How Do Nursing Homes Get Paid? 2025 Guide to Manage Billing 

When you’re managing a nursing home, clear answers about payment can be hard to come by. How do nursing homes get paid? Who covers the cost of care, and just as importantly, who pays for medications in a nursing home? The answers often depend on a mix of programs, policies, and the specific needs of each resident.

In this article, we’ll cover:

• The main sources of payment for nursing homes

• What Medicare and Medicaid actually cover, and what they leave out

• How facilities handle unpaid bills and the real costs residents and their families face

By the end, you’ll have a clearer view of how payment systems work — and how to navigate them confidently in your facility.

The role of Medicare, Medicaid, private pay, and long-term care insurance

Most nursing homes rely on a combination of payment sources to keep operations running smoothly. The four primary payers are Medicare, Medicaid, private pay (out-of-pocket payments from residents or families), and long-term care insurance.

Here’s how they differ:

• Medicare covers short-term, medically necessary care. For example, after a qualifying hospital stay, Medicare Part A can pay for skilled nursing care, rehabilitation services, and certain therapies. However, coverage is limited — typically up to 100 days — and residents must meet specific eligibility criteria.
  
  

• Medicaid plays a much larger role for long-term residents. In fact, Medicaid is the largest payer of nursing home care in the United States. It covers room and board, nursing care, and other necessary services for residents who meet both financial and medical eligibility requirements.
  
  

• Private pay refers to residents or their families paying directly for care. This is common for those who do not qualify for Medicaid or have exhausted other benefits. Private pay rates are usually higher than Medicaid reimbursement rates.
  
  

• Long-term care insurance can help cover services that aren’t fully paid by Medicare or Medicaid. However, not every resident has this coverage, and policies vary widely in terms of what they reimburse and for how long.

For most facilities, balancing these payers is part of daily operations. Understanding the differences between them is essential for predicting revenue, managing costs, and planning for census changes.

Why does the payment source matter?

The source of payment influences many aspects of care delivery. For example, facilities with a higher proportion of private pay residents often have more financial flexibility. However, focusing too heavily on one payer type can be risky. Diversifying your payer mix helps protect against changes in policy, reimbursement cuts, or shifts in resident demographics.

Payment sources affect:

• Bed availability: Some beds may be designated for Medicare-covered rehab stays, while others are reserved for long-term Medicaid residents.
  
  

• Reimbursements: Medicare offers higher daily reimbursement rates, but only for short-term stays. In contrast, Medicaid reimbursement rates are typically lower than private pay rates.
  
  

• Care levels: Short-term Medicare stays tend to focus on post-acute recovery, while long-term Medicaid residents require ongoing support.

Public vs. private nursing home funding models

Nursing homes typically operate under one of two broad funding models: public or private.

Publicly funded facilities are supported primarily by government programs such as Medicaid or Veterans Affairs benefits. These facilities often serve residents with limited personal resources and rely heavily on state and federal reimbursements.

Privately funded facilities depend more on private pay residents and insurance reimbursements. These nursing homes might have additional amenities and services, but they also face different financial pressures, especially if occupancy rates fluctuate.

Both models come with their own challenges. Publicly funded homes may deal with lower reimbursement rates and budget constraints, while privately funded facilities must continuously attract residents who can afford out-of-pocket costs or have adequate insurance coverage.

Medicare and nursing homes: Does Medicare pay for nursing home care?

This is one of the most common questions nursing home administrators face. The short answer is, yes, but only under specific conditions. Medicare helps cover short-term care in a skilled nursing facility (SNF), but it does not pay for long-term custodial care.

To qualify, a resident must have had a hospital stay of at least three consecutive days and require daily skilled nursing or rehabilitation services. Eligible patients are only covered in Medicare-approved facilities.

It’s important to set clear expectations with residents and their families early in the admission process. Many assume Medicare will pay for ongoing nursing home care, when in reality, coverage is limited and ends once the patient no longer meets eligibility criteria for skilled care.

