Navigating Nursing Home Profitability Amid Shifting Medicaid Rates and Operational Demands

Skilled nursing operators are grappling with a distinctive set of challenges related to managed care’s growth and lower payment rates.

The average managed care rate in SNFs remains $109 less than Medicare pay rates, which, combined with a surge in managed care enrollment, has impacted reimbursement rates.

In a recent webinar hosted by Plante Moran, Denise Leonard, CPA partner at Plante Moran, and John Muller, chief operating officer at Carespring Health Care Management, reviewed benchmark data, revenue opportunities, operational challenges, and the evolving landscape of managed care.


SNFs have witnessed notable shifts in profitability trends in recent years, particularly regarding Medicare rates and operational dynamics, Leonard said. In 2022, the average Medicare rate surged to $602.93 per stay, marking a significant increase from the 2019 average of $534.12.

These shifts can influence a facility’s profitability, with some operators opting to focus primarily on long-term care in the midst of changes due to the expanding Medicaid population.

This uptick translated into a profit of $116.51 per stay, showcasing a positive trajectory for SNF finances. However, she noted that the rise in profitability is not without its intricacies, as various factors have influenced this trend.


The transition from Resource Utilization Groups (RUGs) to the Patient-Driven Payment Model (PDPM) has played a pivotal role in shaping SNF revenues, she said. Moreover, the onslaught of COVID-19 and the subsequent pandemic-induced higher acuity levels have also contributed to the evolving landscape of profitability within the sector. And now, operators are still adjusting to reimbursement rates lowered to account for the post-pandemic reality.

Yet Leonard noted that a few factors that really influence operational benchmarks to keep in mind are wage and benefit costs, which have been increasing in recent years.

“You may see a lag in some of the benchmark data compared to what you’re seeing currently,” she said. “So specifically when we were in late 2020 into 2021, and the first half of 2022 we knew that everyone was experiencing rapid wage increases in their market. However, benchmark data would still have been looking back probably a year or so. So it’s really understanding the point in time that you’re looking at compared to your organization.”

Medicaid data

On the Medicaid front, a MedPAC report based on 2019 data unveiled a different narrative. It highlighted an average loss of nearly $39 per Medicaid day nationally, painting a contrasting picture compared to the Medicare-driven profits. The total facility margin reported in the Medicaid cost report data stood at 1.3%, underlining the complexities of financial sustainability across different payer categories.

Delving deeper into Medicare-specific metrics, Leonard said the net margin for Medicare Part A in 2022 was 19.3%. However, she said projections for 2023 are factoring in a decrease in this margin. This anticipated decline is attributed to several factors, including the PDPM parity adjustment and the expected reduction in COVID-19 acuity levels, which collectively may impact SNF financial performance moving forward.

Hospital data paints a sobering picture for rising acuity and lengths of stay, Leonard said. The average length of stay for fee-for-service (FFS) Medicare beneficiaries rose from 4.9 days in 2019 to 5.5 days in 2021, indicating potential shifts in patient care dynamics and resource utilization within hospital settings.

Concurrently, FFS Medicare inpatient stays witnessed a decline from 9.2 million in 2019 to 7.4 million in 2021, showcasing fluctuations in utilization patterns over the years. Yet Leonard noted that all-payer hospital stays experienced a partial rebound in 2021 compared to pre-pandemic levels, suggesting a gradual recovery in hospital admissions post-pandemic.

Operator perspective

SNF stays may be rebounding too – although not all types of SNF stays are profitable.

Muller said Carespring shifted from focusing primarily on short-term nursing to long-term care due to changes in access to care and the expanding Medicaid population.

The Loveland, Ohio-based Carespring operates more than 10 skilled nursing facilities in Kentucky and Ohio.

He said it is important for operators to utilize benchmarking and expense specifics to monitor and compare various aspects of skilled nursing facility operations.

“We utilize direct benchmarking, which encompasses all ancillary services such as housekeeping, dietary food, and everything that you would want to compare and contrast, ensuring that we align with our budgeted and forecasted targets, so there’s no surprises.”

Muller noted the challenges faced during the COVID-19 pandemic but also said it engendered positive developments, such as a shift to virtual meetings that facilitated improved collaboration among teams. And, it allowed states to recognize the need to more adequately fund Medicaid for better service delivery.

In Ohio and Kentucky, efforts were made to leverage data to advocate for fair Medicaid rates based on staffing and wage programs.

Muller said that the presentation of data to legislative committees and the successful passage of House Bill 6, marked the first rebasing in nearly 15 years.

“We had the opportunity to present it to the Senate appropriations committee on February 21 regarding House Bill 6, which pertains to the budget,” he said. “The data we used was pretty clear, which was very helpful.”