A declining median operating margin means more skilled nursing facilities — particularly poor performers — are entering an economic danger zone, according to the latest analysis from CliftonLarsonAllen. 

CLA found that SNFs’ median operating margin, which compares net income to revenues, dipped below zero for the first time in the report’s history. It currently sits at minus-0.1%. 

In 2018, SNFs that received an overall star rating of three stars or higher experienced an operating margin above the national median, according to the report. SNFs that received an overall star rating of one or two stars, however, experienced operating margins below -1% for 2018. 

“A heightened emphasis on star ratings from hospitals, health plans and consumers has increased the importance of these ratings for SNFs. With the healthcare industry transitioning payment toward value and quality, this rating can impact financial performance,” the report stated.

Low-performing SNFs should pay attention to what high performers are doing, Cory Rutledge, report author and principal at CLA Minneapolis, told McKnight’s. 

“(Leading organizations) are being very mindful of their operating expenses, so they’re really focused on cost control. They’re focused on their CMS Five-Star Rating,” Rutledge noted.

“Some organizations are diversifying. They’re not just a skilled nursing business — they’re (providing) other services, for example, like pharmacy and therapy (services),” he added. 

He also said the decreasing median operating margin is particularly concerning for the lowest-performing SNFs. Analysis findings highlight that their financial viability could be in question, he added.

“We’re starting to see signs of reduced reinvestment back into their facilities because of the sustained negative financial results,” Rutledge explained. He added that if the trend continues, it could ultimately lead to closures of low-performing SNFs. 

The report also found that operators are moving beyond traditional fee-for-service reimbursement and toward I-SNPs, or Institutional Special Needs Plans. Geographic location, however, may be one of the strongest indicators of odds of success.

“One of the things we learned is the state in which you operate is very meaningful,” Rutledge noted. “The Medicaid rate, and a number of other factors, are creating widely ranging financial outcomes for operators.”