What Medicare Part A covers

Medicare Part A is the portion of the program that covers inpatient care, including stays in a skilled nursing facility following hospitalization. Specifically, it covers:

• Semiprivate room

• Meals

• Skilled nursing care

• Physical, occupational, and speech therapy

• Medical social services

• Medications, medical supplies, and equipment used in the facility

• Ambulance transportation (if needed)

• Dietary counseling

Coverage under Part A typically extends up to 100 days per benefit period, with the first 20 days covered in full and daily coinsurance required for days 21 to 100 ($209.50 per day as of 2025). After 100 days, Medicare coverage ends unless the patient qualifies for a new benefit period, which requires another hospital stay.

What Medicare doesn’t cover

Medicare does not pay for what is often called custodial care — help with daily living activities like bathing, dressing, and eating, when those are the only needs. 

Moreover, it does not cover long-term residential care in a nursing home once a patient’s skilled care needs have ended.

For administrators, this means that once a resident no longer qualifies for Medicare, the facility must work with the resident or their family to arrange alternative payment sources, such as Medicaid or private pay.

It’s also worth noting that Medicare does not cover personal convenience items, private-duty nursing, or private rooms (unless medically necessary). Medications unrelated to the skilled care plan may also fall outside of Medicare coverage.

The impact of PDPM on reimbursements

The Patient-Driven Payment Model (PDPM), which replaced the previous RUG-IV system in 2019, reshaped how Medicare reimburses skilled nursing facilities. Instead of focusing on the amount of therapy provided, PDPM bases payment rates on resident characteristics and clinical needs.

For administrators, PDPM places greater emphasis on accurate documentation and coding at the time of admission. Factors such as the resident’s diagnosis, functional status, and co-existing conditions directly influence reimbursement rates.

PDPM aims to better align payments with patient needs, but it also increases pressure on facilities to capture detailed clinical information upfront. Missing or incomplete data can lead to lower payments, making strong intake processes and staff training essential.

Medicaid eligibility and long-term nursing home stays

Medicaid and the spend-down process

Medicaid is often the most important payer for long-term nursing home stays, but eligibility isn’t automatic. Residents must meet both financial and medical criteria to qualify. Generally, Medicaid is designed for individuals with limited income and assets.

Each state sets its own financial thresholds, but many require that a resident has less than a few thousand dollars in countable assets.

When a resident’s assets exceed the eligibility limit, they may go through a spend-down process — using their personal funds to pay for care until they qualify for Medicaid. This is a common path for residents who start as private pay but deplete their resources over time.

As an administrator, it’s crucial to monitor these transitions closely. Delays in paperwork or misunderstandings about spend-down rules can interrupt payment flow.

Facilities often assist families in understanding this process, but it’s worth emphasizing that state regulations can be complex. Staying updated and working with knowledgeable billing staff or consultants helps ensure that applications are processed smoothly.

What Medicaid covers in a nursing home

For residents who qualify, Medicaid covers a wide range of essential services in a nursing home. These include:

• Room and board

• Nursing services

• Assistance with activities of daily living such as bathing, dressing, and eating

• Medications (although coverage can vary, some non-covered items may still be billed to residents)

• Therapy services, when medically necessary

• Medical supplies and equipment used in the facility

However, Medicaid does not cover extras like private rooms (unless medically necessary) or personal items such as toiletries and clothing. In some cases, families may choose to pay for additional amenities out of pocket to supplement Medicaid-covered care.

For administrators, understanding exactly what Medicaid covers is critical to managing expectations with families and ensuring accurate billing.

How reimbursement rates vary by state

One of the biggest challenges with Medicaid is that reimbursement rates are not consistent nationwide. Each state sets its own payment structure, which means facilities in some regions receive significantly lower payments than others for the same level of care.

In some states, Medicaid rates may fall below the actual cost of providing care, creating financial pressure for nursing homes that serve a high percentage of Medicaid residents. Facilities often work to balance their payer mix to offset these lower rates and maintain financial health.

As an administrator, keeping track of your state’s Medicaid reimbursement policies — and any updates to them — is essential for accurate forecasting and budgeting.

Why is Medicaid the #1 payer for long-term care in the U.S.?

Despite its complexities and lower reimbursement rates, Medicaid remains the largest source of funding for long-term nursing home care in the United States. According to federal data, Medicaid pays for over 60% of nursing home residents nationwide.

