SKILLED NURSING 

FACILITIES

CMS Should Improve 

Accessibility and 

Reliability of 

Expenditure Data

Report to Congressional Requesters

September 2016

GAO-16-700

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-16-700, a report to 

congressional requesters

September 2016

SKILLED NURSING FACILITIES

CMS Should Improve Accessibility and Reliability of

Expenditure Data

Why GAO Did This Study

Medicare paid $28.6 billion to SNFs for 

nearly 1.7 million beneficiaries in 2014. 

About 15,000 SNFs provide short-term 

skilled nursing and rehabilitative care 

after an acute care hospital stay. As of 

2014, 70 percent of SNFs were forprofit, 24 percent were nonprofit, and 5 

percent were government-operated. 

About three-fifths of the SNFs were 

affiliated with chains. The average SNF 

Medicare margin was 12.5 percent. 

Some researchers have questioned

whether SNF margins come at the 

expense of patient care in the form of 

low nurse staffing levels.

GAO was asked to provide information 

on how SNFs spend their Medicare 

and other revenues. GAO examined

(1) the extent to which the expenditure 

data CMS collects from SNFs and 

provides to the public are accessible 

and reliable, (2) how SNF costs and 

margins vary by facility characteristics, 

and (3) how SNF nurse staffing levels 

vary by facility characteristics and the

relationship between SNF nurse

staffing levels and margins. GAO 

analyzed Medicare cost report data for

fiscal years 2011 through 2014, the 

most recent years with complete data 

available. GAO also interviewed CMS 

officials, researchers, and beneficiary 

advocates.

What GAO Recommends

GAO recommends that CMS (1)

improve public stakeholders’ ability to 

locate and use SNF expenditure data 

and (2) ensure the accuracy and 

completeness of the data. HHS 

concurred with the first but not the 

second recommendation, citing 

resource considerations. GAO 

continues to believe that CMS should 

provide reliable SNF expenditure data.

What GAO Found

The Centers for Medicare & Medicaid Services (CMS)—the agency within the 

Department of Health and Human Services (HHS) that administers Medicare—

collects and reports expenditure data from skilled nursing facilities (SNF), but it 

has not taken key steps to make the data readily accessible to public 

stakeholders or to ensure their reliability. SNFs are required to self-report their 

expenditures in annual financial cost reports, and CMS posts the raw data on its 

website. However, CMS has not provided the data in a readily accessible format 

and has not posted the data in a place that is easy to find on its website, 

according to public stakeholders and GAO’s observations. In addition, CMS does 

little to ensure the accuracy and completeness of the data. Federal internal 

control standards suggest that agencies should make data accessible to the 

public and ensure data reliability. Until CMS takes steps to make reliable SNF 

expenditure data easier to use and locate, public stakeholders will have difficulty 

accessing and placing confidence in the only publicly available source of financial 

data for many SNFs.

GAO found that, for each fiscal year from 2011 through 2014, direct and indirect 

care costs were lower as a percentage of revenue, on average, at for-profit SNFs 

compared with nonprofit and government SNFs. Direct and indirect care costs 

were similarly lower at chain SNFs compared with independent SNFs. In 

addition, the median margin, which measures revenue relative to costs, was 

higher for for-profit and chain SNFs than for other SNFs in each of the 4 years.

The relationship between SNFs’ nurse staffing levels (hours per resident day)

and their margins varied by ownership type in each fiscal year from 2012 through

2014, the 3 years with complete staffing data. For-profit SNFs generally had

lower nurse staffing ratios than did nonprofit and government SNFs. Examining

each fiscal year separately, GAO estimated that a SNF’s margin had a small, but 

statistically significant, effect on its case-mix adjusted (that is, adjusted for 

residents’ health care needs) nurse staffing ratios. For example, for each 

percentage point increase in a for-profit SNF’s margin in fiscal year 2014, GAO 

estimated that the SNF’s total nurse staffing ratio (including registered nurses, 

licensed practical nurses, and certified nursing assistants) decreased by 4.1

minutes per resident day after controlling for other factors. However, in GAO’s 

analyses, these other factors, such as geographic location, were more important 

predictors of a SNF’s case-mix adjusted nurse staffing ratios.

