The predominant economic trend this year in skilled nursing is “state-specific instability and disparity,” according to the “38th SNF Cost Comparison and Industry Trends Report.” It examined operating margins and was released Friday by accounting firm CliftonLarsonAllen.

Overall, average margins wallowed in negative territory, a byproduct of rising labor and costs that outstripped gains in census. The expiration of emergency pandemic funding casts a shadow over the sector, report authors said, although some states are doing better than others.

“There are divergent margin trajectories across states, with some states facing erosion while others pivot and respond proactively,” CLA authors wrote. “Concurrently, national bed availability diminishes but reductions vary by state. Notable wage rate, occupancy, revenue and expense disparities further underscore the diverse landscape.”

Operating margins continue to shrink. Operating margins nationally have decreased to a negative 0.6%, according to the report. When public health emergency funding isn’t factored in, operating margins declined to negative 3.6% last year.

By comparison, excluding the effects of PHE funding, the median operating margin of SNFs in 2021 decreased to minus 2.7%. The 2021 median operating margin, both including and excluding recognized PHE funding, decreased substantially from 2020 medians.

“Now that the PHE has sunsetted along with PHE-related funding, the question of SNF sustainability is being raised due to these large negative operating margins,” the authors said.

SNFs continue to see substantial increases in expenses. Nationally, over the past three years, patient per day expenses have risen by approximately 15%. At the state level, Illinois experienced  the highest per-patient-day expenses with three-year median change in expense PPD of 26%, compared with Colorado at the low end, at 7%.

Wage inflation also is a real challenge for SNFs across the country, the report stated.

“Total nursing average hourly wages increased 14.7% in 2022, compared to increasing 8.8% in 2021 and 7.4% in 2020,” the authors said. “Nursing contract labor hours as a percentage of total nursing hours increased to 10.2% in 2022, compared to 5.3% in 2021, and only 2.9% in 2020.”

The good news, according to the report, is that revenues experienced a strong uptick, mainly driven by occupancy increases. Over the past three years, the authors noted, per-patient-day revenues have risen by approximately 12% nationally. Even so, revenue growth has fallen short of matching expense growth; hence, the negative operating margins. 

“Over successive years, expenses have consistently outpaced revenues, intensifying margin pressure,” the authors wrote. “During times of economic instability, chief financial officers in many industries typically resort to raising prices and cutting fixed costs to safeguard margins. However, due to the SNF industry’s heavy reliance on government payers and its inherent fixed cost structure, implementing such strategies is not always possible.”

Not surprisingly, the SNF industry faced headwinds from persistent inflation and rising interest rates throughout the first half of this year.

“SNFs operate as capital-intensive enterprises, currently in an economic environment with the highest interest rate levels since 2001,” the authors wrote. “Ownership and management of SNFs require significant upfront investments for facility acquisition, ongoing expenditures for infrastructure, equipment and technology maintenance, and substantial allocations for recruiting and retaining qualified personnel.”