Nursing home operators, often joined by advocates of better care for seniors and the disabled, have maintained that government-set payment rates for nursing homes are inadequate to ensure quality care. Most of the focus of those complaints falls on Medicaid reimbursement rates and, to a lesser extent, Medicare payments for long-term care.

The State of Missouri came up with an interesting idea to address the problem. As part of its state Medicaid plan, it announced late in 2000 that it would begin paying an "enhanced" Medicaid reimbursement rate to seven nursing homes in the state, all of them owned and operated by local governments. Those government agencies, in turn, would forward the "enhanced" payments back to the state, which would then make the money available to all nursing homes, public or private, for one-time "quality and efficiency" grants.

This complicated scheme would improve the profitability of, and the quality of care provided by, nursing homes, while costing the state very little. Because the federal government pays about 60% of Missouri’s Medicaid costs, it would amount to a transfer of funds from the federal government to state coffers, with ultimate distribution back to nursing home operators.

By budget time in 2002, Missouri had accumulated $133 million in "enhanced payments." Last year’s budget provided for most of that money to be returned to individual nursing homes.

Then disaster struck. Missouri, like most of the states, was suddenly faced with a huge budget shortfall. Revenues fell $1.3 billion short of projections, and the state scrambled to cut spending.

Among the thousands of programs Governor Bob Holden cut was the remaining $20 million in nursing home quality and efficiency grants. Nursing homes cried foul, arguing that the money was never really the state’s to cut, since it had come from federal revenues into a fund earmarked for nursing homes, but a Cole County Circuit Court judge disagreed.

On appeal, the Missouri Supreme Court affirmed the lower court—and agreed with the Governor. The Missouri State Constitution requires that the state’s budget remain in balance, noted the Court. In order to accomplish that, the Governor has broad powers to withhold money, even after the it has been budgeted by the Legislature. The fact that the "enhanced payments" fund did not fall short of its own revenue projections does not prevent the Governor from choosing that fund to bear some of the brunt of budget cuts. Missouri Health Care Association v. Holden, December 2, 2002.