SNFs’ Average Nursing Time and Median Margins, by Ownership Type, Fiscal Year 2014

Ownership type

Reported average nursing time per resident day Median

All nurses Registered nurses margin

For-profit 3 hours, 53 minutes 34 minutes 19%

Nonprofit 4 hours, 7 minutes 38 minutes 15

Government 3 hours, 59 minutes 32 minutes 13

Source: GAO analysis of Medicare cost report data. | GAO-16-700

Note: All nurses include registered nurses, licensed practical nurses, and certified nursing assistants. A margin is the difference 

between revenues and costs, divided by revenues, and expressed as a percentage.

View GAO-16-700. For more information, 

contact James Cosgrove at (202) 512-7114 or 

cosgrovej@gao.gov.
Page i GAO-16-700 Skilled Nursing Facilities

Letter 1

Background 6

CMS Has Not Made SNF Expenditure Data Readily Accessible 

and Does Not Adequately Ensure Data Reliability 10

For-Profit SNFs Generally Had Lower Direct and Indirect Care 

Costs as a Percentage of Revenue and Higher Margins than 

Did Nonprofit and Government SNFs 14

For-Profit SNFs Had Lower Nurse Staffing Levels Than Other 

SNFs, and Nurse Staffing Levels Estimated to Decline Slightly 

as Margins Increase 19

Conclusions 22

Recommendations for Executive Action 22

Agency Comments and Our Evaluation 22

Appendix I Additional Detail on the Methods and Results of Our Expenditure 

Analyses 25

Appendix II Comments from the Department of Health and Human Services 31

Appendix III GAO Contact and Staff Acknowledgments 34

Tables

Table 1: Nursing Time at Skilled Nursing Facilities (SNF), by 

Ownership Type, Fiscal Years 2012-2014 19

Table 2: Estimated Effect of a 1 Percentage Point Increase in a 

Skilled Nursing Facility’s (SNF) Margin on Its Case-Mix 

Adjusted Nursing Time, by Ownership Type, Fiscal Years 

2012-2014 21

Table 3: Components of Cost Categories 25

Table 4: Average Nursing Time per Resident Day for Skilled 

Nursing Facilities (SNF) from Medicare Cost Reports and 

the Certification and Survey Provider Enhanced Reports 

(CASPER), 2013 27

Table 5: Regression Analysis on the Effect of Various 

Independent Variables on Skilled Nursing Facilities’ (SNF) 

Case-Mix Adjusted Total Nursing Hours per Resident 

Day, Fiscal Years 2012-2014 29

Contents
Page ii GAO-16-700 Skilled Nursing Facilities

Table 6: Regression Analysis on the Effect of Various 

Independent Variables on Skilled Nursing Facilities’ (SNF) 

Case-Mix Adjusted Registered Nurse Hours per Resident 

Day, Fiscal Years 2012-2014 30

Figures

Figure 1: Average Costs Related to Direct Care and Indirect Care 

as a Percentage of Revenue for Skilled Nursing Facilities 

(SNF), by Organization Type, Fiscal Years 2011-2014 15

Figure 2: Median Margins for Skilled Nursing Facilities (SNF), by 

Organization Type, Fiscal Years 2011-2014 18

Abbreviations

CMS Centers for Medicare & Medicaid Services

CNA certified nursing assistant

LPN licensed practical nurse

PPACA Patient Protection and Affordable Care Act

RN registered nurse

SNF skilled nursing facility

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately.
Page 1 GAO-16-700 Skilled Nursing Facilities

441 G St. N.W.

Washington, DC 20548

September 7, 2016

Congressional Requesters

Medicare paid $28.6 billion to skilled nursing facilities (SNF) for nearly 1.7 

million beneficiaries in 2014.1 The nation’s approximately 15,000 SNFs 

provide short-term skilled nursing and rehabilitative care to Medicare 

residents following an acute care hospital stay. Most SNFs are distinct 

units (such as buildings, floors, or wings) within nursing homes that also 

provide long-term care, which Medicare does not cover. Medicare SNF 

residents include those recovering from surgeries, such as joint 

replacements, and health conditions, such as stroke and pneumonia.