This dominance is largely because private funds and insurance benefits often run out before a resident’s care needs come to an end. With rising costs of care and longer life expectancies, many residents eventually rely on Medicaid to cover ongoing expenses.

For facilities, this reality drives home the importance of building efficient Medicaid billing practices, ensuring staff understand eligibility rules, and maintaining open communication with residents and families about the program’s role in covering long-term care.

Private pay and out-of-pocket expenses 

Who pays for nursing home care if it’s not covered by insurance?

When Medicare coverage runs out and before Medicaid kicks in, many nursing home residents rely on private pay — meaning out-of-pocket payments from the resident themselves or their family. This is often the case for individuals who do not yet qualify for Medicaid, either because their income and assets are above the threshold or because they’re still going through the spend-down process.

From an administrative standpoint, this is a critical phase to manage. Private pay tends to provide higher reimbursement rates compared to Medicaid, but it comes with its own challenges.

Families might not be fully prepared for the financial burden, and delays in payment can occur if they’re navigating multiple funding sources or waiting for long-term care insurance claims to process.

It’s important to have clear billing policies and regular communication with families. Transparency about costs, payment timelines, and what is and isn’t covered helps prevent misunderstandings and delayed payments.

How much is a nursing home per month? 

In 2025, the national median cost for a private room in a nursing home is approximately $10,300 per month, while a semiprivate room averages around $9,200 per month. Notably, the average monthly cost of nursing home care varies by state, region, and the level of care required.

For administrators, understanding these benchmarks is helpful when discussing care plans with families. Costs can rise based on factors such as specialized care needs, staffing ratios, and facility amenities. Some families may anticipate rates closer to assisted living costs (which are much lower), so clear upfront conversations are key.

Providing cost estimates during the admission process, including potential increases based on the resident’s health changes, sets expectations and can reduce financial disputes later.

Assisted living vs. SNF costs

Assisted living facilities and SNFs serve different populations, and their costs reflect that difference:

• Assisted living is generally less expensive, with national averages around $4,500 per month. These facilities typically support residents who need help with daily activities but not continuous skilled nursing care.
  
  

• Skilled nursing facilities provide 24/7 medical supervision, rehabilitation services, and more intensive clinical care. As mentioned, monthly costs often exceed $9,000, depending on room type and location.

For administrators, it’s worth understanding how families perceive these differences. Some families might not fully realize the higher cost of SNF care, especially if they’re comparing rates with assisted living communities.

Explaining the reasons for the price difference — such as staffing levels, medical services, and regulatory requirements — helps families make informed decisions and prepares them for financial planning.

Long-term care insurance as a payment source

Long-term care insurance coverage varies widely, with some policies covering only specific services or facilities, while others provide daily benefits up to a certain amount, regardless of actual costs.   

As an administrator, you’ll likely work with a variety of long-term care insurance plans. Familiarity with common policy terms (like elimination periods, daily benefit limits, and inflation protection) will help your billing team process claims efficiently and guide families through their options.

One of the most practical steps you can take is to verify insurance details early in the admissions process. This helps prevent delays in payment and ensures that both the facility and the resident’s family understand what will and won’t be covered.

While long-term care insurance is not as widely held as health insurance, for residents who have it, it can be a critical bridge between private pay and Medicaid eligibility.

Other sources of nursing home payment

Veterans benefits (VA Aid and Attendance)

For eligible veterans and their spouses, VA Aid and Attendance benefits can help cover nursing home costs. This program provides monthly payments to veterans who require assistance with daily living activities. It’s not limited to care in VA facilities — eligible residents in private nursing homes can also receive this benefit.

The amount varies based on the veteran’s service record, marital status, and level of need. For administrators, it’s useful to be aware of this option, especially if you serve residents with military backgrounds. While the application process can be lengthy, helping families understand the potential benefits of applying can relieve some of their financial pressure.

Keep in mind, though, that VA benefits often supplement other payment sources rather than fully covering nursing home costs. Coordination with private pay, Medicaid, or insurance remains essential.

Employer retirement plans and pensions

Some residents use funds directly from their retirement accounts, such as 401(k)s, IRAs, or defined-benefit pension plans, to pay for their nursing home care.

While these funds are personal and controlled by the resident, administrators should still be aware of them during financial discussions. Retirement income can help sustain private pay status for longer periods before Medicaid eligibility is necessary.

