US Audit Finds New York Had Not Recovered Care-Spending Funds From 75 Nursing Homes

A federal audit of nursing-home finances found that states trying to ensure more money reaches resident care were struggling not only to measure compliance but also to enforce their own rules. The findings expose a gap between a legal spending threshold and money actually recovered when a facility falls short.

The U.S. Department of Health and Human Services Office of Inspector General examined Massachusetts, New Jersey, New York and Pennsylvania, the four states that had established minimum resident-care spending requirements by January 2026. Its report, OAS-25-09-086, was issued on October 21 and publicized on October 28, 2026. The watchdog reported that three states encountered implementation problems, including obtaining adequate financial data, and that selected nursing homes in all four states faced difficulties complying.

The states' rules are not interchangeable. Massachusetts requires at least 75% of total revenue to be spent on direct care, while New Jersey measures 90% of Medicaid revenue against Medicaid patient care. New York applies a 70% direct resident-care threshold, a separate 40% resident-facing staffing requirement and a limit on excess revenue. Pennsylvania's rule sets resident-care and related costs at 70% of total costs. Different denominators mean that a 70% requirement in one state cannot simply be compared with 70% in another.

**New York's recovery gap**

The audit's 2023 compliance figures showed that 465 of 540 New York nursing homes met all three state thresholds. The remaining 75 were required to remit funds to the state, but state officials told auditors that no funds had been recouped from noncompliant homes as of June 2026. That is a dated audit finding, not proof that the money remains uncollected today. The report does not establish that each facility deliberately withheld funds or that any specific resident was harmed.

Pennsylvania presents a different enforcement problem. State data showed 435 of 511 facilities meeting its 70% threshold. Officials reported that penalties for the other 76 were waived and none had been assessed as of October 2025. The state also used unaudited cost reports to make compliance determinations because audited information was not available in time. Those findings concern the period examined, rather than an assertion that no later enforcement occurred.

**Pennsylvania changed the calculation**

The implementation problems were not confined to late paperwork. Independent reporting by The Philadelphia Inquirer in July 2026 described a subsequent state budget change to the Pennsylvania formula. The earlier calculation included property taxes, nursing-home assessments and depreciation among total expenses, making the care-spending share harder to meet. The revised formula excludes those items while retaining rent and adding excess administrative costs. Pennsylvania officials had described inconsistent expense classifications and distorted penalties under the earlier approach.

That later policy change is material to interpreting the federal audit: some reported shortfalls may have reflected the design of the calculation or inconsistent accounting, not necessarily a reduction in hands-on care. It does not erase the federal watchdog's findings about enforcement and financial transparency, and it should not be mistaken for a retroactive determination that every facility complied.

**The national implications**

The federal government currently has no nationwide minimum percentage of nursing-home revenue that must be devoted to resident care. Starting in 2028, however, states must report facility-level percentages of Medicaid payments spent on compensation for direct-care workers and support staff. The federal requirement is a transparency measure, not itself a national minimum-spending mandate.

The inspector general recommended that the Centers for Medicare & Medicaid Services consider the states' experience when implementing that reporting system and in any future rulemaking on minimum spending. CMS concurred, while noting the difficulty of aligning federal reporting details with four different state approaches.

The central accountability question is whether governments can reliably identify which dollars fund care, determine when a facility has failed a legally applicable threshold, and follow through on any lawful remedy. The audit documents obstacles to all three steps. It does not establish fraud, nor does it measure the quality of care at individual facilities. Those distinctions matter as federal officials build a nationwide picture of where Medicaid nursing-home payments go.