U.S. Faces Challenges in Nursing Facility Staffing and Compensation

On August 4, 2025, the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) released a report analyzing Medicaid spending on direct care compensation in nursing facilities. The report examines the proportion of Medicaid payments allocated to direct care staff wages and benefits, highlighting trends and disparities across states and facilities. It also assesses the impact of these spending patterns on staffing levels and quality of care. The findings raise questions about the adequacy of compensation for direct care workers and its implications for patient outcomes. The report is available on the HHS OIG website.

The OIG's analysis focused on 26 nursing facilities between 2018 and 2021. Seventeen of these facilities increased the percentage of Medicaid reimbursement spent on direct care compensation during this period. However, among these 17 facilities, 12 experienced decreases in nursing hours per resident day, suggesting that increased spending did not necessarily translate to improved staffing levels. Additionally, nine facilities decreased the percentage of Medicaid funds allocated to direct care compensation, and two facilities underwent ownership changes, highlighting the complexity of ownership structures in nursing facilities.

Medicaid serves as a primary payer for long-term care services in the United States, covering approximately 44% of institutional long-term care costs in 2023. Despite this significant role, Medicaid payments often fall short of covering the actual costs incurred by nursing facilities. A 2024 report found that, on average, Medicaid payment rates covered only 82% of the costs associated with providing care to Medicaid residents. For nearly 40% of nursing homes, Medicaid per diem payments covered 80% or less of their estimated per diem costs.

Direct care workers, including certified nursing assistants (CNAs), home health aides, and personal care aides, are essential to providing quality care in nursing facilities. However, these workers often face low wages, high turnover rates, and limited benefits. In 2022, there were nearly 3 million direct care workers in the U.S., predominantly female (87%) and low-wage (65%). Over one-quarter were Black (28%), and over four in ten were aged 50 or older (41%).

The COVID-19 pandemic exacerbated staffing shortages in nursing homes, leading to increased reliance on contract staffing. A study found that the proportion of total CNA hours filled by contract CNAs in skilled nursing facilities increased from 2% in 2017 to 11% in 2022. The study also noted that the use of contract staffing was associated with worse care quality outcomes.

In response to these challenges, both state and federal governments have implemented measures to improve compensation and staffing levels in nursing facilities. Several states have increased Medicaid reimbursement rates and implemented policies to ensure funds are directed toward direct care worker wages. For example, Illinois enacted nursing home rate reform legislation in 2022 that ties new funding to staffing levels and improvements in key quality measures. The reform includes a new pay scale for CNAs, increasing wages based on years of experience.

At the federal level, the Biden administration announced new regulations to establish mandated staffing levels in nursing homes, a historic move responding to concerns highlighted by massive COVID-19 deaths. The proposed rules, which will undergo a public comment period before full implementation, set a threshold for staffing at 3 hours per resident per day, with an RN present 24/7. This falls short of the 4.1 hours recommended by a 2001 study, and advocates view the proposal as inadequate, potentially missing a significant opportunity for reform. The American Health Care Association criticized the proposal as unrealistic and costly, while some advocates and industry leaders argued the staffing requirements are unattainable amidst a workforce shortage in the sector.

The findings of the OIG report and related studies have significant implications for the quality of care in nursing facilities and the well-being of direct care workers. Inadequate compensation and staffing levels can lead to lower quality of care for residents, including increased health risks and decreased patient satisfaction. Low wages and high turnover rates among direct care workers contribute to staffing shortages, affecting the stability and reliability of care provided in nursing facilities. The financial strain on nursing facilities due to insufficient Medicaid reimbursements may lead to facility closures or reduced services, impacting access to care for vulnerable populations.

The OIG report underscores the need for a comprehensive review of Medicaid reimbursement policies and their impact on nursing home staffing and quality of care. Addressing these disparities is crucial to ensure that direct care workers receive adequate compensation and that residents receive the quality care they deserve.