Executive Summary
Ohio’s nursing home Medicaid reimbursement system entered a pivotal stretch in 2026, with two largely unrelated developments landing on the same rate cycle. First, the state’s biennial operating budget (House Bill 96) began a multiyear transition to a new case-mix reimbursement methodology, moving Ohio’s direct care rates further toward the federal Patient Driven Payment Model (PDPM) effective July 1, 2026. Second, after a years-long legal dispute, Governor Mike DeWine signed House Bill 479 in late June 2026, appropriating $875 million to nursing homes following an Ohio Supreme Court ruling that the state had used the wrong formula to calculate quality incentive payments (QIPs). Together, the two changes reshape both how Ohio calculates nursing home Medicaid rates going forward and how the state is settling up for years of underpayment.
Ohio’s FY2026–2027 Budget and the Shift to PDPM
House Bill 96, the state’s operating budget for the FY2026–2027 biennium, authorized the Ohio Department of Medicaid (ODM) to transition nursing facility direct care reimbursement from Ohio’s long-standing Resource Utilization Group (RUG) case-mix system to PDPM, the CMS-developed classification system that groups residents by clinical characteristics drawn from Minimum Data Set (MDS) 3.0 assessments. The transition is being phased in over 18 months rather than implemented all at once:
- January 1, 2026 — ODM began using PDPM acuity groupings for the direct care portion of reimbursement; rates were adjusted by one-third of the difference between a facility’s existing RUG-based rate and its new PDPM-based rate.
- July 1, 2026 — The blend shifted to two-thirds PDPM, one-third RUG, and holds at that ratio through the remainder of FY2027 (ending June 30, 2027).
- July 1, 2027 — PDPM becomes fully implemented for direct care reimbursement, completing the transition.
During the phase-in, ODM applies a case-mix multiplier to align RUG- and PDPM-based scores, and the nursing component follows the federal fiscal year 2024 PDPM weights CMS established. In practice, this means a facility’s July 1, 2026 direct care rate reflects a materially larger dose of PDPM-based acuity scoring than it did six months earlier — facilities whose resident population scores meaningfully differently under PDPM than under the old RUG system are the ones most likely to have noticed a real change in their July rate notice.
A Methodology Change, Not a Rebasing
It’s worth being precise about what the July 1, 2026 change is — and isn’t. Ohio law requires ODM to conduct a full rebasing, which resets the cost-per-case-mix-unit price using updated facility cost reports, at least once every five state fiscal years for the direct care and tax cost centers. The state’s last rebasing took effect in FY2023 under House Bill 33, and in testimony on HB 96, ODM confirmed it was not requesting a rebasing as part of the FY2026–2027 budget; the next one is due no later than FY2028. The PDPM transition changes how existing acuity data is scored and weighted, but it does not reset the underlying cost basis those rates are built on. Operators expecting a broader rebasing-driven rate increase alongside the July 1 change should not expect one — this cycle’s movement comes from the acuity-methodology blend shifting to two-thirds PDPM, not from a refreshed cost report cycle.
The $875 Million Reckoning: Correcting the Quality Incentive Payment Formula
Running alongside the PDPM transition — and unrelated to it — is Ohio’s resolution of a much larger dispute over how it calculates nursing facilities’ quality incentive payments, the portion of the Medicaid per diem rate tied to a facility’s quality performance.
In September 2025, the Ohio Supreme Court ruled unanimously in State ex rel. LeadingAge Ohio v. Ohio Department of Medicaid that ODM had used the wrong methodology — a narrower pricing metric rather than the broader direct-care cost formula specified in state law — when calculating QIPs, and ordered the state to recalculate what providers were owed. Nursing home associations estimated the resulting underpayment at approximately $527 million for the 2024–2025 budget period alone; Ohio Medicaid’s own court filings warned that fully implementing the court’s interpretation going forward could cost roughly $285 million more per year than the legislature had originally intended, approaching $1 billion across two budget cycles.
Ohio addressed the dispute in two steps. House Bill 184, effective March 20, 2026, amended the QIP statute (Ohio Revised Code 5165.26) to replace the disputed term “rate” with “cost per case-mix unit,” codifying the calculation method the legislature says it intended all along and halting further accumulation of the underpayment going forward. Then, in June 2026, the legislature passed House Bill 479, a budget-correction measure appropriating $875 million — $310 million in state funds and $565 million in federal Medicaid matching funds — to pay nursing homes for the shortfall accrued through the 2024–2025 budget cycle. Governor DeWine signed the bill on June 25, 2026. Facilities that accept the payment are required to waive future legal claims related to the disputed formula.
The same legislation also raised the statutory ceiling on QIP funding going forward: per the Ohio Legislative Service Commission’s analysis, the amount added to the QIP funding pool under the statutory formula increased from $125 million to $365 million, with an additional $71 million to be added beginning in FY2028 if no rebasing occurs that year. Industry groups, including the Ohio Health Care Association and LeadingAge Ohio, had pushed for both the back payment and the structural fix, noting that facilities had delayed staffing and capital investments while waiting nearly a year for the money — and that, absent properly funded QIPs, the state’s own nursing homes were losing an estimated $60 per Medicaid resident day on average relative to what the 2022–2023 budget had intended to provide.
Why This Matters for Nursing Home Operators
Two structurally different changes are moving through the same rate cycle, and it’s worth keeping them separate when reconciling a facility’s numbers:
- The PDPM transition affects only the direct care component of the per diem rate, driven by resident acuity scoring — it can raise or lower a specific facility’s rate depending on how its case mix scores under PDPM versus the old RUG system.
- The QIP correction is a one-time retroactive payment tied to a completely different rate component (quality performance), plus a forward-looking increase to how much the state adds to the QIP funding pool each year.