To participate in Medicare, SNFs must meet minimum federal quality and 

life-safety standards and must submit annual cost reports. The cost 

reports are the only publicly available source of financial data for many 

SNFs. The reports also capture information on facility characteristics and 

nurse staffing levels. The Centers for Medicare & Medicaid Services 

(CMS), the agency that administers Medicare, provides the cost report 

data to the public and uses the data to update SNF payment rates. Public 

stakeholders, such as beneficiary advocates and researchers, could use 

the cost report data to compare SNFs’ costs for resident care, among 

other things. SNFs participating in Medicare can decide how much to 

spend on resident care and other costs and how much to retain. In 2014, 

the average SNF Medicare margin, which measures payments relative to 

costs, was 12.5 percent.2

Some researchers have questioned whether SNFs’ margins are coming 

at the expense of resident quality of care in the form of low nurse staffing 

 1

Medicare is the federal health insurance program for people age 65 and older, individuals 

under age 65 with certain disabilities, and individuals diagnosed with end-stage renal 

disease. At the time of our analysis, 2014 was the most recent year with available data.

2

A margin is the difference between revenues and costs, divided by revenues, and

expressed as a percentage. For example, the average 2014 margin of 12.5 percent 

means that the average SNF had a net income of $12.50 for every hundred dollars of 

revenue. For for-profit SNFs, a margin is a measure of profitability. For nonprofit and 

government SNFs, a margin reflects the share of surplus revenue.

Letter
Page 2 GAO-16-700 Skilled Nursing Facilities

levels.3 For example, to increase their margins, SNFs could reduce 

staffing levels or provide residents with fewer or a less expensive mix of 

services. SNFs employ three types of nursing staff: registered nurses 

(RN), licensed practical nurses (LPN), and certified nursing assistants 

(CNA).4 Previous research has demonstrated that higher nurse staffing 

levels—particularly RN staffing levels—are associated with higher quality 

of care.5 In addition, our past work suggests that SNF ownership type 

(for-profit, nonprofit, or government) and chain affiliation (chain or 

independent) may be associated with staffing levels and quality of care. 

For example, we found in October 2015 that nursing homes that 

consistently performed poorly on selected quality measures between 

2011 and 2014 were more likely to be for-profit or large homes (greater 

than 100 beds) compared with homes that performed well.6 In July 2011, 

we found that nursing homes owned by private investment firms had 

lower reported average total nurse staffing levels and more quality of care 

problems identified in inspections compared with other homes.7 Industry 

representatives contend that SNFs prioritize high-quality care despite 

pressure to manage operating costs within reimbursement constraints.

You asked us to provide information on how SNFs spend their Medicare 

and other revenues and how spending may vary by facility characteristics. 

In this report, we examine

1. the extent to which the expenditure data CMS collects from SNFs and 

provides to the public are accessible and reliable,

2. how SNF costs and margins vary by facility characteristics, and

 3

Charlene Harrington et al., Improving the Financial Accountability of Nursing Facilities

(Washington, D.C.: The Kaiser Commission on Medicaid and the Uninsured, June 2013).

4

RNs typically manage residents’ nursing care and perform complex procedures such as 

starting intravenous feeding or fluids. LPNs provide routine bedside care such as taking 

vital signs. CNAs generally assist residents with eating, bathing, dressing, and toileting.

5

See, for example, Centers for Medicare & Medicaid Services, Report to Congress: 

Appropriateness of Minimum Nurse Staffing Ratios in Nursing Homes, Phase II Final

(Baltimore, Md.: December 2001).

6

GAO, Nursing Home Quality: CMS Should Continue to Improve Data and Oversight, 

GAO-16-33 (Washington, D.C.: Oct. 30, 2015), 15.

7

GAO, Nursing Homes: Private Investment Homes Sometimes Differed from Others in 

Deficiencies, Staffing, and Financial Performance, GAO-11-571 (Washington, D.C.: July 

15, 2011).
Page 3 GAO-16-700 Skilled Nursing Facilities

3. how SNF nurse staffing levels vary by facility characteristics and the 

relationship between SNF nurse staffing levels and margins.

