This is the second of two articles (https://tinyurl.com/waduwspz) focused on the Advance Notice for Medicare Advantage (MA) payment rates for 2027 as released recently by the Centers for Medicare and Medicaid Services (CMS). This article looks at what, if any, correlation there may be between MA rates for Calendar Year (CY) 2027 and the Skilled Nursing Facility (SNF) PPS, which CMS announces in early April.

Last week we talked about the “thud” MA plans heard after CMS released its proposed 0.09 percent rate increase for CY 2027. The expectation was for a 4 to 6 percent bump to account for costs MA plans are experiencing from higher utilization and higher acuity customers. That did not happen as CMS instead prioritized the reigning in of upcoding by insurers as part of the Trump Administration’s focus on eliminating wasteful spending.

So, the logical question now is whether the disappointment experienced by MA plans will happen to SNFs as well when the agency releases the SNF PPS rate in April.

Martin Allen, former senior vice president of reimbursement policy, American Health Care Association/National Center for Assisted Living (AHCA/NCAL), said it’s not likely.

“A 4 to 6 percent increase to cover wage changes sounds reasonable, but last year [FY25] the PPS MBI [Market Basket Index] was 4.2 percent and this year [FY26] they got 3.2 percent,” he said. Next year [FY27] it could be 2.2 percent if the forecast error changes the wrong way.

“CMS uses it [the forecast error correction] to increase or decrease the annual PPS MBI if actual changes differ from previous estimates. A lower MBI could go in the opposite direction of actual annual wage percent increases. SNFs compete for staff with hospitals and all other healthcare settings. My guess is labor could be going up 5 to 7 percent or more.”

From the provider view, SNF PPS has to keep pace with costs, according to Neil Pruitt, chairman and CEO of PruittHealth. Asked if there will be any correlation between what CMS announced for MA rates in 2027 and the SNF PPS, he said, “I hope not. We already have slim margins. We could not withstand a flat increase. This administration has been very accommodating on regulatory relief, and I hope that it will not include a flat rate that could really be disruptive.”

Without guessing a number for the rate increase, Pruitt added that he thinks “it would be our normal inflationary increase.”

How CMS Does Math

CMS adjusts payments for geographic differences in wage levels using the SNF PPS wage index. This index is based on wage and wage-related cost data reported by inpatient hospitals on Medicare cost reports, not from SNFs. CMS uses this hospital data as a proxy to reflect regional labor cost differences across labor market areas (CBSAs).

Allen said CMS updates the wage index using the most recent hospital cost report data and current geographic definitions. The labor-related portion of the SNF federal per-diem rate is multiplied by the applicable wage index for the facility’s area. Year-over-year changes in a region’s wage index value reflect how local wage levels have changed relative to the national average. CMS also applies policies such as a cap on the size of annual wage index decreases to reduce volatility, he added.

It is noteworthy to point out that CMS uses the most recently available “audited” hospital cost reports filed as of the cutoff date for development of the wage index. Allen said this means there may be a one- to two-year lag from the filing time to the audit time.

CMS updates the national base SNF PPS payment rates using the SNF MBI. The market basket measures the annual change in prices of goods and services used to furnish SNF care, like wages, benefits, contract labor, supplies, utilities, and other operating costs.

“Unfortunately, the changes in the annual wage index are a zero-sum game. An increase for one region must be met with a decrease somewhere else so that the total wage index calculation adds up to zero,” Allen said.

“This is very frustrating for providers that don’t have the luxury of the hospital appeal process through the Medicare Geographic Classification Review Board at CMS. It is unfair and anti-competitive that SNFs do not get the same appeal rights.”

Asking a ‘Rodent to Tell the Future’

Jay Gormley, chief investment officer and COO, Advisory, Zimmet Healthcare Services Group, asked in a recent email update that since healthcare/Medicare cost increases drive the MA increase and also the SNF PPS is also somewhat rooted in costs, what does the lack of an increase in the MA rule tell us about the SNF PPS Final Rule?

“Short answer: Absolutely Nothing! You’ve got a better chance of letting a rodent [Groundhog Day reference] tell you the future. Long Answer: I’m kidding, but not really,” Gormley said. He referred to the chart below that shows the Advance MA expected increase percentage (not the final percentage) for every fiscal year since 2019, compared to the SNF PPS Final Rule overall base rate increase for that same fiscal year.

After assessing the possible connections in the chart above, Gormley said the conclusion is there is very close to a zero correlation between two sets of numbers “meaning there’s essentially no linear relationship between the MA expected increase and the SNF PPS.”

Comments or questions? Contact Patrick Connole at pconnole@parkplacelive.com.