CMS: Skilled Nursing Faces Uncertain Future, Negative Margins by 2040

By 2040, two-thirds of skilled nursing facilities will be operating in the red, signaling more consolidations, partnerships and accountable care organizations (ACOs) on the horizon, according to a recent memo issued by the Centers for Medicare & Medicaid Services’ (CMS) Office of the Actuary. 

Projections show skilled nursing, which has been declining in resident count according to the latest Census data, will by 2040 “have negative total facility margins” and “could not sustain continuing negative margins,” the office writes in an addendum to the 2014 Medicare Board of Trustees report released last week. 

The addendum takes a closer look at Medicare projections under current law, taking into account the impact of the Affordable Care Act’s productivity cuts, which decrease Medicare payments to hospitals. These cuts were previously expected to cost hospitals more than $1 billion in fiscal year 2014, alone. 


“The CMS actuary report points to two alarming facts: The magnitude of the ACA’s productivity cuts are taking their toll on our ability to provide care today, and those cuts will undoubtedly threaten access to care for the next generation of Medicare recipients as nearly two-thirds of skilled centers have negative operating margins,” said Mark Parkinson, president and CEO of the American Health Care Association and National Center for Assisted Living, in commentary on the memo. “ACA’s productivity cuts made unrealistic predictions on just how much additional labor efficiencies can be squeezed from a workforce already doing more with less.”

To comply with the ACA’s requirements, skilled nursing providers — as well as hospitals and home health agencies — may have to discontinue providing services to Medicare beneficiaries, merge with other provider groups or shift substantial portions of Medicare costs to their non-Medicare, non-Medicaid players, the memo states. 

In consolidating or forming partnerships, they can increase their ability to negotiate favorable prices with private health insurance plans and, in some instances, substantially improve cost-effectiveness. 


Still, many experts argue that the ACA productivity requirements must be adjusted before 2040, noting that consistent payment reductions are ultimately unsustainable, regardless of partnership strategy. 

“There is strong likelihood that the productivity adjustments will not be sustainable in the long range,” the memo states. “It is reasonable to expect that Congress would find it necessary to legislatively override or otherwise modify the reductions in the future to ensure that Medicare beneficiaries continue to have access to health care services.”

The CMS addendum follows a trend in ACO movement in the senior housing space, with providers looking at ways they can form partnerships with, or build near, health systems to better position themselves in the changing health care landscape. 

Written by Emily Study

Companies featured in this article: