Is Skilled Nursing Facility Financial Status Related to Readmission Rate Improvement?

We examined whether higher skilled nursing facility (SNF) lagged profitability is associated with a lower 30-day all-cause all-payer risk-adjusted hospital readmission rate. Our aim was to provide insight into whether SNFs with limited financial resources are able to respond to incentives to lower their readmission rates to hospitals.

We used data from 2012-2016 to estimate a fixed effects (FE) model with a time trend. Our data included financial data from the Centers for Medicare & Medicaid Services Healthcare Cost Report Information System SNF cost reports, facility characteristics including the all-cause all-payer risk-adjusted unplanned 30-day readmission rate from the LTCFocus (Long-Term Care Focus) project at Brown University, and county-level market variables from the Area Health Resource File. We also examined the relationship for a shorter time frame (2012-2015) after stratifying the sample by system membership or ownership.

SNFs with an increase in the lagged operating margin showed a statistically significant, small decrease (<.01 percentage point) in the risk-adjusted readmission rate. The results were robust for different time periods and model specifications. Fixed effects model estimates for SNFs in the highest quartile of percentage of Medicaid patients (≥73.9%) had a lagged operating margin coefficient that is almost four times as large as the coefficient of the FE model with all SNFs.

SNFs have an important role in achieving the national priority of reducing hospital readmissions. The study findings suggest that managers of SNFs should not see low profitability as an obstacle to reducing readmission rates, which is good news given the low average profitability of SNFs. Further, reductions in profitability due to penalties incurred from the recently implemented Medicare Skilled Nursing Facility Value-Based Purchasing Program may not limit SNFs' ability to lower hospital readmission rates, at least initially. However, policymakers may need to determine whether additional resources to high Medicaid SNFs can lower readmission rates for these SNFs.