The Medicare Payment Advisory Commission (MedPAC) has recommended that Congress reduce nursing home Medicare base payment rates by 3% for 2026. The Commission tempered their cut, they said, acknowledging uncertainty around the impact of the new nurse staffing requirements on costs to the sector next year.

While many in the sector expect the mandate to dissolve either by litigation or Congressional action, it officially is still being implemented. The Commission recommended the same 3% cut last year. MedPAC’s report also reported on specifics around access to care, quality of care, and providers’ access to capital for nursing homes, along with Fee-for-Service (FFS) Medicare payments and providers’ costs and Medicaid trends.

The number of skilled nursing facilities declined by 1% in 2024, MedPAC found, but that the closures likely don’t reflect the adequacy of Medicare payments, given that Medicare is a “small share” of most nursing homes’ business.

“In 2023, 88 percent of Medicare beneficiaries lived in a county with three or more SNFs or swing-bed facilities (rural hospitals with beds that can serve as either SNF beds or acute care beds), and this share has remained the same since 2018,” MedPAC said in the report.

Medicare-covered skilled nursing facility admissions per 1,000 fee-for-service (FFS) beneficiaries decreased by 12% between 2022 and 2023, they said, and Medicare-covered days per 1,000 FFS beneficiaries decreased by 8%.

Medicare and Medicaid margins

Marginal profit, an indicator of whether nursing home operators have an incentive to treat more Medicare beneficiaries, averaged 31% in 2023, MedPAC reported.

“This profit is a strong positive indicator of beneficiary access to SNF care, though factors other than the level of payment, such as bed availability or staffing shortages, could challenge access,” MedPAC said.

FFS Medicare payments per day increased 2.4% between 2022 and 2023, MedPAC found, while growth in costs per day increased 3.8%. Meaning, the increase in payments didn’t match the increase in costs. FFS Medicare margin on average was 22% in 2023, but varied greatly among facilities. It reflects the costs per day, economies of scale, and cost growth, MedPAC reported.

MedPAC anticipates a FFS Medicare margin of 23% for skilled nursing facilities in 2024.

As for Medicaid, the 2023 revenue margin was still negative 4.1%, but that’s still an improvement from 2022, MedPAC said. The negative 4.1% statistic is characterized as the average “non-FFS Medicare” margin. In other words, the percentage of revenue from all payers, sources, and lines of business except FFS medicare skilled nursing services.

The improvement in Medicaid margin reflects the increases in Medicaid base payment rates made by many states, they said.

The number of Medicaid-certified facilities declined 1.1% to about 14,300 facilities between December 2023 and October 2024, MedPAC reported. Medicaid spending was $42.5 billion, or 5.6% more than in 2022.

Quality of care, access to capital

Quality of care was hard to capture in the report, due to a lack of data on patient experience; it’s a common ask among those in the industry to make the Five-Star Rating System more accurate. MedPAC was also concerned about the accuracy of provider-reported function data limiting its set of sector quality measures.

Between 2022 and 2023, the mean facility risk-adjusted rate of successful discharge to the community from skilled nursing facilities was 50.9%, similar to the rate for 2021 and 2022. The mean facility risk-adjusted rate of hospitalizations was 10.4%, also similar to 2021 and 2022.

As for access to capital among skilled nursing providers, MedPAC said the sector continues to be attractive to investors. There were 144 publicly announced M&A transactions in the first six months of 2024, they said, on pace for record transaction volume.

Total margins from all payers, sources and lines of business – after accounting for all costs – improved from negative 1.3% in 2022 to 0.4% in 2023, MedPAC reported.

“Total margins may be understated, given the complex arrangements many nursing homes have with third parties,” MedPAC noted.