The Ohio Department of Medicaid must recalculate how much it pays nursing homes for care because it provided less funding for incentives to high-quality providers than required by state law, the Supreme Court of Ohio ruled today.

In a unanimous per curiam opinion , the Supreme Court ruled in favor of associations representing nursing homes that claimed the Medicaid department did not follow changes directed in statutory amendments that were passed with the 2024-2025 state budget. The associations argued that state lawmakers intended to provide more funding to homes based on quality incentive scores rather than just the annual increase in prices to provide care.

“The department’s interpretation does not reflect what the enacted legislation says, and it dramatically shortchanges the statutorily mandated increase to the quality-incentive pool,” the Court stated.

The Court granted a writ of mandamus to the nursing homes, directing the department to recalculate a portion of Medicaid payments using a formula specified in R.C. 5165.26. The department argued the claim was moot because the state fiscal year ended in June 2025, and all the funds for nursing homes were allocated. The Court noted that while the funding cycle had ended, the formula remains in state law and is still used to determine reimbursements.

Funding Formula Disputed
Ohio has about 926 Medicaid-certified nursing homes providing care to about 66,000 individuals, most of whom are elderly. Medicaid pays for the care of about 65% of all Ohio nursing home residents. Nursing homes are paid through a daily payment rate for each day of care that a resident receives in a facility.

State statutes provide a method for calculating how much Medicaid will pay a particular nursing home for each day of care it provides to a resident. The formula is complex because of the various factors that go into the determination.

Three groups advocating for nursing homes, LeadingAge Ohio, the Ohio Health Care Association, and the Academy of Senior Health Services, asserted the department did not follow a formula enacted by state lawmakers to increase funding for care. After the department rejected their claims, the groups asked the Supreme Court to require the department to recalculate its payments.

Part of the funding nursing homes receive is based on the “rate for direct care costs.” Another factor is the “quality incentive payment rate.” Funding quality incentives comes from a quality incentive pool that the department is required by law to establish. Within the 2024-2025 budget legislation, the legislature amended the funding formula to prioritize quality incentives.

The department determines a base rate to pay nursing homes for care through a process called “rebasing.” Rebasing refers to the process of updating or recalculating the base rates used to determine reimbursement amounts. The formula shifted the total Medicaid reimbursement rate to increase the amount of money in the quality incentive pool after the department completed its rebasing.

Each nursing home is given a “case mix score,” which reflects the complexity of care offered at the home. The department then assembles groups of nursing homes based on the case mix scores. A base rate is created for each group of nursing homes and is periodically rebased. The department calls this figure the “price of care,” or “price.” In addition, every two years, each nursing home’s case mix score is evaluated to determine the level of care it provides and what group it is placed in.

The cost of direct care is determined by the price, which depends on which group a nursing home is in, multiplied by the home’s actual case mix score. Each nursing home also receives payment based on its quality care score. The department scores each nursing home on its quality, and the more quality points a home earns, the higher the amount of funding the home receives from the quality care pool.

The associations argued that the change in the state formula was designed to make the quality care pool larger, so each quality point would earn more funding. The pool funding amount was to be calculated based on any increase in the “rate for direct care costs due to the rebasing conducted.”

The department maintained that while the law directed it to use the “direct care costs,” the rate that changes because of rebasing is the price. The department interpreted the law to mean that the increase for the incentive pool should be calculated using the price. The associations argued that the price is just part of the direct care costs, and by using the price, the department vastly reduced the amount of extra funding it should have added to the quality incentive pool.

Supreme Court Analyzed Spending Law
The Court stated the language in the budget bill is unambiguous and R.C. 5165.26(E)(1) specifies the formula is based on “the nursing facility’s rate for direct care costs.” The opinion found the department’s argument that the rate should be based on the price is faulty because not only is the price of care impacted by rebasing, but so are the direct care costs.

“So, the change in the price in a given nursing-home group as a result of rebasing factors into the change in the individual nursing home’s rate for direct care as a result of rebasing,” the Court explained.

The Court presented an example to illustrate the impact of the department’s calculation. If the price for a resident was set at $150 for the first year and changed to $200 for the second year, then the change in price is $50. If a nursing home had a case mix score of 2, then the rate of direct care costs would be $150 multiplied by two, which is $300. An increase in the direct care costs ($50 increase multiplied by two) would jump to $400. The difference would be $100.

The formula called for directing 60% of the increase into the quality pool. If the increase were based on price, which the department used, it would place 60% of $50 in the pool for a total of $30. If the increase were 60% of the direct care costs, which was $100, then $60 would go into the pool.

Using the direct care cost increases the amount of money based on the complexity of care in every nursing home, regardless of whether the homes provide low-quality care or high-quality care, the opinion noted. However, the higher-quality nursing homes will get a larger share of the pool, the Court stated.

Envisioning the pool as a pie, the Court noted the formula change made the pie bigger, and each slice of the pie will also be bigger, the opinion stated.

“With a bigger pie, each slice will be larger. Every nursing home will get more for its quality points,” the Court explained.

2024-1075. State ex rel. LeadingAge Ohio v. Ohio Dept. of Medicaid, Slip Opinion No. 2025-Ohio-3066.