Along with many other states, Wisconsin is considering a case mix approach to Medicaid nursing home reimbursement. To support this effort, a nursing home case mix model was developed from a representative sample of 410 Medicaid nursing home residents from 56 facilities in Wisconsin. The model classified residents into mutually exclusive groups that were homogeneous in their use of direct care resources, i.e., minutes of direct care time (weighted for nurse skill level) over a 7-day period. Groups were defined initially by intense, Special, or Routine nursing requirements. Within these nursing requirement categories, subgroups were formed by the presence/absence of behavioral problems and dependency in activities of daily living (ADL). Wisconsin''s current Skilled/Intermediate Care (SNF/ICF) classification system was analyzed in light of the case mix model and found to be less effective in distinguishing residents by resource use. The case mix model accounted for 48% of the variance in resource use, whereas the SNF/ICF classification system explained 22%. Comparisons were drawn with nursing home case mix models in New York State (RUG-II) and Minnesota. Despite progress in the study of nursing home case mix and its application to reimbursement reform, methodologic and policy issues remain. These include the differing operational definitions for nursing requirements and ADL dependency, the inconsistency in findings concerning psychobehavioural problems, and the problem of promoting positive health and functional outcomes based on models that may be insensitive to change in resident conditions over time.