To examine the extent to which the expenditure data CMS collects from 

SNFs and provides to the public are accessible and reliable, we reviewed 

SNF expenditure data requirements in the Patient Protection and 

Affordable Care Act (PPACA) and Medicare cost report documentation.8

We also compared CMS’s expenditure reporting with that of another 

organization, the California HealthCare Foundation, which publicly reports 

cost, finance, and quality measures for nursing homes in the state on its 

CalQualityCare.org website. In addition, we interviewed CMS officials, 

two academic researchers who have studied this topic for many years, 

and representatives from two beneficiary advocacy organizations familiar 

with SNF expenditure data to obtain their views on CMS’s expenditure 

reporting. We also contacted two SNF trade associations. 

Representatives from one association told us they did not have expertise 

on cost reporting, and representatives from the second association did 

not respond. Finally, we reviewed CMS’s efforts to make SNF 

expenditure data accessible to the public and to ensure the reliability of 

the data against the relevant standards for internal control in the federal 

government.9

To examine how SNF costs and margins vary by facility characteristics, 

we analyzed Medicare cost report data for fiscal years 2011 through 

2014—the most recent years with complete data available as of July 

2015, when we began our analyses. While the cost reports include some 

data related specifically to Medicare residents, they also contain data for 

all facility residents regardless of payer. Generally, the cost reports cover 

a 12-month period of operations and reflect SNFs’ fiscal years, which 

comprise different ranges of months. We first organized each SNF’s costs 

into four categories: direct care, indirect care, capital-related assets, and 

 8

See Pub. L. No. 111-148, § 6104, 124 Stat. 119, 711 (2010) (codified at 42 U.S.C. § 

1395yy(f)).

9

GAO, Standards for Internal Control in the Federal Government, GAO-14-704G

(Washington, D.C.: September 2014). Internal control is a process effected by an entity’s 

oversight body, management, and other personnel that provides reasonable assurance 

that the objectives of an entity will be achieved.
Page 4 GAO-16-700 Skilled Nursing Facilities

administrative services.10 We then calculated how much each SNF spent 

for each category as a percentage of revenue and computed each SNF’s 

margin, reflecting the percentage of revenue each SNF retained. We then 

compared SNF costs and margins by ownership type and chain affiliation.

To examine how SNF nurse staffing levels vary by facility characteristics 

and the relationship between SNF nurse staffing levels and margins, we 

first used nurse work time as a proxy for nurse staffing levels. Using cost

report data, we calculated each SNF’s total nurse time worked (RNs, 

LPNs, and CNAs combined) and total RN time worked, and expressed 

the totals as a ratio of nurse time per resident day. Because the time 

needed for treating residents varies with their clinical conditions and 

treatments, we adjusted each SNF’s staffing ratios on the basis of its 

Medicare residents’ health care needs. This process is known as casemix adjustment. We then used multiple linear regression analysis, a 

statistical procedure that allowed us to assess the relationship between a 

SNF’s margin and its case-mix adjusted total nurse and total RN time per 

resident day, controlling for other factors. The other factors in our models 

included a SNF’s average hourly RN wage, average resident length of 

stay, chain affiliation, number of beds, number of competitors within 15 

miles, ownership type, proportion of Medicare days, and urban or rural 

status. Our models also accounted for the state where each SNF was 

located. We restricted our analyses to fiscal years 2012 through 2014 

because nurse staffing data were incomplete for fiscal year 2011 and 

were generally unavailable beyond fiscal year 2014 when we began our 

analyses. For each of the 3 years, we performed analyses for all SNFs 

and by ownership type and chain affiliation.

We limited our analyses of Medicare cost report data to freestanding 

SNFs—that is, those not based in a hospital—in the 50 states and 

Washington, D.C. We excluded hospital-based SNFs from our analyses 

because their costs may be driven in part by hospitals’ methods for 

allocating overhead costs among departments. In addition, CMS requires 

hospital-based SNFs to submit the Medicare hospital cost report, which 

does not gather SNF direct care staffing data, rather than the SNF cost 

 10Direct care includes costs for inpatient routine services. Indirect care includes costs 

such as employee benefits, housekeeping, laundry and linen service, medical records and 

library, and nursing administration. Capital-related assets include costs for buildings and 

fixtures as well as movable equipment. Administrative services include administrative and 