- A facility seeing a smaller-than-expected increase on its July 1, 2026 rate notice should check which component moved — it may reflect the PDPM blend rather than anything related to the QIP settlement, and vice versa.
- The QIP funding increase is a statutory change, not a guarantee — the additional $71 million slated for FY2028 is contingent on the state not conducting a rebasing that year, and future legislatures could revisit the formula again.
- Facilities weighing whether to accept their share of the $875 million settlement should factor in the waiver of future legal claims tied to the disputed formula before signing on.
Looking Ahead: What OBBBA Means for Future Ohio Rates
Neither of the changes above happened in isolation from the federal picture. Ohio’s Medicaid program is separately projected to lose approximately $33 billion in federal funding over the next decade because of the One Big Beautiful Bill Act (OBBBA), according to an analysis by the Health Policy Institute of Ohio (HPIO) built on CBO and KFF estimates — a broader, decade-long figure than the $14.1 billion, 2025–2034 Medicaid Fund reduction RAND Corporation projects for Ohio specifically using a narrower 12-provision model. The two estimates use different methodologies and time horizons, so they shouldn’t be added together, but both point the same direction: sustained, multiyear pressure on the same state Medicaid budget that funds nursing facility rates.
Two Ohio-specific provider tax cliffs are driving much of that exposure, and both land in the same fiscal year as the state’s next scheduled nursing facility rebasing:
- Ohio’s health insuring corporation (HIC) franchise fee — a tax on Medicaid managed care plans that raises roughly $880 million a year — must be restructured to meet OBBBA’s new uniformity requirements by July 1, 2027, or the tax is effectively eliminated. ODM projects that elimination would cost the state $640 million a year in state Medicaid funding starting in SFY2028, plus $1.5 billion in matching federal dollars.
- Ohio’s hospital franchise fee, recently increased, now exceeds the safe-harbor rate ceiling OBBBA is phasing down starting October 2027; ODM estimates the required phase-down will cost the state $220 million to $280 million a year in state funds (roughly $1.2 billion through 2032), plus matching federal dollars.
Nursing homes are not directly exposed to either of those two taxes — Ohio’s nursing facility and ICF/IID franchise fees are explicitly carved out from OBBBA’s provider tax restrictions, the same exemption described earlier in this article’s companion piece on OBBBA’s national impact. The more direct channel of exposure for nursing facilities is state-directed payments: any SDP arrangement Ohio uses to supplement nursing facility Medicaid rates above the federal Medicare-rate ceiling will be subject to the same grandfather phase-down beginning in 2028 that applies nationally, though Ohio-specific dollar estimates for nursing facility SDPs specifically were not available at publication.
The overlap in timing is the thing to watch. Ohio’s statute requires a nursing facility rebasing at least once every five fiscal years, and the next one is due no later than FY2028 — the same fiscal year the HIC franchise fee cliff, the hospital franchise fee phase-down, and the SDP grandfather phase-down are all scheduled to hit the state’s broader Medicaid budget. Whether Ohio conducts that rebasing on schedule, delays it, or funds it more conservatively than it otherwise might have will depend heavily on how lawmakers resolve the HIC franchise fee question well before then.
Industry associations are already framing the outlook in those terms. LeadingAge Ohio has said it expects the situation to get “considerably” more complicated as OBBBA’s financing changes phase in, noting that the state is starting its next budget cycle from a weaker position than it otherwise would have given the QIP dispute. The Ohio Health Care Association has likewise said further reimbursement pressure should be expected under OBBBA, while pointing to Ohio’s current Medicaid surpluses and a rainy day fund exceeding $3.8 billion as reasons the state is comparatively well positioned to manage the transition — if it acts with enough lead time. Neither association has suggested nursing facility rates are protected from these pressures; both have said the opposite — that certainty now is what will make the FY2028 rebasing decision manageable rather than another surprise.
Key Takeaway
Ohio’s July 1, 2026 rate change looks, on the surface, like a routine mid-biennium adjustment. In reality, it landed in the middle of the state settling one of the most consequential Medicaid reimbursement disputes in its recent history — and just ahead of a fiscal year, FY2028, when the state’s next scheduled nursing facility rebasing will coincide with several of OBBBA’s biggest financing constraints hitting Ohio’s broader Medicaid budget at once. Operators that separate the immediate threads — the mechanical PDPM acuity transition and the one-time, court-driven QIP correction — while keeping an eye on how Ohio resolves its HIC franchise fee question well before FY2028, will have the clearest read on where their reimbursement is actually headed.
Sources: Ohio Department of Medicaid, PDPM Transition Fact Sheet (via LeadingAge Ohio, September 2025); Ohio Legislative Service Commission, bill analysis, House Bill 96 (as introduced) and related analysis (April 14, 2026); Ohio Revised Code Sections 5165.19 and 5165.26, as amended by House Bill 96 (eff. 9/30/2025) and House Bill 184 (eff. 3/20/2026); “‘Considerably’ More Complicated: Nursing Homes Reeling From Estimated $1B in Owed Incentive Payments Face Federal, State Policy Shifts,” Skilled Nursing News, March 2026; “$875M Payout Expected for Ohio Nursing Homes Following Medicaid Rate Error,” Skilled Nursing News, June 12, 2026; LeadingAge Ohio, news releases on House Bill 479 signing, June 25, 2026; Health Policy Institute of Ohio, “Changes to Medicaid Financing in Ohio” policy explainer and summary, March–April 2026; Preethi Rao et al., “State-Level Impacts of Key Medicaid Provisions in the One Big Beautiful Bill Act,” RAND Corporation, RR-A4098-1-v2, 2026, Table B.1 (Ohio state-level estimate).
