Skilled nursing facilities are at a critical crossroads, with the successful and the struggling showing more disparity than ever — and the gaps are likely to widen, warned analysts with CLA on Thursday.
Rising labor costs, increased reliance on Medicaid reimbursement and the continuing growth of Medicare Advantage are the key drivers to the expanding schism, they noted while releasing CliftonLarsonAllen’s 39th Annual SNF Cost Comparison and Industry Trends Report.
The examination of provider performance nationwide is the first to take a five-year “bookended” look that uses pre- and post-pandemic operational benchmarks.
“The operators that apply more of a business approach, embracing data and focusing on a disciplined strategy are proving to be better positioned for long-term sustainability,” said two of the report’s co-authors, CLA principals Stephen Taylor and Seth Wilson, in comments emailed to McKnight’s Long-Term Care News.
“We see some operators coming through with sustainable margins that allow them to continue to invest, while others face financial instability. There’s no single solution, but those evolving their business practices and optimizing reimbursement are leading the way.”
Subtitled, “The Great Divergence,” the report’s main thesis is clearly indicated by the fact that 36.3% of SNFs had operating margins at or below minus-4% in 2023 (an increase of 3.8% over 2019). Meanwhile, more than one-third (33.7%) maintained 2023 margins of 4% or more, an increase from 29% in 2019.
For the first time since 2019, SNFs’ nationwide median operating margin grew in 2023, albeit by just 0.1%. When excluding extra government funding that came due to the public health emergency, the median margin was minus-1% (which still indicates a 2 percentage point increase over last year).
The national median SNF occupancy rate rose to 80.2% in 2023, well above the low of 72.9% in 2021. But it still has a ways to go to reach the 2019 pre-pandemic benchmark of 85.8%.
Individual state occupancies ranged from just over 60% to more than 95% in 2023, underscoring the varied nature of individual performances, a dynamic analysts Taylor and Wilson stressed often.
Consolidation woes
The CLA report also noted that while the elderly population is booming and the supply of working age adults is dropping, the numbers of nursing facilities and certified beds have fallen. Since 2020, 774 nursing homes have closed and more than 62,000 beds have been lost, report authors said, citing American Health Care Association statistics.
“This is leading to greater consolidation in the SNF space, as the gap between the haves and have-nots is widening,” they wrote. Such consolidation has been more likely to benefit larger, more resilient providers, while smaller operators struggle with greater financial strain and competition, they added.
Nonetheless, expenditures for direct nursing care rose from $32.6 billion in 2019 to $40.3 billion for 2022, even as overall nursing hours slid. Projections factoring in the federal staffing mandate soar the spend figure to $49.4 billion with significantly more nursing hours nationwide in 2023.
Report numbers also highlighted the rapid growth of Medicare Advantage enrollment — one of the biggest discussion points among the CLA team, they said. In just 18 months, the number of states with 50% or more enrollment has doubled. Medicaid has remained steady while Medicare fee-for-service is at its lowest rate in “at least” five years, they noted.
The danger, they explained, is that while good MA partnerships can raise occupancy levels, MA pay rates are often lower than traditional Medicare, thus challenging facility management.
On the staffing front, the report showed that nurse turnover had moderated by 3% to 5% over the last three years. It also confirmed that better performing facilities had lower turnover and generally less use of agency staffing.
“There is a positive outlook for operators looking to recruit and retain employed nurses as contract labor use declined from 2023 to the first quarter of 2024, continuing to trend away from double digits,” report authors noted.
As McKnight’s has previously reported, the CLA confirmed wage growth continued to moderate over the last year. The rate slowed to a 6.2% rise in 2023, lower than any time during the pandemic, according to Thursday’s release.
Better focus needed
Operators that are struggling need to focus more on broader strategic issues. The CLA report showed a direct correlation between lower operating margins, census levels and greater use of agency staff.
“The SNF industry is at a critical juncture where leaders must shift from a crisis-management mindset to a strategic, forward-looking approach,” CLA’s researchers wrote. “By understanding the current environment, adapting to new realities, and investing in quality and efficiency, SNF operators can navigate this challenging period and emerge stronger.”
Persistent labor costs, lower reimbursements and occupancy challenges will continue, the report’s authors pointed out, adding that operational agility is important, as some operators have improved their margins during the pandemic years.
“There’s a growing disparity between facilities that adapted quickly to the new environment and those still struggling,” they observed. “This disparity is likely to widen as external pressures persist.”
