Medicaid Budget Cuts Impacting Skilled Nursing Facilities: What You Need to Know
As skilled nursing facilities (SNFs) witness stabilization in both occupancy and margins, the industry now braces for significant Medicaid budget cuts under the One Big Beautiful Bill Act (OBBBA) set for 2026. These proposed reductions highlight the importance for SNF operators to stay informed about policy modifications and shifts in referral patterns, which are critical for maintaining regulatory compliance and financial health.
Current State of SNFs: Occupancy and Financial Margins
Insights from CliftonLarsonAllen’s (CLA) 40th SNF Cost Comparison Report reveal that SNF occupancy has improved to 83.3%, up from 2021 lows. Operating margins have risen to 1.8%, a recovery from a negative 0.7% in 2023, excluding pandemic-related federal funds. Steven Taylor, a Principal at CLA, notes improved financial clarity in the industry due to the cessation of extraordinary government support.
Challenges Posed by Medicaid Cuts
The OBBBA introduces approximately $1 trillion in Medicaid reductions over the next decade. These cuts, targeting federal matching rates and eligibility criteria, create potential constraints on state-level Medicaid funding, directly impacting SNF payers and providers. In Medicaid expansion states, provider tax safe harbors will reduce from 6% in 2028 to 3.5% by 2032, affecting SNFs via managed care organization dynamics.
Impact on Reimbursement and Advocacy Efforts
Medicaid accounts for 62.2% of SNF reimbursements, emphasizing its role in covering long-term skilled nursing care. With 54% of Medicare beneficiaries enrolled in Medicare Advantage plans, projected to rise to 60%, SNFs face pressure due to typically lower reimbursements compared to traditional Medicare. Advocacy is crucial at state and federal levels to address these changes.
Operational Strategies for Competitive Advantage
To mitigate financial pressures, SNFs need to understand state reimbursement systems and present outcomes data effectively to Medicare Advantage plans. Facilities with high 5-Star ratings achieve better performance and rely more on permanent staff, influencing payer partnerships. The introduction of the Transforming Episode Accountability Model (TEAM) urges SNFs to track and enhance care delivery metrics.
Strategic Partnerships and Future Outlook
SNFs are encouraged to explore risk-sharing models like institutional special needs plans (I-SNPs) or accountable care organizations (ACOs). These partnerships enable SNFs to leverage their value, proven by data on lower readmission rates and fewer emergency visits. CliftonLarsonAllen, a key player in advisory and consulting, underlines the importance of adapting to regulatory changes while pursuing strategic alliances in the skilled nursing sector.