Inside a new annual report on margins and costs for skilled nursing facilities (SNFs) are two major issues owners/operators should be focusing their attention: Medicaid-related advocacy and quality.

The top line highlights from the “40th Annual SNF Cost Comparison and Industry Trends Report Transformation for Excellence” published by consultancy CLA (CliftonLarsonAllen LLP) is that the sector is experiencing a post-COVID recovery, with stabilized occupancy in many markets and a national median occupancy for 2024 at 83.3 percent.

CLA said operating margins have increased to a median of 1.8 percent and paid nursing hours per resident day have stabilized over the last three years at 3.8 hours per resident day.

Beyond those trends, one of the report’s authors, Stephen Taylor, principal, senior living and care segment leader for CLA out of its St. Louis office, tells Park Place Live (www.ParkPlaceLive.com) that the matter of advocating for Medicaid funding is tied directly to the use of quality data to back up the effort.

“Advocacy will be key and that means getting involved with your state AHCA [American Health Care Association] chapter and using data in discussion with legislators to show the high quality of care SNFs are providing, and SNFs essential role in the healthcare ecosystem, especially in light of aging demographics, is a key strategy to influence policy and protect reimbursement levels,” he said.

The report notes that “in an outcomes-driven ecosystem, quality is the leading differentiator, it’s the conduit to referrals and payor partnerships. The alignment between CMS Five-Star ratings, occupancy stability, and margin performance has never been stronger. And increasingly, states are incorporating some quality component as part of their SNF Medicaid rates.”

2028 Looms

Providers may ask why there is a more urgent need to advocate for Medicaid funding when the nursing home sector received a carve-out, avoiding the massive $900 billion in cuts to the program made in President Trump’s One Big Beautiful Bill Act (OBBBA) signed into law in July. Taylor said the need for increased advocacy for the sector is because starting in 2028, the competition for the Medicaid dollars will become even more intense.

Starting in 2028, the OBBBA reduces the provider tax rate in Medicaid expansion states from 6 percent to 3.5 percent, reducing the level by 0.5 percent each year beginning in 2028 through 2032. While the law exempts nursing homes and intermediate care facilities from the phase down, other providers like hospitals will be working hard to get a larger slice of the state Medicaid funding pie.

The CLA report explains that the law’s implications for SNFs include expectations for intensified rate pressure, especially in Medicaid-heavy SNFs and states, with uneven state responses to OBBBA. There is also the need for SNFs to monitor HCBS policy developments to anticipate shifts in referral patterns. And quality and efficiency will be critical for maintaining network inclusion.

“No SNF can ignore the potential of these changes and should be planning now. Positioning for the future will require a deeper knowledge of your state’s Medicaid reimbursement. This presents opportunities for ongoing advocacy,” the report said.

Getting Quality Right

In addition to having favorable quality measures to use for advocacy purposes, Taylor said the manta in the industry on quality is only growing in importance, cutting across how providers access capital markets, are included in value-based care programs, and more favorable reimbursement rates.

“We’ve always known quality matters, but the financial data now proves it. High-quality facilities don’t just deliver better care — they perform better financially. They have higher occupancy, stronger margins, and more stable workforces,” he said.

“In a value-based world, quality is the currency that drives growth. The future belongs to operators who hardwire quality into their business model — clinically, operationally, and financially.

Tax Issues, Too

CLA said in its report that SNFs should also be aware of several tax implications within OBBBA impacting owners and operators. The law:

-          Has a 20 percent qualified business income (QBI) deduction made permanent for pass-through entities, such as partnerships, LLCs, and S-corporations, which are common structures for SNF ownership.

-          Restores and permanently extends a 100 percent bonus depreciation for qualified property, allowing full expensing of new and used equipment and assets acquired and placed in service after Jan. 19, 2025.

-          Amortization and depreciation are permanently removed from the calculation of adjusted taxable income for purposes of the interest deduction limit.

-          And, for nonprofit SNF operators, the excise tax on compensation above $1 million is expanded — impacting executive compensation strategies for tax exempt organizations.

The CLA report is at https://tinyurl.com/yscb3mh3. Besides Taylor, the other authors of the report are Matthew Wocken, Seth Wilson, Paige Potaracke, and Jennifer Boese.

Questions, or comments? Contact Patrick Connole at pconnole@parkplacelive.com.