Median Skilled Nursing Margin Breaks Even, But ‘Long-Term Financial Viability is Uncertain’

The margins for skilled nursing facilities finally broke out of the red and to break-even levels, according to the latest benchmarking report from consulting firm Plante Moran. But occupancy remained stagnant from 2017 to 2018, and staffing costs continue to increase.

And Medicaid remains the elephant in the room when it comes to making the math of long-term care work for profitability.

“The financial viability of long-term care services is directly correlated to Medicaid funding, and negative operating margins in many regions of the
United States suggest more facilities may be forced to close without rate increases,” the consulting firm noted in its report, which was released Wednesday.


The national median for SNFs’ net margin was 0.21%, while the median overall SNF earnings before interest, depreciation and amortization (EBIDA) was about 10% for 2018 — which means operators have 10% of their revenue rates available to cover capital costs and make profits.

An October 2019 report from the consulting firm CLA found that the median operating margin in U.S. SNFs was at -0.1%, though the CLA report drew from the data most recently available up to July 2019, culled from approximately 12,000 cost reports from the Centers for Medicare and Medicaid Services (CMS).

The Plante Moran benchmarks report used data from 2015-2018 year-end Medicare cost reports from CMS and 2018 Medicare claims data, representing more than 12,000 facilities.


When it comes to the provision of post-acute care — as opposed to long-term care — Medicare Advantage (MA) remains a major influence on the profits of SNF providers, since it’s led to the erosion of lengths of stay, referrals, and rates. In Florida and Minnesota, the states with the highest managed-Medicare penetration, MA enrollment came in at 43%, while the national average for MA enrollment stayed steady at 34%.

And once again, Medicaid rears its head, since the lower rates, referrals, and lengths of stay under MA have led some providers to focus on long-term care rather than post-acute care.

“The financial viability of this strategy is directly correlated to adequate state Medicaid funding,” the report said.

And Medicaid funding for nursing home alternatives can vary from state to state, with the Program of All-Inclusive Care for the Elderly (PACE) growing at more than 45,000 older adults in 31 states; SNFs that focus on long-term care and chronic care management have home and community-based alternatives as their competitors.

With the arrival of the Patient-Driven Payment Model on October 1, 2019, providers are going to be held “more financially accountable for managing length of stay and patient acuity,” the report noted.

But while SNFs are adjusting to the new system, they shouldn’t get too comfortable, according to Plante Moran; the firm posited that the next major payment change for SNFs will lead to episodic payments, as used for hospitals, inpatient rehabilitation facilities, and home health services.

Whatever comes, providers may find themselves having to choose between the provision of custodial care and a focus on rehabilitating short-term patients.

“There is a clear bifurcation of post-acute and long-term care services within a SNF, and it’s becoming increasingly difficult to achieve financial success in both service lines,” the report said. “Overall SNF net margins indicate that a majority of facilities are just breaking even financially, suggesting that long-term financial viability is uncertain.”

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