Skilled nursing facilities (SNF) have benefitted from the rapid growth of Medicare FFS (Part A) admissions during the past 10 years. Part A payment per day is more than double that of Medicaid, and represents the primary driver of profitable growth.    

Health system and hospital consolidation, combined with the growth of Accountable Care Organizations, Medicare Advantage enrollment and bundled (episode of care) payments, has raised concerns with SNF costs and quality. Medicare Advantage discounts vary widely among providers, as does potentially avoidable hospitalizations. 

In this article, we highlight the importance of Medicare, wide variation in Medicare FFS operating margins and quality, and longer-term demographics favorable to the growth of Medicare short-term stays.

Medicaid Drives Resident Stays, but Not Revenues
In 2012, there were 15,643 skilled nursing facilities with 1.67 million beds. The vast majority of facilities, 80.9 percent, were between 50 and199 beds, 13.0 percent are fewer than 50 beds and 6.1 percent are greater than 199 beds.1 For-profit institutions account for 69 percent of the total, whereas non-for-profit (25 percent) and government (6 percent) entities account for the remainder.

Users of skilled nursing facilities users tend to be elderly;  over age 85: 43 percent, 75–84: 27 percent, 65-74: 15 percent and over age 65: 15 percent. Moderate to severe cognitive impairment is found in 63 percent of patients; many are highly dependent for supportive care with four (38.6 percent) or five (23.3 percent) impairments in Activities of Daily Living (ADLs).  Non-Hispanic whites and African Americans are over-represented, whereas are Hispanics underrepresented, relative to the U.S. population mix.

Medicaid accounts for 63 percent of residents and 42 percent of revenues, whereas Medicare accounts for 14 percent of residents and 25 percent of revenues. Private pay (commercial, out-of-pocket) remains an under-recognized driver, as it accounts for 22 percent of residents and 33 percent of revenue.2

The dynamics of payer mix are complex. Occupied bed days represent the best approach to understanding the relationship between payer mix and length of stay. A SNF occupancy rate of 83.0 percent implies 1.38 million occupied beds (residents) each day. Residents may be long stay (Medicaid or “Spend Down”) or short-stay (Medicare Part A, commercial). On any given day, on average, long-stay (institutional) residents account for 61.5 percent of occupied beds and short-stay residents account for the remaining 38.5 percent. The average bed days for long-stay patients exceeds one year, implying limited turnover whereas short stay admissions of 3.3 million imply a far higher turnover of 6:1 for each available bed.

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Skilled Nursing Facilities: Execution, Effectiveness and Size (pdf)