Program costs had continued to escalate, and payments for OAA exploded from $36 million in 1950 to $280 million in 1960, a 680% increase. The new Kerr-Mills program didn't rein in any of the costs, it created new ones. Along with adding new classes of beneficiaries, the Kerr-Mills program had eliminated the only control on spending that existed up to that time -- the cap on payments set by OAA. From this point forward, states could set payments to nursing home providers as high as they wished, and the federal government, which had no control over rates, was mandated to pay its part of the cost.
Costs of Kerr-Mills increased from $449 million in 1960 to $2.3 billion by 1965, and nursing home costs comprised one-third of that total. This didn't even represent the cost of providing these services all across the country, since many states didn't participate in the new program, and 62% of this spending was concentrated in only five states. These states, New York, California, Massachusetts, Minnesota, and Pennsylvania, experienced a glut of nursing home bed development, as speculators swooped in to benefit from a "guaranteed" return.