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DHS outlines nursing facility payment shift to PDPM and proposes wage-floor increases
Summary
DHS told the committee it must transition nursing facility reimbursement from the RUG system to the federal PDPM model, and proposed limits to value-based payment inflation adjustments alongside funding to implement wage floors and workforce standards in nursing homes.
Assistant Commissioner Natasha Mears and DHS budget staff told lawmakers the federal government is moving nursing facility reimbursement away from the RUG (resource utilization group) model toward the PDPM (patient-driven payment model), and Minnesota must transition to maintain federal compliance and funding.
Mears said the governor's package includes funding to implement PDPM and also proposes reductions to some elements of Minnesota's existing value-based reimbursement (VBR) system: repealing an annual alternative payment system property rate inflation, phasing out closure-rate agreements and single-bed incentives, and limiting the rate inputs for health insurance costs so annual operating-cost inflation is capped at 2%.
The nut graf: DHS framed the proposal as both necessary for federal compliance and as part of a broader effort to manage rate growth while also funding wage increases required under the nursing home workforce standards board.
DHS also proposed funding to enact wage increases tied to the workforce standards board: a phased increase with a wage floor that the department described as rising from $19 to $27 per hour (effective Jan. 1, 2026) for certain staff categories and further increases in later years. Mears said different staff types (unlicensed vs. licensed) would have different wage targets and that the rates are phased in during the biennium.
Ending: DHS staff said the nursing facility proposals aim to balance provider payment compliance, workforce compensation and cost containment; lawmakers asked for more detail on implementation and fiscal impacts.
