The Centers for Medicare & Medicaid Services (CMS) late Wednesday finalized its 2025 Skilled Nursing Facility Prospective Payment System (SNF PPS) rule, approving a net increase of 4.2%, or approximately $1.4 billion in Medicare Part A payments for next year.

The increase is calculated based on the SNF market basket percentage increase of 3%, plus a 1.7 percentage point forecast error adjustment and 0.5% productivity adjustment, CMS said in a memo. The market basket update was increased slightly from the 2.8% increase for 2025 that CMS initially proposed earlier this year.

“The final FY2025 SNF rate is well above the 26-year historical average of +2.4%,” analysts with Stephens observed in a note issued Wednesday.

Payment adjustments don’t incorporate SNF Value-Based Purchasing reductions, CMS said, which is estimated to total $196.5 million in 2025.

Katie Smith Sloan, president and CEO of LeadingAge, said the increase is insufficient, given operational challenges and a very competitive labor market.

“Now more than ever, as America’s population ages and demand for care and services is growing, nursing homes, which provide 24/7 care in a setting unlike any other in health care, are a critical element in our country’s long-term care continuum,” said Smith Sloan. “Funding goes hand-in-hand with quality care.”

The final rule also changes enforcement policies, with CMS expanding its ability to impose financial penalties in an effort to drive sustained correction of health and safety deficiencies.

“These revisions will provide CMS flexibility in determining the mix and number of penalties in response to situations that put residents’ health and safety at risk and, therefore, encourage facilities to promptly correct and maintain lasting compliance with CMS’ health and safety requirements,” the agency said.

Smith Sloan expressed disappointment that CMS is moving forward with the expansion of civil monetary penalties (CMPs). Mark Parkinson, president and CEO of the American Health Care Association and National Center for Assisted Living (AHCA/NCAL), said he is “deeply troubled” by the agency moving ahead with penalty expansion. It’s a clear indication of agency overreach when it comes to enforcement, he said.

“While we agree that deficient practices must be corrected to ensure the safety and wellbeing of residents, CMS continually chooses to take oversight responsibility only to the point of punishment and persists in prohibiting surveyors from offering immediate guidance to correct deficient practice when it is identified,” said Smith Sloan.

CMS holds a mistaken belief that financial penalties are an effective means of quality improvement, Smith Sloan added. She urged the agency to refocus and take steps to actively engage in quality improvement in a productive way — choosing the carrot and not the larger, stronger stick.

Updates to the SNF Quality Reporting Program measures were finalized as well, all focused on social determinants of health. CMS finalized a policy requiring facilities to participate in a process to validate data submitted under the QRP, beginning with data collected for 2027.

“We must foster an approach where nursing homes and regulators are working together to do what’s best for the residents and remedying identified issues, not simply citing and fining,” said Parkinson. “We support the creation of incentives for nursing homes to enhance the quality of care and properly funding these facilities to ensure they have the necessary resources to provide high quality care.”

Operators that don’t meet reporting requirements are subject to a 2% reduction in their annual payment update, the agency said. CMS reports facility performance on QRP measures on the Care Compare website.

Changes to the Patient-Driven Payment Model (PDPM) International Classification of Diseases ICD-10 code mappings were finalized too, so that providers can provide more accurate, consistent and appropriate primary diagnoses that meet criteria for skilled nursing intervention during a Part A Medicare stay.

Zimmet Healthcare Services Group delved into ICD-10 changes in a timely conference earlier this month.