Size of the Financial Incentives in Medicare's Skilled Nursing Facility Value-Based Purchasing Program

The Skilled Nursing Facility Value-Based Purchasing (SNF VBP) program is the largest test to date of the use of financial incentives to incentivize reductions in hospital readmissions from SNFs. Initial evaluations suggest the program was not successful, and a key question is to what extent the size and distribution of the financial incentives may have played a role.

To measure the scale and scope of the SNF VBP financial incentives in the first 3 years of the program in which incentives were assessed (2019-2021).

This is a retrospective cohort study of eligible stays, associated Medicare reimbursement amounts, financial incentive percentage assessed by SNF VBP, and proportion of financial incentive to SNF net operating revenue for each participating SNF in each year of the program. All SNFs certified by the Centers for Medicare & Medicaid Services are required to participate in the VBP program. Participants included fee-for-service Medicare beneficiaries discharged from hospital to SNF for postacute care using the same inclusion and exclusion criteria as the SNF VBP program. Data were analyzed from March 2022 to December 2024.

Financial penalties (up to 2% of all Medicare fee-for-service reimbursement for that year) or bonuses (up to 3% of all Medicare fee-for-service reimbursement for that year) for performance on risk-adjusted 30-day readmission rates.

The primary outcomes were the annual amount of Medicare revenue subject to financial incentive and the financial incentive percentage for SNFs in the program, calculated by multiplying the total annual fee-for-service revenue for each SNF by the incentive multiplier published in the public SNF VBP data files.

The analytic sample included 5 392 281 qualifying SNF stays in 14 189 SNFs. In the first 3 years of the program, the median (IQR) reimbursement adjustment across SNFs was -$10 336 (-$27 373 to $0), or 0.15% of the median SNF net operating income. Financial incentives varied greatly from year to year for individual SNFs: only 22.3% of SNFs (3167 SNFs) remained in the same quartile in all 3 years, and a substantial minority of those that changed quartiles moved more than 1 quartile from year to year (38.3% [2890 SNFs] from 2019 to 2020, and 44.3% [3101 SNFs] from 2020 to 2021).

This cohort study of the SNF VBP program found that financial incentives were small, with large year-to-year variability for individual SNFs. This may have limited the program's ability to induce meaningful investments to reduce hospital readmission.