It’s helpful to encourage families to plan for long-term care costs early, especially since retirement savings can diminish quickly with nursing home expenses.

Long-term care annuities

Long-term care annuities are another, though less common, option. These financial products provide regular payments specifically earmarked for covering long-term care expenses, including nursing home costs.

For residents who have purchased these annuities, payouts can help extend private pay periods or fill coverage gaps left by insurance or Medicare limitations.

However, they usually require a lump-sum investment upfront and are more common among residents who have planned for care well in advance.

From an administrative perspective, understanding whether a resident has a long-term care annuity can help you anticipate their payment ability and structure billing schedules accordingly.

Supplemental Medigap insurance (limited use cases)

Medigap policies, also known as Medicare Supplement Insurance, are designed to cover out-of-pocket costs associated with Medicare services — such as co-payments, coinsurance, and deductibles. However, it’s important to clarify that Medigap does not cover long-term nursing home care or custodial care costs.

Where Medigap can be helpful is in covering some of the expenses during a Medicare-covered SNF stay, like coinsurance for days 21 to 100 of skilled nursing care. After Medicare benefits end, Medigap no longer applies to nursing home services.

For billing teams, this means Medigap may reduce short-term out-of-pocket costs for residents during a Medicare benefit period, but it will not replace private pay or Medicaid for long-term expenses.

Early verification of residents' Medigap coverage helps prevent confusion about what is covered and supports more accurate billing conversations with families.

Who pays for medications in a nursing home?

Medications are a major part of nursing home care, but figuring out who pays for them — and how — isn’t always straightforward. Coverage depends on the resident’s insurance, the type of medication, and the facility’s billing practices.

Medicare Part D and prescription drug plans

For residents with Medicare, most prescription medications are covered under Medicare Part D — not Part A or B. Part D plans vary, but they typically cover a wide range of prescription drugs used to manage chronic and acute conditions.

These plans are managed by private insurers approved by Medicare, and residents must be enrolled in a plan to receive drug coverage.

Facilities that participate in Medicare typically work with long-term care pharmacies that are contracted with multiple Part D plans. These pharmacies bill the plans directly, but coverage still depends on whether the medication is listed on the resident’s specific plan formulary.

Keep in mind that:

• Copays and coinsurance may still apply, especially during the coverage gap (donut hole).

• If a drug isn’t covered, residents or families may have to pay out of pocket unless an exception is granted.

Medicaid-covered drugs vs. uncovered items

Medicaid also provides prescription drug coverage, but the rules differ by state. Medicaid generally covers drugs that are medically necessary and included on the state’s preferred drug list. For dual-eligible residents (those with both Medicare and Medicaid), Medicare Part D typically pays first, and Medicaid may help with cost-sharing.

However, not all medications are covered. Some brand-name drugs or non-essential treatments may be excluded. In these cases, the nursing home may:

• Seek an alternative covered drug.

• Request prior authorization or an exception.

• Bill the resident or family if no coverage applies.

Over-the-counter medication policies

OTC medications like acetaminophen, laxatives, or antihistamines may or may not be covered, depending on the payer. Medicare Part D and Medicaid generally do not cover OTC drugs, unless they are prescribed and medically necessary under certain state Medicaid programs.

Facilities often keep a stock of common OTC medications for routine use. In some cases, the cost of these is included in the facility’s daily rate; in others, they may be itemized and billed separately to the resident or their family.

How facilities bill residents or families for non-covered meds

When medications fall outside of Medicare or Medicaid coverage (or if a resident is private pay), facilities may need to bill the resident or family directly. This typically happens when:

• The medication isn’t on the Part D formulary and no alternative is used.

• A non-covered OTC or supplement is requested.

• A resident prefers a brand-name drug when a generic is covered.

To avoid confusion and billing disputes, it’s essential for facilities to:

• Clearly explain medication billing policies at admission.

• Regularly review coverage and copay requirements with families.

• Obtain consent for any medications that will incur out-of-pocket costs.

How do you handle unpaid nursing home bills?

No matter how well a facility plans, unpaid nursing home bills can and do happen. Whether it’s an insurer delay or a family caught off-guard by rising costs, unpaid balances place strain on your cash flow and operations.

