensing them entirely, unable to discover the staff or the funding required to operate them safely.
The ‘Budget Adjustment Factor’ and Financial Instability
At the heart of the dispute is a mechanism known as the budget adjustment factor. Michael Jacobs, president and CEO of the Pennsylvania Healthcare Association, explained that the state uses a rate-setting system based on audited costs and resident acuity. However, the state then applies a budget adjustment factor to reduce those payments to fit within legislative appropriations.
Originally intended as a temporary measure roughly 20 years ago to manage rising costs, the factor has turn into a permanent fixture of the budget. Jacobs noted that it now results in providers being paid, on average, only 80% of what they would receive without the adjustment.
The financial impact of this gap is stark. Michael Smith, division president of Marquis Health Consulting, testified that providers are experiencing an average loss of $63 per resident per day under the current rate. This instability is compounded by the fact that these rates can fluctuate multiple times a year, creating “quarterly shocks” that make long-term planning nearly impossible.
“This is just not an accounting problem. It has real consequences inside buildings and in communities,” Jacobs said. “The real-world, day-to-day impact on providers is that they cannot responsibly commit to long-term wage increases, retention bonuses, capital improvements or operational investments when their primary revenue source is subjected to quarterly shocks.”
The Medicaid Dependency Trap
The financial strain is exacerbated by the high percentage of residents relying on public assistance. Jacobs stated that 70% of nursing home residents rely on Medicaid. As Medicare and Medicaid often fail to cover the full cost of care, facilities typically rely on private-pay residents to offset the deficit. However, as residents exhaust their private savings, they transition to Medicaid, further increasing the facility’s reliance on underfunded state rates.
Adding to the burden is the administrative lag in state approvals. Mary Kay McMahon, president and CEO of Fellowship Community in Whitehall Township, described the “glacial pace” of the Medicaid application process, which can leave facilities floating for three months or more without compensation.
“As of today, I have $235,000 that is sitting in a Medicaid pending bucket, so to speak, that You can’t access, that we can’t do anything with until the Medicaid applications obtain approved,” McMahon said.
From Balance Sheets to Bedside: The Human Cost
The roundtable made it clear that financial deficits translate directly into staffing shortages and professional burnout. Louise Santee, a certified nursing assistant, med tech, and union president at Phoebe Allentown, recounted a stark shift in workplace conditions. She noted that when she first joined Phoebe, there was a waiting list of job seekers; today, the facility faces the same chronic shortages as the rest of the industry.
Santee described a decline in staffing ratios, noting that floors once managed by five aides and a dedicated bath person are now often managed by only four aides for 48 to 50 residents. This environment, she argued, creates a cycle of turnover where inexperienced new hires are “thrown into the deep conclude,” overwhelmed and undercompensated.
The crisis extends to the executive level. Rhea Goodwin, regional director of operations at Eden East Healthcare Management, testified that the systemic pressure is pushing committed leaders to the brink of resignation.
“Over the past six years, I’ve seen strong, committed leaders, people that I would trust leading the care of my own family, reach a point where they simply cannot do it anymore,” Goodwin said. “Not because they don’t care, but because the system they are working in [is] pushing them beyond what is reasonable.”
Proposed Legislative Remedies
Industry leaders are urging the General Assembly to move beyond incremental tweaks and implement a structural floor for compensation. Jacobs requested that the state set a minimum compensation floor of 90% of the pre-budget adjusted amount. While this would cost the state approximately $400 million in the following fiscal year, advocates argue it is a necessary investment to prevent further facility closures.
| Metric | Current Impact/Status | Proposed Change/Goal |
|---|---|---|
| Avg. Reimbursement | ~80% of cost (via BAF) | Minimum 90% floor |
| Daily Loss | $63 per resident/day | Stabilized operational cost |
| Bed Capacity | 4,000+ beds lost since 2020 | Stabilize/Expand for 2050 growth |
| State Cost | Current appropriations | +$400 million (estimated) |
Beyond the 90% floor, the Pennsylvania Healthcare Association has called for the state to consider “sunsetting” the budget adjustment factor entirely to restore a predictable, cost-based payment system.
Disclaimer: This report discusses healthcare reimbursement policy and financial projections; it does not constitute financial or legal advice.
The next phase of this effort will center on the legislative renewal of the budget adjustment factor this year. Whether lawmakers will commit the $400 million required to stabilize the floor remains the primary question for the upcoming fiscal cycle.
We wish to hear from you. Does your community have enough long-term care options? Share your thoughts in the comments or share this story to join the conversation.
