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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 under the 2025 budget reconciliation law. At least 15 states use the payments; Pennsylvania accounts for an estimated $1 billion in federal funding. The effect on facilities and resident access is not yet known and will depend on federal rules and state implementation.
A KFF News analysis published Wednesday estimates that new federal limits on Medicaid state-directed payments could put $2.2 billion in annual federal funding for nursing home services at risk, raising concerns about provider finances and residents’ access to Medicaid beds. The analysis estimates that such payments total $3.7 billion a year nationwide, but the precise effects of the 2025 budget reconciliation law remain uncertain.
State-directed payments, or SDPs, are payments states use to increase Medicaid reimbursement to nursing homes and other health care providers. The 2025 federal budget reconciliation law, commonly called the One Big Beautiful Bill Act (OBBBA), introduces new limits on the payments. KFF’s analysis estimates that nearly 60% of the $3.7 billion annual nursing home total comes from federal funding. At least 15 states use these payments.
Pennsylvania represents the largest share in the analysis, with an estimated $1 billion in federal funding annually—nearly 47% of the $2.2 billion federal total. Payments in Texas, New Mexico, Rhode Island, Illinois and Indiana may also be affected, although the analysis does not establish the extent of potential changes in those states.
The analysis and provider representatives warn that lower payments could place pressure on nursing home finances, potentially affecting services or the number of beds available to Medicaid residents. Those are possible consequences, not confirmed outcomes. Experts say more state-level payment information and comparisons with Medicare rates are needed to estimate how facilities would be affected.
Potential Effects on Medicaid Beds
The payments matter because Medicaid pays for care for many nursing home residents, while providers say reimbursement can fall short of the cost of delivering that care. If federal limits reduce state-directed payments, some facilities could face added financial pressure. The analysis says that might affect services or the availability of Medicaid beds, but it does not quantify likely changes in staffing, facility operations or resident access.
The scale of Pennsylvania’s estimated federal share makes the state a major focus of concern. Yet the national total should not be read as a forecast that all $2.2 billion will disappear: the amount affected will depend on the final federal requirements and how each state adjusts its payment arrangements. The difference matters to residents and families weighing whether facilities will continue accepting Medicaid residents, and to state officials responsible for maintaining access to care.
Provider groups are calling for policymakers to protect care access as rules are developed. Their concerns describe potential risks; the available analysis does not confirm that specific facilities will cut services or beds.
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How State Payments Enter the Picture
SDPs are one mechanism states use to raise Medicaid payments to providers. Nursing homes rely on Medicaid funding for residents whose care is covered through the program. Under OBBBA, federal limits apply to these arrangements, but the source report says detailed effects will hinge on the eventual federal rule and its implementation.
Pennsylvania’s figures also depend on how facilities are grouped and payment rates are measured. Pennsylvania Health Care Association President and CEO Zach Shamberg said KFF’s estimate draws on the state’s 2025 payment rate of 74.6% of average commercial rates, combining county and nonpublic facilities. He noted that Pennsylvania’s 2026 filing separates the categories, listing 48.5% for nonpublic facilities and 97.5% for county facilities. The distinction may affect how the potential impact is assessed across provider types.
The source report identifies no final state-by-state accounting of losses. It also says estimates need more detailed payment data and comparisons with Medicare rates before the financial effect on individual providers can be judged.
“Pennsylvania potentially has more at stake than any state in the country, as payments will be capped that help close the gap between what Medicaid pays and what care actually costs.”
— Zach Shamberg, chief of government affairs at Saber Healthcare Group, speaking to Skilled Nursing News
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Final Rules and State Effects
The final size and distribution of any funding reduction are not established. The source report says it is too early to gauge the effect on Pennsylvania’s Medicaid program or individual nursing homes because the outcome depends on federal requirements and implementation. It does not provide a final CMS rule, a facility-by-facility estimate or a definitive timeline for changes across states.
It also remains unclear whether facilities would respond by changing services, staffing, Medicaid bed capacity or other operations. The $2.2 billion figure is an estimate of federal funding associated with nursing home state-directed payments, not a confirmed amount that will be cut. State payment structures differ, and Pennsylvania’s rates vary between county and nonpublic facilities.
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Federal Guidance and State Responses
The next major step is the federal rulemaking and implementation process. Shamberg urged the Centers for Medicare and Medicaid Services to account for resident care before finalizing requirements and said his organization expects to work with members of Congress and Pennsylvania officials. The source report does not give a date for a final rule.
State Medicaid agencies, governors and lawmakers will need to assess how the limits apply to their payment structures. Kane said his organization is working with state affiliates to identify practical responses, including protecting base Medicaid reimbursement and preserving access to care. More state-level payment data and clarity on federal requirements will be needed before the financial effect on individual facilities can be estimated.
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Key Questions
What does the $2.2 billion figure represent?
It is KFF’s estimate of annual federal funding included in nursing home state-directed payments nationwide. It is not a confirmed amount that will be cut.
Which state has the largest estimated share?
Pennsylvania, with an estimated $1 billion a year in federal funding in the analysis—nearly 47% of the national federal total.
Will nursing homes lose Medicaid beds?
That is not known. The analysis says reduced payments could put pressure on providers and may affect Medicaid bed availability, but it does not confirm that beds will be removed or estimate how many.
When could the limits affect payments?
The source report says a Saber Healthcare representative warned payments may begin to shrink each year starting in 2028. The timing and extent depend on federal requirements and implementation; the report does not provide a finalized schedule.
What information is still needed to estimate the impact?
Experts say more detailed state-level payment data, comparisons with Medicare rates, and clarity about the final federal rule are needed to assess effects on states and individual providers.
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