general costs. Table 3 in app. I contains a full list of costs in each category.
Page 5 GAO-16-700 Skilled Nursing Facilities

report. The Medicare Payment Advisory Commission reported that 

hospital-based SNFs accounted for 5 percent of all SNFs and 3 percent 

of Medicare SNF spending in 2014.11

The Medicare cost report data we used for our analyses had some 

limitations. Although the cost reports provided the most suitable data for 

our analyses, they are not routinely audited and are subject to limited 

verification. In addition, because SNFs are not reimbursed directly on the 

basis of their costs, the level of effort SNFs put into accurately completing 

the cost reports is uncertain. Furthermore, prior research has 

demonstrated that it is possible for SNFs to conceal profit in management 

fees, lease agreements, interest payments to owners, and purchases 

from related-party organizations.12 It is not possible to detect this activity 

using cost report data. To the extent that profit is “hidden” in various cost 

categories, our findings may understate a SNF’s margin.

We took several steps to assess the reliability of the Medicare cost report 

data we used in this report. We interviewed CMS officials, reviewed cost 

report documentation, and excluded SNFs that reported implausible 

values for their costs, revenues, nursing hours, number of beds, and 

number of inpatient days.13 We used standard statistical techniques to 

identify outliers and eliminate SNFs that reported extreme values among 

the dependent variables used in our regression analyses as well as SNFs 

whose reported values had a disproportionate effect on our regression 

results. Finally, because SNFs sometimes file more than one cost report 

for a single fiscal year (e.g., amended or partial year reports), we ensured 

that each SNF we included had only one cost report per year. Our 

exclusions removed between 5 percent and 14 percent of all SNFs that 

 11Medicare Payment Advisory Commission, Report to the Congress: Medicare Payment 

Policy (Washington, D.C.: Mar. 15, 2016), 179.

12Charlene Harrington, Leslie Ross, and Taewoon Kang, “Hidden Owners, Hidden Profits, 

and Poor Nursing Home Care: A Case Study,” International Journal of Health Services, 

vol. 45, no. 4 (October 2015).

13For example, we removed between 23 and 72 SNFs in each of the 4 years we examined 

because they reported invalid zip codes (which we used to determine the number of 

competitors within 15 miles) or did not report their urban or rural status. In addition, we 

removed SNFs that had unusual cost reporting periods (i.e., not between 10 and 14 

months), filed an abridged cost report because they provided few Medicare-covered 

services, and reported terminating or ceasing participation in the Medicare program during 

the cost reporting period.
Page 6 GAO-16-700 Skilled Nursing Facilities

submitted a cost report each year. Our final population ranged from 

11,132 to 13,255 SNFs in each year. On the basis of these steps, we 

concluded that the Medicare cost report data were sufficiently reliable for 

the purposes of this report. See appendix I for additional detail on the 

methods and results of our expenditure analyses.

We conducted this performance audit from July 2015 to September 2016 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

To qualify for SNF care, Medicare beneficiaries typically need to be 

admitted to a SNF within 30 days after discharge from a hospital stay of 

at least 3 days and need care for a condition that was treated during the 

hospital stay or that arose while receiving SNF care. Medicare may cover 

up to 100 days per episode of SNF care.14 Many SNFs also provide longterm care, which Medicare does not cover, to Medicaid or private paying 

residents. Medicaid, the joint federal-state program for certain low-income 

individuals, is the primary payer for over 60 percent of SNF residents.15

Industry advocates have raised questions about Medicaid payment rates 

in many states being lower than the costs of providing care. While

Medicare and Medicaid separately certify SNFs, nearly all SNFs have 

dual certification and participate in both programs. SNF residents who do 

not qualify for Medicare or Medicaid may have private insurance pay for 

their care or they may pay out of pocket.

SNFs differ by type of ownership. As of 2014, 70 percent of SNFs were 

for-profit, 24 percent were nonprofit, and 5 percent were operated by 

 14An episode of care is a period that begins when a beneficiary is admitted to a SNF and 

ends when a beneficiary has not been an inpatient of a SNF for 60 consecutive days.

