Of the many significant factors affecting the skilled nursing industry in the last five years, Medicare Advantage was named as a major disruptor, as cost reports show a shift in operating margins with more facilities struggling financially.

Stephen Taylor, principal of senior living and care segment leader for CliftonLarsonAllen (CLA), said MA has had “one of the most profound” impacts on the sector, especially as it grew during Covid. Medicare Advantage’s growth has significantly reshaped SNF payer dynamics, he said.

Taylor earlier this month spoke about major factors shaping the sector along with colleague Seth Wilson, CLA principal of data analytics, during a webinar companion to its 39th annual cost report. Other influences named by CLA experts were quality and occupancy, labor costs, Medicaid reliance, demographic shifts and industry consolidation.

Medicare Advantage enrollees make up more than 50% of all Medicare beneficiaries in many states. While nursing homes were focused on patient and resident care during the pandemic, MA organizations were busy strategically growing and “creating a bit of a chess match” within the industry, Taylor said.

“What I mean by that is, while Medicare Advantage is comprising more and more of enrolled Medicare beneficiaries, at the same time [MA is] navigating patient flow within SNFs, reimbursement rates, utilization, and administrative cost,” said Taylor.

Major payer, major burden

From an episodic perspective MA in many states is becoming the major payer, Taylor said. However, this is also creating a huge administrative burden for nursing home operators, as well as complicating the understanding of the dynamics behind referral sources and the management of episodic patients.

MA reimburses on average 20% to 30% less than traditional Fee-for-Service Medicare. And while there may be occupancy gains with MA enrollees, there isn’t the same amount of financial benefit, Taylor said.

“A shift from Medicare to managed care erodes average revenue per patient day, but the staffing levels required to deliver that care plan remains the same. It just means trimmed margin,” said Wilson.

Operators have been in a tough spot, needing to increase occupancy with less administrative burden for staff in a sector-wide workforce shortage. But they have no choice but to align themselves with MAOs.

“At the end of the day, providing quality care and aligning yourself with [MA] payers is going to be a long term strategy. Medicare Advantage growth is absolutely not slowing down. It is speeding up,” said Taylor.

Some states have seen a significant increase in MA in the last 18 months, with Michigan experiencing a 6% increase to land at 62% MA penetration and 4.2% increase in Minnesota to 60% MA penetration.

Some Northeast states are lagging, with New Hampshire and Massachusetts only seeing 35% and 36% MA penetration, respectively. Despite state variation, MA growth overall is happening across the country, said Taylor.

“While this is fundamentally reshaping the financial landscape, SNFs can adapt to the realities of potentially lower reimbursement by prioritizing efficiency, quality care, value-based care partnerships,” noted Taylor.

Occupancy, closures and population shifts

Overall, leaders in the nursing home industry need to shift from a crisis-management mindset to a strategic, forward-looking approach, including rethinking occupancy gains. High occupancy doesn’t guarantee profitability like it did in the past, and looking ahead there’s a need for multifaceted health approaches.

Top line occupancy doesn’t always correlate to positive margins, Taylor said. If a nursing home has a high reliance on Medicaid, low skilled mix and high labor costs, total margins would be compromised. Couple this with payer source shifts and the future looks challenging. 

CLA found that Medicaid is increasing overall as a payer source along with MA, while traditional Medicare is declining. 

“While that works for the right facilities in states that have better Medicaid rates, others are struggling, and they’re disappointed as they hope to maintain or increase their short stay volume,” said Wilson. “This is a greater concern for facilities that are operating in markets where there is a greater gap in Medicaid funding and operating costs.”

In terms of demographics, CLA anticipates individuals aged 85 and older will grow by 550,000 by 2029, while those aged 45 to 64 will decline almost at the same rate.

“We’re seeing a continued reduction in certified beds, continued reduction in providers,” said Taylor. Bed reductions may indicate a surplus capacity in some markets, but in others it’s a result of economic challenges tied to state Medicaid programs.

Since 2020, 774 nursing homes have closed, with 62,567 beds lost and 28,421 residents displaced, CLA reported.

Moving forward, CLA leaders said strategies for nursing home operator success must include data-driven decision making, operational efficiency and a clear plan. Timely financial reporting, appropriate reimbursement and leveraging digital strategies are all important factors in success strategies as well, they said. 

Understanding the current environment and adapting to new realities, while also investing in quality and efficiency, will help get operators on the right footing.