Relative Reimbursement
The “SNF-Economy” does not adhere to traditional business principles. Starting at the Top Line: Instead of Revenue, SNFs have “Reimbursement”. Census, payer-mix, and operating expenses are driven by local dynamics and management, but operators cannot raise/lower prices in response to market changes. This reality presents an intractable underwriting and policymaking challenge, exacerbated by significant variation across state lines.
Reimbursement Considerations: Beyond Medicare
The typical SNF has a dozen fee schedules driving its revenue-cycle, many with conflicting and counterintuitive implications
One constant is the value of Medicare Part A and its role in subsidizing lower, often inadequate, payment from other sources (primarily Medicaid). Rates are often so robust, a small spike in Medicare census can mask underlying weakness in a facility's reimbursement profile and more broadly, in Medicaid's failure to cover operating expenses.
Beyond Medicare, the SNF reimbursement environment is complex and tenuous. Medicaid revenue can be unpredictable, CMMI value-based programs have gained traction, Medicare Advantage and Dual-Advantage enrollment continues to grow unabated, and the share of Medicaid residents lacking supplemental Medicare Part B coverage is increasing in many markets. Meanwhile, FFS Medicare utilization is in decline, so understanding a facility's (and state's) underlying reimbursement reality is essential for assessing financial risk.
Relative Ratios
A SNF's Relative Ratio is calculated by dividing its Relative Rate by the state's average PDPM rate, indexed to the facility's pricing. Using the adjusted state average PDPM rate sets a consistent proxy for both in-state comparison and state-by-state analysis.
County & Statewide Relative Ratios County & Statewide Relative Ratios are simple averages of respective facility Ratios, and reflect regional reimbursement favorability, relative to other markets. The Relative Rate and County Ratio are best for SNF-specific comparison.
Medicaid drives more than half the Relative Ratio variation and therefore, states with lower Relative Ratios generally have Medicaid rates that cover less of a facility's operating costs. Higher ratios indicate more favorable financial environments for SNF operators. Trended over time, the Relative Ratio identifies states becoming relatively more or less favorable for SNF operators.
The attached table details Statewide Relative Ratios from 2019 - 2022. Most telling is how a state's ranking changes from year to year - a story designed for policy as much as underwriting. State Health Departments should understand how funding and rate construction unevenly stress the SNF economic model relative to their unique reimbursement conditions.
Big picture, operators in low Relative Ratios markets must rely more heavily on Medicare Part A to subsidize inadequate Medicaid and managed care reimbursement, and that equation is trending the wrong way for many Skilled Nursing Facilities. Stay tuned.
- Medicaid, Medicare Advantage, Commercial Insurance, ISNP, copayments, Value-Based & Quality incentives, Shared Savings, Private pay, net Hospice revenue, No-Fault, ancillary services, etc.
- Comparable Relative Rates/Ratios are based only on fully-certified Freestanding SNFs. Hospital-based SNFs, CCRCs, and Distinct units are excluded. Specialty-Medicaid units (e.g., Vent) often cannot be identified from the Medicare Cost Report but are removed from comparables as "Relative Outliers".
z-INTEL's mission is to rationalize Skilled Nursing Facility data in support of responsible policymaking and underwriting. Numbers are not data. Context matters.
visit z-INTEL.com for state-specific information and other uniquely contextualized analysis. 
Relative Reimbursement
Marc Zimmet
Skilled Nursing Facility (“SNF”) Perspectives:
Relative Reimbursement
The “SNF-Economy” does not adhere to traditional business principles. Starting at the Top Line: Instead of Revenue, SNFs have “Reimbursement”. Census, payer-mix, and operating expenses are driven by local dynamics and management, but operators cannot raise/lower prices in response to market changes. This reality presents an intractable underwriting and policymaking challenge, exacerbated by significant variation across state lines.
Reimbursement Considerations: Beyond Medicare
The typical SNF has a dozen fee schedules driving its revenue-cycle, many with conflicting and counterintuitive implications
One constant is the value of Medicare Part A and its role in subsidizing lower, often inadequate, payment from other sources (primarily Medicaid). Rates are often so robust, a small spike in Medicare census can mask underlying weakness in a facility's reimbursement profile and more broadly, in Medicaid's failure to cover operating expenses.
Beyond Medicare, the SNF reimbursement environment is complex and tenuous. Medicaid revenue can be unpredictable, CMMI value-based programs have gained traction, Medicare Advantage and Dual-Advantage enrollment continues to grow unabated, and the share of Medicaid residents lacking supplemental Medicare Part B coverage is increasing in many markets. Meanwhile, FFS Medicare utilization is in decline, so understanding a facility's (and state's) underlying reimbursement reality is essential for assessing financial risk.
Relative Ratios
A SNF's Relative Ratio is calculated by dividing its Relative Rate by the state's average PDPM rate, indexed to the facility's pricing. Using the adjusted state average PDPM rate sets a consistent proxy for both in-state comparison and state-by-state analysis.
County & Statewide Relative Ratios County & Statewide Relative Ratios are simple averages of respective facility Ratios, and reflect regional reimbursement favorability, relative to other markets. The Relative Rate and County Ratio are best for SNF-specific comparison.
Medicaid drives more than half the Relative Ratio variation and therefore, states with lower Relative Ratios generally have Medicaid rates that cover less of a facility's operating costs. Higher ratios indicate more favorable financial environments for SNF operators. Trended over time, the Relative Ratio identifies states becoming relatively more or less favorable for SNF operators.
The attached table details Statewide Relative Ratios from 2019 - 2022. Most telling is how a state's ranking changes from year to year - a story designed for policy as much as underwriting. State Health Departments should understand how funding and rate construction unevenly stress the SNF economic model relative to their unique reimbursement conditions.
Big picture, operators in low Relative Ratios markets must rely more heavily on Medicare Part A to subsidize inadequate Medicaid and managed care reimbursement, and that equation is trending the wrong way for many Skilled Nursing Facilities. Stay tuned.
z-INTEL's mission is to rationalize Skilled Nursing Facility data in support of responsible policymaking and underwriting. Numbers are not data. Context matters.
marc@zhealthcare.com