Industry Pressures and Possibilities: What’s Ahead for Skilled Nursing Facilities

Skilled Nursing Facilities (SNFs) provide a valuable service to communities, meeting the needs of people with complex medical conditions who require short-term rehabilitation or longer-term care. Unfortunately, SNFs are navigating an increasingly complicated operational environment shaped by shrinking capacity, workforce shortages, new payment models, rising costs, and regulatory pressures. The shift from traditional Medicare to Medicare Advantage, combined with inadequate Medicaid funding, has resulted in revenue not keeping pace with higher costs related to staffing challenges and inflation. Conversely, changing demographics and evolving market demands are opening the door to new revenue streams and care models.

To remain resilient amid the volatility, SNFs need to stay on top of what’s impacting operations and consider strategic opportunities. Here are important trends to watch. 

The inexorable move towards value

The shift toward value-based payment (VBP) in Medicare and Medicaid continues. To secure reimbursement in these models, SNFs must consistently demonstrate positive quality outcomes, such as reduced hospital readmissions, enhanced patient satisfaction, and better long-term resident health. 

SNFs that do well in these models relentlessly focus on quality; have a plan for understanding and improving key metrics; and designate a point person or team to lead quality improvement efforts. They incorporate quality measures in their dashboards and discuss them along with benchmark data that shows how they compare with peers. 

Even outside of VBP, there are numerous benefits to making quality improvement a priority. Strong quality outcomes assist with contracting, reimbursement, marketing, and even family satisfaction. They can also make a SNF more attractive for accountable care organization participation or hospital partnerships.

The shift to Medicare Advantage (MA) 

Medicare Advantage enrollment continues to outpace traditional Medicare Part A, causing challenges for post-acute care providers. Compared with traditional Medicare, MA plans typically have shorter lengths of stay, lower reimbursement, and a more cumbersome preauthorization process.

Building strong relationships with area hospital networks and physician groups can drive admissions to a SNF’s location, which can help counterbalance some of MA’s challenges. 

SNFs should connect with the MA plans in their market to review reimbursement rates. Some plans have not increased provider rates recently, which presents opportunities for SNFs to proactively reach out to negotiate higher rates. SNFs that are prepared to show positive quality outcomes, including reduced hospital readmissions and solid CMS 5–star ratings, are more likely to be successful with these conversations. 

The move to the Patient-Driven Payment Model (PDPM) for Medicaid

In October 2019, SNFs transitioned from the volume-based RUG-IV reimbursement model to the Patient-Driven Payment Model for their Medicare reimbursement. Most SNFs made the shift smoothly, and by early 2020, were well-versed in the new payment model. Now, the majority of states are shifting to PDPM for Medicaid by the end of 2025, and this transition may prove more complex. Data suggests that the case mix index under Medicaid PDPM is lower than it was under RUG-IV. 

Many states are phasing in Medicaid PDPM to give organizations time to fully understand how to complete the new model’s minimum data set and assess the related impact to their Medicaid reimbursement. This also gives the state Medicaid programs time to adjust their calculations and reimbursement methodology, if needed. SNFs that haven’t yet adopted the Medicaid PDPM would benefit from connecting with peers in other states, who may offer lessons learned and best practices to ease the shift. 

Greater scrutiny for Payroll-Based Journal (PBJ) reporting

While there’s been improvement, SNFs continue to struggle with staffing shortages. This coupled with increased scrutiny of Payroll-Based Journal (PBJ) submissions, means that SNFs should be ramping up their PBJ accuracy and reporting efforts. 

PBJ submissions affect an organization’s star rating. When a SNF misses the deadline or the data is significantly inaccurate, it can result in a 1-star rating for staffing, which reduces the organization’s overall 5-star rating. This can negatively impact managed care contracting, referral source relationships, and Medicaid reimbursement for those programs that tie payment to star ratings. 

Staying vigilant to reporting deadlines is essential. Many organizations miss the PBJ filing date or send inaccurate staffing data because they lack an appropriate internal process. Having more than one person involved in the PBJ submission, establishing calendar reminders, and utilizing a PBJ focused software are relatively easy ways to avoid missing the deadline. Reviewing PBJ reports well in advance of the due date is also wise to allow sufficient time to check data accuracy and make the appropriate adjustments. 

Diversified revenue streams 

As margins tighten, SNFs are beginning to explore additional revenue opportunities, such as short-term rehabilitation facilities, ventilator units, dialysis services, and memory care areas to list a few.

Before pursuing a new service, a SNF must first understand the market, whether there are underserved needs, and who the competitors might be. An organization can gather this information from discussions with hospital referral sources as well as considering a market study to understand demographic data along with hospital DRGs and discharge data. 

The organization should also think through operational logistics. What clinical skill set or capabilities would be required? Are there special certifications, physical space requirements, or equipment needs? How would the census and payor-mix be affected? 

Potential reimbursement should be a consideration as well. Is there higher reimbursement through Medicare? Is there additional reimbursement through a state Medicaid program, such as for ventilator services, memory care or behavioral care? 

Collecting and analyzing this data may seem daunting. This is where a third-party could be useful, gathering and interpreting information to help make an informed decision. 

Institutional Special Needs Plan (I-SNP) participation

I-SNPs present another revenue stream opportunity, emphasizing quality, with the goal of keeping individuals healthy and minimizing unnecessary hospital stays. 

An I-SNP typically provides a nurse practitioner enhanced technology and access to best practice clinical pathways, which can strengthen an organization’s clinical operations. Providers that participate in an I-SNP may be eligible to receive bonus payments if they achieve designated quality benchmarks. 

Residents benefit from I-SNP participation because these plans are designed for the nursing home industry. While a standard managed care plan may offer gym memberships or other perks designed for active seniors still living at home, an I-SNP may offer SNF-focused benefits, such as dental, or free barber and beauty services.

All SNFs should evaluate the potential for I-SNP participation. Because of the quality emphasis in these programs, they often improve long-stay outcomes, which can provide an additional advantage if the SNF is part of a state Medicaid program that has a value-based or quality-based reimbursement component. Participation in an ISNP allows the provider to share in the financial rewards for achieving solid clinical outcomes vs the upside only going to the MA organization. 

A strategic approach is necessary

SNFs are facing a period of great change, driven by emerging payment models, cost pressures, and growing demands for services. This environment requires clear priorities and a strategic plan that connects day-to-day efforts to long-term goals. When continuous focus on quality improvement is foundational to the plan, SNFs can position themselves to adapt, compete, and thrive both now and in the years ahead.

Photo: baona, Getty Images

Denise Leonard is a Partner and CPA at Plante Moran, based in Cleveland, Ohio. With over 25 years of experience in the healthcare industry, she specializes in assisting post-acute healthcare organizations — including skilled nursing facilities, ICF/IIDs, hospital-based SNFs, continuing care retirement communities, and home health and hospice providers — to navigate the evolving landscape of healthcare reimbursement. Denise’s expertise lies in optimizing revenue cycle processes and developing strategic solutions that position organizations for success. Denise received her B.A. in accounting from the University of Akron. She is a member of the American Institute of CPAs (AICPA) and serves on the advisory board of Welcome House, an organization dedicated to supporting individuals with developmental disabilities.

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