What happens when a resident or insurer doesn’t pay?

When payments stall, the first step is always diagnosis. Insurance denials often come down to documentation gaps or eligibility errors.

On the resident side, unpaid bills usually surface when private funds are depleted before Medicaid kicks in, or when families face unexpected out-of-pocket costs.

The financial impact can build quickly, not just in terms of delayed cash flow, but also in administrative time spent chasing down payments. Early identification of these cases allows your team to act before accounts become severely overdue.

Facility strategies: Payment plans, collections, discharge notices

There’s no single approach to handling unpaid bills. But, the goal is always the same: Resolve the issue while preserving the resident relationship.

Some facilities offer payment plans, giving families manageable monthly schedules to settle outstanding balances. 

Others prioritize early conversations, so families understand financial obligations upfront and can plan accordingly. 

In rare cases, formal collection processes or discharge notices may become necessary, though these steps require careful compliance with state and federal regulations.

The best practice is to treat financial discussions with as much care as any clinical conversation. Keeping lines of communication open often prevents disputes from escalating.

Ethical considerations around billing disputes

Families navigating unpaid nursing home bills are often under significant emotional stress. Billing disputes, if handled poorly, can damage trust and reputation.

It’s important to approach these situations with empathy:

• Make sure your billing communications are clear and respectful.

• Offer to walk families through their statements in person or over the phone.

• If possible, provide resources for financial counseling or assistance programs.

By addressing disputes with transparency and patience, you protect both your facility’s integrity and your residents’ peace of mind.

Challenges in getting paid for nursing home care

For nursing homes, getting paid isn’t always straightforward. Even when services are delivered flawlessly, payments can lag due to a mix of external delays and internal errors. 

Denials due to documentation or eligibility

Most payment denials arise from incomplete or inaccurate paperwork, particularly with government payers like Medicare and Medicaid. Small mistakes (a missing physician signature, incorrect coding, or incomplete therapy notes) can lead to claim rejections.

The solution starts with training. Ensuring your intake and clinical teams understand documentation requirements improves your approval rates and reduces time spent on appeals.

Slow payer timelines, especially with Medicaid

Medicaid, in particular, is known for long processing times. Even clean claims can sit for weeks before payment arrives, which puts pressure on your cash flow.

To manage this, many facilities maintain close tracking of submitted claims and follow up with payers at regular intervals. Factoring expected delays into your financial planning helps you avoid surprises and keeps your operations running smoothly.

Multi-payer coordination and secondary billing

When residents have multiple sources of payment (like Medicare primary and Medicaid secondary), keeping billing sequences straight can be a challenge. Unlike single-payer claims, these require careful coordination to ensure claims are submitted in the correct order and all obligations are met.

Facilities that succeed here typically have strong systems in place for tracking payer details and changes over time. Keeping this information current prevents billing errors and speeds up reimbursements.

The role of pre-admission verification

One of the most effective ways to avoid billing problems is to address them before admission. Verifying insurance coverage and eligibility at the outset helps you:

• Confirm who will be responsible for payment.

• Identify potential coverage gaps.

• Set realistic expectations with the resident and family.

Facilities that invest in thorough pre-admission checks see fewer denials and smoother payment cycles. It’s a simple step that pays dividends in operational stability.

How technology supports payment processes

For many nursing homes, payment delays and billing errors create real operational risks. Manual processes, especially across multiple payer types, leave too much room for mistakes. But technology is changing that. With the right tools in place, facilities can reduce errors, speed up verification, and keep better track of their revenue cycles.

Here’s how technology is helping facilities strengthen their payment processes:

Real-time insurance verification

Waiting until after admission to verify coverage is one of the most common mistakes that leads to billing problems. Modern systems allow your team to check insurance eligibility in real time, before the resident even arrives.

This means you can:

• Confirm coverage immediately.

• Identify missing authorizations upfront.

• Clarify payer responsibilities early, avoiding surprises later.

For administrators, this level of insight at the start of care can make a significant difference in avoiding claim denials and delays.

Reducing billing errors at intake

A large portion of billing issues start at intake, from data entry mistakes to missed insurance details. Technology helps by automating data capture and integrating directly with referral packets and EHR systems.

