Median operating margins for skilled nursing facilities dropped in 2021 from 2020 levels — both when factoring with and without public health emergency funding — according to the 37th SNF Cost Comparison and Industry Trends Report delivered by accounting firm CliftonLarsonAllen on Friday.

That is just one ominous sign emerging from the report issued by the top industry examiner. 

Excluding the impacts of public health emergency (PHE) funding, said the report,

the median operating margin of SNFs decreased in 2021 to a negative 2.7%. The 2021 median operating margin, both including and excluding recognized PHE funding, decreased substantially (3.1% to 2.6% including and negative 1.6% to negative 2.7% not including)

from 2020 medians.

The report’s numbers depicting the staffing situation were stark.

Approximately 100 million fewer nursing hours were paid within the SNF industry from 2020 to 2021 — a 7.5% reduction. That includes hours of both in-house staff and contract labor.

“Pre-COVID, SNF operators would have listed access to permanent direct care nursing as a top-three priority and concern, and the post-COVID environment escalated this pressure point significantly,” report authors wrote. “The SNF industry has a tougher time accessing labor and maintaining their workforce compared to other sectors of health care.”

The use of contract labor didn’t begin with the pandemic, the authors pointed out. It increased 19% between 2017 and 2018 and jumped 24% between 2018 and 2019 before skyrocketing the last three years. 

“COVID and the pursuing inflationary economic environment significantly accelerated that trend,” the report noted. “In 2021, 5.5% of all nursing hours were filled by contract labor, which is an 83% increase from the median 2020 contract labor utilization.”

The decreased supply of direct care nursing resulted in approximately two-thirds of SNFs resorting to nursing contract labor in 2021, about a 50% increase compared to 2019, according to the report.

The Biden administration’s plan to impose minimum staffing levels has added another looming obstacle. The CLA report noted that if such a mandate stipulated 4.1 nursing hours per day, the impact would include:

•  94% of nursing homes would need to increase staffing levels to be in compliance.

•  The tab could be $10 billion a year.

•  More than 187,000 additional nurses and nurse aides would need to be hired to meet the standard.

“With an accelerating trend of reliance on nursing contract labor staff, it elevates the concerns of policy makers potentially imposing an unfunded minimum staffing mandate, rather than focusing on the larger issue of enticing direct care nurses to the geriatric

population, increasing funding, and supporting care delivery innovation,” report authors wrote.

There are other operational issues to be concerned about, they added. The U.S. Census Bureau predicts a 115% increase in people 85 years and older from 2020 to 2040. This group is “less capitalized for retirement, has longer life expectancies, and brings increased medical complexity.”

“Though long-term opportunity exists, SNF operators need short-term sustainability,” the authors conclude. “This can be accomplished with a strategic vision and intense

focus on fundamentals like labor, revenue, occupancy, and operating expenses. 

“Recognizing the value SNFs create, many owners and operators are meeting these challenges by proactively participating in risk-based payment models, penetrating and scaling in core markets, and embarking in new strategic partnerships.”