Article | What providers need to know
Navigating changes to Medicare skilled nursing facility reimbursement rates
FY 2026 SNF Proposed Rule
Jun 11, 2025 · Authored by Edward A. Klik, Kristopher Pattison
On April 30, 2025, the Centers for Medicare & Medicaid Services (CMS) released the Fiscal Year (FY) 2026 Skilled Nursing Facility (SNF) Prospective Payment System (PPS) Proposed Rule (CMS-1827-P). This annual update to Medicare skilled nursing facility reimbursement rates and quality program expectations outlines several operational changes that SNF operators must prepare for before the October 1 implementation. While the proposal includes a modest rate increase, it also introduces key updates to the Patient-Driven Payment Model (PDPM) primary diagnosis mappings, Value-Based Purchasing (VBP) incentives and Quality Reporting Program (QRP) requirements that will impact provider strategy.
Payment rate adjustment: A modest increase amid cost pressures
CMS proposes a 2.8% net increase in Medicare Part A SNF PPS payment rates for FY 2026. This is composed of a 3.0% market basket increase, a 0.6% forecast error adjustment and a -0.8% productivity adjustment. Compared to recent fiscal years, which saw 4.0% (FY 2024) and 4.2% (FY 2025) rate increases, this update may feel underwhelming to operators still grappling with inflationary cost pressures and wage growth. However, this increase aligns with historical norms and reflects a return to a more stable reimbursement environment.
It is important to note that this rate increase does not include SNF VBP payment adjustments. Facilities that underperform in VBP metrics may see these increases offset, or negated entirely, depending on quality scores.
PDPM code mapping updates: Reinforcing skilled care justification
One of the more impactful changes proposed for FY 2026 is the remapping of certain ICD-10 diagnosis codes used in PDPM. CMS proposes removing several codes including; diabetes without complications, obesity, anorexia, bulimia and hypoglycemia, from primary diagnosis eligibility. These codes are considered too vague or unlikely to justify a skilled inpatient stay under Medicare Part A.
This change is consistent with CMS’s stated goal to promote accurate, clinically appropriate coding. It also validates the long-standing guidance provided by many advisors that the primary diagnosis used in Minimum Data Set (MDS) assessments must be the reason for which skilled services are rendered. For SNFs, this underscores the need for rigorous documentation and training around diagnosis selection, as improper coding could lead to missed reimbursement opportunities or failed audits.
SNF VBP: Simplification and redistribution
The SNF VBP Program continues to evolve with the addition of more nuanced performance measures. Historically, the program’s incentive structure was based primarily on hospital readmission rates. Starting in FY 2026 and continuing into FY 2027 and FY 2028, CMS is expanding the program’s scope by incorporating new claims-based and assessment-based measures such as staffing levels, healthcare-associated infections, falls with injury, discharge function scores and successful community discharges.
Importantly, CMS is proposing to eliminate the Health Equity Adjustment that previously provided extra scoring consideration to facilities serving a high proportion of dual-eligible residents. Instead, all SNFs will be evaluated against the same performance standards. To account for this shift, CMS proposes increasing the redistribution percentage of withheld funds from 60% to 66%, potentially benefiting high-performing SNFs across the board.
SNF QRP: Timeliness and data element changes
CMS is proposing several changes to the SNF QRP beginning October 1, 2025. These include removing four Social Determinants of Health (SDOH) data elements related to a patient’s living situation, food security and utility access. While relatively small in scope, the removal of these items simplifies the patient assessment process.
More significant, however, is CMS’s proposal to reduce the data correction window from 4.5 months to just 45 days. This change aims to provide more timely quality reporting to SNFs and stakeholders but also places additional pressure on facilities to ensure assessments are accurate upon submission. A shortened correction period means facilities will need tighter internal controls to identify and remedy assessment issues in near-real time.
Failing to meet QRP requirements can result in a 2% reduction to the Annual Payment Update (APU), making compliance a financial imperative. With performance metrics already lagging by several months, these updates are intended to bring greater alignment between current operations and published quality data.
How Baker Tilly supports skilled nursing facilities
As CMS continues to raise the bar on documentation, data quality and value-based outcomes, SNFs must align both operational and financial strategies to maintain reimbursement integrity and support sustainable growth. At Baker Tilly, we help skilled nursing providers make sense of the complexities within Medicare reimbursement and turn them into opportunities.
Our healthcare advisors offer tailored solutions to support facilities in optimizing their PDPM practices, evaluating MDS assessments and preparing for the growing role of quality-based metrics in future payment adjustments. We routinely conduct five-star report analyses and Medicare rate diagnostics to help facilities identify discrepancies between acuity levels and reimbursement, uncover missed revenue opportunities and implement strategies to elevate performance.
For facilities that may be underperforming, now is the time to act. The metrics being tracked today will influence payments for years to come. Identifying and correcting gaps in documentation, assessment procedures or coding logic is not just about compliance; it’s about protecting the financial and reputational health of your organization.
Looking ahead
The FY 2026 SNF PPS Proposed Rule signals CMS’s continued movement toward more dynamic, data-driven approaches to Medicare skilled nursing facility reimbursement rates. While the base rate increase offers modest relief, the broader implications lie in the quality and accuracy of how care is documented and reported.
Providers have until June 30, 2025, to submit comments on the proposed rule. Baker Tilly encourages all SNFs to review the proposed changes in full and consider how they may affect operations and strategy in the coming fiscal year.
Connect with us
If your facility needs help evaluating the potential impacts of the FY 2026 rule, reviewing your PDPM coding strategy or strengthening your value-based performance, Baker Tilly is here to help. Our team of healthcare professionals is ready to work alongside you to uncover opportunities, address risks and prepare your organization for the future of Medicare skilled nursing facility reimbursement rates.
