MedPAC Advises Cutting Skilled Nursing Medicare Payment Rate by 3%

The Medicare Payment Advisory Commission (MedPAC) is recommending that for fiscal year 2025, Congress should reduce the 2024 Medicare-based payment rates for skilled nursing facilities (SNFs) by 3%, citing strong margin projections, occupancy growth and access to capital for the sector.

“We project the SNF margins in 2024 to remain high even with the downward adjustment, to account for excess payment resulting from the new case mix system,” said Kathryn Linehan, principal policy analyst for MedPAC, in her presentation during the Commission’s latest meeting on Friday. “A reduction to SNF base rates is needed to more closely align aggregate payments to aggregate costs.”

Each year, MedPAC uses several “payment adequacy” indicators in making its recommendations for the payment rate. To that end, Linehan provided an overview of SNFs’ utilization and spending in 2022, and discussed the impact from the indicators, which include the Medicare beneficiaries’ access to SNF care, quality of care, access to capital as well as SNF costs.


MedPAC’s recommendation for the cuts comes despite the officials noting some access pressures and recent occupancy declines.

SNF occupancy continued an upward climb in 2022, and while it started to drop through the latest quarter of 2023 due to staffing constraints, the level nonetheless stood strong at 81% – and much higher than during the Covid-19 pandemic’s low point of 69% in 2021, Linehan said. However, it still lags the pre-pandemic level of 85%.

That said, the sector’s profits should also be buoyed by other bullish developments, officials said.


“SNFs have adequate access to capital and the sector remains attractive to investors,” said Linehan, noting that while total margins fell in 2022 compared to 2021, this was not a function of Medicare payments. Instead, it was a result of a continuation of a now decades-long trend, with the average Medicare margin in 2022 being on the high end at 18.4%. And going forward, “Factoring in expected changes to payments and costs, the projected margin for 2024 is 16%,” she said.

And as for costs, all in all, MedPAC projects the spending will balance out the profits in the sector, Linehan said.

The data factored into MedPAC’s analysis is mostly from 2022 – the most recent and complete data available – and pertains to the 14,700 facilities in operation in that year. Some preliminary data for 2023 was also included in the assessments, Linehan noted.

For an average SNF, fee for service (FFS) Medicare accounts for about 10% of the total facility’s volume in contrast to other care settings, where FFS Medicare makes up about half of providers’ volume.

Measures of access

In terms of the measures of access, on balance the industry has moved in a positive direction. The number of SNFs declined about 1% from 2022 through October 2023. Meanwhile, the number of certified SNF beds also declined less than 1%.

And since adequate staffing is key to ensuring access, Linehan said that this measure had also shown progress even as staffing has remained below pre-pandemic levels.

“After falling during the pandemic as volume plummeted, employment in the SNF sector has been growing since the spring of 2022,” she said.

And yet, staffing problems are a persistent issue shared by providers perhaps exerting pressure on occupancy, Linehan acknowledged. “We do not have comprehensive data on capacity constraints at SNFs due to staffing, but some facilities have reported staffing challenges as volume returns,” she said.

Admissions to SNFs also continued to improve, in part due to the recovery for a share of discharges of acute care patients from hospitals – a share lost during the pandemic, Linehan said. And although admissions in 2022 were below 2019, the days per beneficiary were higher, owing to longer lengths of stay.

“Another indicator of access, the Medicare marginal profit was high in 2022 … SNFs with available capacity have a financial incentive to serve Medicare fee for service beneficiaries,” Linehan said.

Measures of quality

As for Indicators of the quality of SNF care, the amount and continuity of nursing facility staff is reflective of quality, and those numbers did not look so good. For an average facility, total nurse and registered nurse (RN) staffing ratios declined slightly between 2019 and 2022, Linehan said, with an overall high turnover rate over a 12-month period of 53% in 2022. 

Another quality of care indicator is patient experience, which is missing for SNFs, and MedPAC recommends inclusion of patient experience data as a requirement in order to improve any future payment assessments. Currently, SNFs are not required to share patient experience, unlike hospitals and other spaces of the health care sector, she said. 

In addition, Linehan said that payment assessments can also be made more accurate by monitoring changes in reporting of patient functions, and not just relying on provider data.

“Restoration and maintenance of patient function is a key outcome in all post acute care settings including SNFs. However, because provider reported function data are used to adjust payment, the Commission has raised concerns about its validity as an outcome measure,” Linehan said, adding that in a previous report to Congress, the Commission discussed strategies for enhancing this measure.

Measures of capital availability

Access to capital for nursing homes was another factor used by MedPAC for assessing payments, and that area has seen improvements due to an overall uptick in bed prices, although transactions fell between 2021 and 2022, Linehan said.

The average price per SNF bed in these transactions rose to a record high as beds have become more expensive in 2022, but it has dropped for the four quarters ending in June 2023, “but still remained high,” Linehan said.

In 2022, the all payer margin for nursing homes – reflecting all lines of business, all payers and investment income – was down 1.4% down from 3.4% in 2021.

State Medicaid payments and the regional variations and lack of clarity on the rates can introduce uncertainty too, Linehan noted. And so, she made a recommendation to improve the visibility of the Medicaid rates.

“The overall financial performance of this setting is heavily influenced by state Medicaid payments to nursing homes, including their base rates and supplemental payments … Because of SNFs all payer margin, the Commission grapples each year with concerns about the financing of the nursing facility sector broadly, but narrowly making a recommendation to update Medicare SNF fee for service payment rates,” said Linehan.

According to an analysis by Medicaid and CHIP Payment and Access Commission (MACPAC), which advises Congress on Medicaid policy, a wide range exists both within and across states in Medicaid-based payment rates compared with nursing facilities’ acuity-adjusted costs in 2019, Linehan said.

“In about four fifths of facilities nationally … Medicaid-based payment rates did not cover their costs. The median nursing facility had base payment amounts that were 86% of costs. However, as I noted, these payments did not include supplemental payments. Because they found that payment and cost data were incomplete and variable across states.”

MACPAC has recommended that all sources of Medicaid payment to providers be collected and reported consistently for a more complete accounting of how Medicaid payments compared to nursing home costs.

As for other financial players, the Department of Housing and Urban Development (HUD) remained a key lender in the nursing facility sector – albeit as a source of financing renovations and improvements rather than new construction. However, in its data from fiscal year 2023, HUD reported that it financed fewer projects compared to 2022, Linehan noted.

And so, given the increase in projected margins, a stronger occupancy despite pressures and the extent of available capital and funding sources, the payment rate cut being recommended by MedPAC is justified, she said.

“In summary, our access indicators show that the supply of facilities declined 1% percent. Employment remains below pre-pandemic levels, but occupancy is rebounding and fee for service Medicare SNF use per beneficiary increased in 2022. The high Medicare marginal profit indicates providers have a strong incentive to treat fee for service Medicare beneficiaries,” Linehan said.

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