Washington, D.C. — The advisory body that shapes Medicare payment policy just sent Congress a blunt message: nursing homes are being paid too much, and it’s time to bring rates down.
The Medicare Payment Advisory Commission released its annual report to Congress this week, unanimously recommending that lawmakers cut Medicare base payment rates for skilled nursing facilities by 4 percent for fiscal year 2027. All 17 commissioners voted yes. Not one dissented.
The recommendation isn’t a surprise — MedPAC telegraphed the move at its January meeting. But the formal report landing in Congress gives the proposal real weight, and the industry isn’t taking it quietly.
The numbers MedPAC is pointing to
MedPAC’s argument rests on a straightforward calculation: nursing homes are making too much money on Medicare patients relative to what it actually costs to care for them.
The commission found that the FFS Medicare margin for freestanding skilled nursing facilities reached 24 percent in 2024 — up from 22 percent the prior year. In plain terms, for every dollar Medicare paid, facilities kept 24 cents as profit. That’s after all costs.
Meanwhile, Medicare payments per day rose 4.9 percent from 2023 to 2024, while the actual cost of care per day rose just 2.3 percent. The gap is widening, and commissioners say that’s the core problem.
MedPAC also noted that overall SNF finances — while still pressured on the Medicaid side — are improving. The all-payer total margin climbed from 0.4 percent in 2023 to 2.1 percent in 2024. Investors have noticed: the report describes the sector as “attractive,” with stable price-per-bed values and an optimistic outlook on HUD loan availability.
What operators will say
The industry’s counterargument is familiar but real. Medicaid — which funds the majority of long-term care — still pays below cost, with an average non-Medicare margin of negative 2.3 percent in 2024. Nursing homes rely on the Medicare surplus to offset Medicaid losses, keep facilities staffed, and maintain operations.
A 4 percent Medicare cut, operators argue, doesn’t happen in isolation. It hits at a moment when Medicaid funding faces potential federal cuts, staffing costs remain elevated, and occupancy rates — while recovering — haven’t fully bounced back. Many facilities are still closing beds or turning away admissions because they can’t find or keep workers.
The commission acknowledged the staffing problem directly, noting that registered nurse staffing levels and nursing turnover rates “remain concerning” across the sector.
The report also surfaced a separate issue that could reshape how facilities are rated publicly. MedPAC examined alternative ways to calculate the five-star rating system and found that giving more weight to staffing — rather than the current emphasis on annual inspections — would shift ratings by one star for the majority of nursing homes. That’s a policy change worth watching for operators who’ve spent years building their star-rating strategies around inspection performance.
What happens next
MedPAC’s recommendations are advisory. Congress isn’t required to act on them. But they carry significant influence, and the recommendation’s timing adds pressure as lawmakers weigh broader Medicare spending decisions.
For nursing home operators already navigating uncertainty around Medicare payment add-ons for complex patients, a 4 percent base rate reduction on top of ongoing policy shifts would compound an already difficult financial picture. Industry groups are expected to push back hard when the proposal gets traction on Capitol Hill.
