Over half of federal nursing care funding was used for hospitals’ administrative fees, audit finds

Over half of the money of a federal program meant to complement Medicaid funding for nursing care was used for administrative fees by city-owned hospitals, an investigation from the State Auditor’s Office found. 

Only 49% of the nearly $1 billion allocated for the Upper Payment Limit program, a funding initiative for nursing care, was used at the facilities it meant to serve from 2016 to 2024, according to a release from the Auditor’s office. The remaining 51% were retained by hospital groups owned by municipal government entities. 

“These are not just numbers on a spreadsheet, this is about ensuring that this type of Medicaid funding is used for its intended purpose — to provide direct care and improve the quality of life for patients in nursing facilities,” State Auditor Tina Cannon said in a news release.

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According to the audit, the three largest hospital groups in the program managed the distribution of over $922 million, but only 49% of that amount was used at skilled nursing facilities for patient care. That includes Beaver Valley Hospital — which has been quickly buying nursing facilities since 2014 and now owns 44 of the 75 centers that use the funding. Gunnison Valley Hospital and Kane County Hospital were also listed in the audit.

From 2016 to 2024, the three hospitals used $471.7 million for expenses like owner compensation, administrative costs and hospital operating expenses, auditors wrote. The remaining $450.5 million were used for patient care.

During a June 2021 Beaver City Council meeting — which owns Beaver Valley Hospital — officials confirmed that some of the program funds were used as part of the hospital’s $30 million remodel, according to a report by The Utah Investigative Journalism Project and KUER

However, an attorney representing Beaver Valley, Gunnison Valley and Kane County hospitals said in a response to the audit that the report didn’t represent the full picture of the program and highlighted that there were no findings indicating a failure to comply with state or federal law.

The hospitals took specific issue with a claim the Auditor’s Office made stating that their practices prevented funding from reaching the nursing facility level.

“We understand this was the chief complaint of the party that triggered the audit, but the statement is fundamentally wrong and libelous,” Blaine Benard, the attorney for the hospitals wrote, saying “100% of all SNF UPL Program funds received from DHHS are actually and literally deposited directly by DHHS into nursing facility operating accounts via Medicaid remittances.”

The balance of those funds can be used for other health care purposes, Benard said, but only after all nursing facility costs have been paid.

Questions on seed money remain

The audit also found that the administrative fees that the Department of Health and Human Services collected “far exceeded the actual cost of administering the program,” the release says. In 2025, for example, the agency collected over $1.8 million in fees above its estimated costs. 

Seed money put down by the hospital groups to attract federal matching funds were also eventually reimbursed back, “which may violate the federal requirement for (non-state government entities) to share in the cost of the program,” according to the release. 

The audit follows multiple reports investigating the program and how Beaver Valley Hospital has managed it, including a 2017 legislative audit that said the hospital hadn’t violated federal rules, but experts auditors consulted expressed concerns about the process the hospital used to seed the funding, in addition to its rapid expansion of nursing facilities.

Auditors say that a lack of oversight from the Utah Department of Health and Human Services allowed the supplemental Medicaid payments to be used improperly.

“Contracts stipulated that 100% of the funds should be accessible to the nursing facilities, but in practice, the municipal hospital-affiliated (non-state government entities) controlled the funds and used the majority of the funding for their own benefit,” the office said in the release.

While the Department of Health and Human Services concurred with most recommendations the audit made to deepen its program oversight, the hospital lawyers said that such implementations “will literally destroy an essential state program.”

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