Instead of relying solely on manual entry, your team can:

• Auto-populate resident and insurance details from verified sources.

• Minimize typos and omissions.

• Ensure all required fields are completed before moving forward.

The result is cleaner admissions and fewer errors downstream in the billing process.

Supporting claims with clean documentation

Even the best billing system can’t succeed without proper documentation. Today’s software tools help ensure that your records meet payer requirements by flagging incomplete notes, missing signatures, or inconsistent information before claims are submitted.

Analytics to track payer mix, claim success, and AR aging

Analytics tools give administrators a detailed view of the entire billing cycle. With the right reporting in place, you can:

• Monitor payer mix to balance private pay, Medicaid, and Medicare residents.

• Track claim acceptance rates to spot issues early.

• Keep an eye on accounts receivable aging to follow up before payments become overdue.

Having this visibility enables you to make informed decisions, adjust strategies, and maintain healthier cash flow over time.

Frequently asked questions

1. How do nursing homes get paid if a patient has no insurance?

If a patient has no insurance, nursing homes typically rely on private pay from the resident or their family. The facility may set up a payment plan or assist the family in applying for Medicaid if the resident qualifies. Early financial discussions help avoid gaps in payment and clarify responsibilities.

2. What is the average cost of a nursing home per month?

On average, nursing home care costs around $9,200 per month for a semi-private room and $10,300 or more for a private room, though actual prices vary depending on location, length of stay, and level of care required.

For example, in 2025, the median monthly cost for a semi-private room ranges from $5,647 in Texas to nearly $19,845 in Alaska. Additional services and higher staffing needs can drive prices up, so it’s important to provide families with a detailed cost breakdown during the admissions process.

3. What’s the difference between Medicare and Medicaid in nursing homes?

Medicare primarily covers short-term stays for skilled nursing care after a qualifying hospital admission, typically up to 100 days. Medicaid, on the other hand, covers long-term care for residents who meet both medical and financial eligibility, and it remains the largest payer for ongoing nursing home care in the U.S.

4. What happens when nursing home bills go unpaid?

Unpaid bills can lead to increased administrative follow-up and potential cash flow issues for the facility. Facilities may work with families on payment plans, pursue collections if necessary, or initiate discharge notices in line with legal requirements. Early communication is essential to resolving unpaid balances.

5. Can a nursing home force a resident to leave for nonpayment?

Yes, but only under strict regulations. If reasonable efforts to collect payment fail, and the resident is not eligible for Medicaid or other assistance, the facility may issue a discharge notice. However, this process requires proper notice and must comply with state and federal laws to protect resident rights.

6. What role does insurance verification play in payment success?

Insurance verification can prevent denied claims and payment delays. By confirming coverage details before admission, facilities ensure they understand payer responsibilities and catch potential issues early. This proactive step supports smoother billing cycles and fewer financial surprises.

Screen your nursing home patients better to prevent payment issues

So, how do nursing homes get paid? As you’ve seen throughout this guide, securing timely payments is about more than just billing departments chasing claims. Securing payment starts much earlier: with accurate admissions processes, a clear understanding of payer sources, and strong pre-admission verification.

The sooner your team can confirm coverage details, assess clinical and financial risks, and align expectations with families, the fewer payment issues you’ll face down the line.

Admissions isn’t just about filling beds. It’s about making sure your facility is prepared to support each resident, both clinically and financially, from day one.

That’s where ExaCare can make a meaningful difference.

ExaCare helps your admissions team work smarter and faster, so you can confidently accept the right patients while staying ahead of potential risks.

While ExaCare doesn’t handle billing directly, it plays a crucial role in setting your facility up for financial and operational success by improving the early stages of patient intake and decision-making.

Here’s what we offer:

• AI-powered referral screener that reviews hospital packets in minutes, enabling quick and accurate admissions decisions.
  
  

• Centralized referral management that brings all your sources into one platform.
  
  

• Built-in analytics to help you track performance and optimize your referral relationships.
  
  

• Expensive medication alerts and reimbursement analyses to guard your bottom line.
  
  

• A unified communication hub to streamline decision-making with colleagues.

Ready to see how ExaCare can help your facility win more referrals? Talk with our team to learn more.

Schedule a demo.