State auditor: Hospital groups retained 51% of $922 million in nursing home Medicaid supplements from 2016 to 2024

Three local-government hospital groups that run most of Utah’s nursing homes in a federal Medicaid supplement program received $922,346,112 from 2016 through 2024, and $450,551,307 of it, 49%, was used at the nursing facilities, according to an April 1 report from the Office of the Utah State Auditor. ^[1][2]

The remaining $471,794,805 was used for “a combination of owner compensation, administrative costs, and hospital operating expenses,” the report says. The figures are combined totals for the three hospitals, based on records the hospitals provided. ^[1]

The audit began with a legislative request to investigate alleged misuse of Medicaid funds. The office says its procedures were limited to the complaint and were not a comprehensive audit of the state Medicaid program. ^[1]

How the program works

The Skilled Nursing Facility Upper Payment Limit program, added to Utah’s Medicaid plan in 2013, pays nursing homes owned by a non-state government entity a supplement meant to help close the gap between Medicaid and Medicare rates. A participating hospital sends local “seed money” and an administrative fee to the Department of Health and Human Services, which draws down federal funds and sends the money back to accounts for each nursing facility. ^[1]

Ten government entities take part, covering 75 nursing facilities. Three hold licenses for 64 of them: Beaver Valley Hospital, a component unit of Beaver City (44), Gunnison Valley Hospital (15) and Kane County Hospital (5). ^[1]

Each hospital’s figures

The report’s appendix, using figures from each hospital, lists Beaver Valley Hospital at $730,745,061 in gross program payouts from 2016 through 2024, with $358,838,252 (49%) used at nursing facilities; Gunnison Valley Hospital at $156,764,256 from 2015 through 2024, with $75,039,522 (48%); and Kane County Hospital at $35,540,743 from 2018 through 2024, with $16,912,281 (48%). The report notes the hospitals’ figures differ from the health department’s for some periods. ^[1]

The findings

Contracts between the department and the hospitals say 100% of the supplemental payments are to be deposited in operating accounts available to the nursing facilities. Auditors found the money was generally controlled by the hospitals rather than nursing facility management, which “appears to be contrary to the purpose of the funds,” and that the department did not oversee how money kept at the hospital level was used. ^[1]

The department collected $2,746,288 in administrative fees in fiscal 2025 against estimated costs of $863,981, a difference of $1,882,307, the report says. ^[1]

In nine years for the three hospitals reviewed, the seed money was never used at the nursing facilities; it was returned to the hospitals at the end of each fiscal year. Auditors say that practice “propagates the appearance of violating local cost share required by code.” ^[1]

The office recommends that the state either stop allowing the money to be used for the hospitals’ administrative spending or amend the Medicaid plan to allow it with set amounts or percentages, set an allowed administrative rate, and require seed money and federal funds to be used at the nursing facilities. ^[1]

The responses

An attorney with Holland & Hart, writing for all three hospitals, said the audit made no findings that they failed to comply with the program contract, the state Medicaid plan or state and federal law. The letter says 100% of the money is deposited by the department into nursing facility operating accounts and kept there until each fiscal year’s nursing facility costs are paid, after which the contract allows other health care uses. It says a hospital and its nursing facilities are a single financial entity, and that the recommendations as drafted would end the program and cost nearly $100 million a year in health care funding. ^[1]

Health and Human Services Executive Director Tracy Gruber wrote that the department concurs or partially concurs with the recommendations. The department says it is operating the program under long-standing federal approval, will update public data by Dec. 31, 2026, will consult federal regulators and lawmakers, and will review possible state plan changes for submission by July 1, 2027. On seed money, it says it could not find a federal requirement that local entities share in the cost in the way the audit describes and has no reason to believe the program is out of compliance, but will check with federal regulators. ^[1]

In its closing remarks, the auditor’s office says the hospitals’ retention of seed money, administrative fees and owner compensation, 51% of the total, is not included in the state Medicaid plan and so was not reviewed and approved by federal regulators. ^[1]