What happens to a home after a grandparents death with the state requirements?

I will guess that grandma gave them some money, maybe all of it, then applied for Medicaid. In Pennsylvania, all that gifting has to be paid back for grandma's care. So the out-of-pocket is actually a gift being paid back. Maybe they are not telling you the whole story.

So, I'm confused. Why would they sign over her home to the state if she's not getting Medicaid?

So you grandmother was on Medicaid, right?
If so why would your parents need to be paying for her NH? That should have been covered by Medicaid with grannie paying her co-pay of her SS and retirement income each month to the NH. Medicaid should pay her NH room & board charges, not your parents.

Now if grannie kept her home, someone would need to be paying all the costs on the house (as grannies $ goes to NH). So your parents could have paid taxes, insurance, utilities, upkeep etc on the house from day 1 of grannie's admission into the NH and onto medicaid. Could add up to quite a tidy sum. Is this the $ you are referring to??

If so and your folks also paid for her funeral and burial and all expenses of the house after grannie died, then probably they need to open probate on grannies estate. Probate runs uniquely for each state but expenses of the estate - like funeral, burial, upkeep and safeguarding of estate assets (which the house would be) well whomever paid for these can file a claim against the estate. Just as the state Medicaid program can file a claim against the estate.Probate ensures that all have to do whatever under the rules of probate. Usually expenses for legal fees, for funeral, dealing with property are priority claims against the estate and paid first. Your parents could try to file for every penny spent on grannie as a claim. If the house is somewhat modest in value, parents claims could be close to or over the value of the estate if this has been going on for several years. Really probate atty can let you know what could be possible.
But if they do nothing, then the state assumes no other claims or liens and their claim or lien is the only one on the property. So all proceeds from a sale go to the state.

My Grandfather passed over 25 years ago and did not use Medicaid. Just my Grandmother is living in the nursing home. My parents are getting some assistance through the Veteran's office from my Grandfather being in the service. But yes, they are paying quite the fees per month. They also pay most of her medical expenses for doctors visits, etc that Medical does not cover. They are pretty much at the exhaustion point and I would hope when they sell the house they could recoop some of that money and it not go to the state, who did not have to pay any fee's for her.

It's my understanding that it is only your Grandmother who is living in a nursing home being paid for by Medicaid? What about your Grandfather, if he is still in the picture, where is he living?

Wow, your parents must be emptying out their savings/stock by self-paying for your Grandmother's nursing home care as that can run up to the thousands per month.

If it is only your Grandmother on Medicaid and she passes, and if all the bills have been paid out of pocket, without Medicaid paying for anything, then there shouldn't be a need for Medicaid to keep a lien on their house. Did you Grandfather use any Medicaid?