15According to the Medicare Payment Advisory Commission, Medicare-covered SNF days 

typically comprise a small share of a SNF’s total resident days but a disproportionately 

larger share of its revenues. The commission reported that the median Medicare share of 

total days was 12 percent in 2014, but Medicare accounted for 21 percent of revenue. 

Report to the Congress: Medicare Payment Policy, 179-180.

Background

SNF Characteristics
Page 7 GAO-16-700 Skilled Nursing Facilities

government agencies. In general, for-profit SNFs have a goal of making 

profits that are distributed among their owners and stockholders. For 

example, several studies have demonstrated that for-profit SNFs 

generally have lower nurse-to-resident staffing ratios compared with 

nonprofit SNFs, likely allowing them to reduce their personnel costs and 

increase their margins.16 Nonprofit SNFs receive favorable tax status 

because they are not allowed to operate for the benefit of private 

interests.

SNFs also vary by chain affiliation. About three-fifths of SNFs were 

owned or operated by chains (entities that own multiple facilities), while 

the remainder were independent in 2014, the latest year for which data 

were available. While most chain-affiliated SNFs are for-profit, some are 

nonprofit or government-operated. Chains may develop complex 

administrative structures to spread expenses across multiple SNFs. 

Researchers have raised questions about the effects of chain ownership 

on SNF quality of care.

SNFs employ three types of nursing staff: RNs, LPNs, and CNAs.17 As we 

have previously reported, the responsibilities and salaries of these three 

types of nurses are related to their levels of education.18 The staffing mix, 

or the balance SNFs maintain among RNs, LPNs, and CNAs, is generally 

related to the needs of the residents served. For example, a higher 

proportion of RNs may be employed to meet residents’ needs in SNFs 

that serve more residents with acute care needs or in SNFs with specialty 

care units (such as units for residents who require ventilators). However, 

 16For example, see Charlene Harrington et al., “Nurse Staffing and Deficiencies in the 

Largest For-Profit Nursing Home Chains and Chains Owned by Private Equity 

Companies,” Health Services Research, vol. 47, no. 1 (2012); Charlene Harrington et al., 

“Ownership, Financing, and Management Strategies of the Ten Largest For-Profit Nursing 

Home Chains in the United States,” International Journal of Health Services, vol. 41, no. 4 

(2011); and The Henry J. Kaiser Family Foundation, Overview of Nursing Facility 

Capacity, Financing, and Ownership in the United States in 2011 (Washington, D.C.: The 

Kaiser Commission on Medicaid and the Uninsured, June 2013).

17In some states, LPNs are known as licensed vocational nurses. We use the term LPN to 

refer to both LPNs and licensed vocational nurses. In addition to nursing staff, SNFs 

employ a variety of other health care professionals, including physicians, social workers, 

physical therapists, and other types of therapists.

18GAO-11-571, 12.

SNF Nurse Staffing and 

Quality of Care
Page 8 GAO-16-700 Skilled Nursing Facilities

SNFs may be unable to pursue their ideal staffing mix for reasons such 

as high turnover among LPNs and CNAs.

Licensed Nurses and Nurse Aides

• Registered nurses (RN) have at least a 2-year degree and are 

licensed in a state. Because of their advanced training and ability 

to provide skilled nursing care, RNs are paid more than other 

nursing staff. Generally, RNs are responsible for managing 

residents’ nursing care and performing complex procedures, 

such as starting intravenous feeding or fluids.

• Licensed practical nurses (LPN) have a 1-year degree, are 

also licensed by the state, and typically provide routine bedside 

care, such as taking vital signs.

• Certified nursing assistants (CNA) are nurse aides or orderlies 

who work under the direction of licensed nurses, have at least 75 

hours of training, and have passed a competency exam. CNAs’ 

responsibilities usually include assisting residents with eating, 

dressing, bathing, and toileting. CNAs typically have more 

contact with residents than other nursing staff and provide the 

greatest number of hours of care per resident day. CNAs 

generally are paid less than RNs and LPNs.

Source: GAO. | GAO-16-700

There are no federal minimum standards linking SNFs’ nurse staffing to 

the number of residents, but SNFs that participate in both Medicare and 

Medicaid are required to have sufficient nursing staff to provide nursing 

and related services to allow each resident to attain or maintain the 

highest practicable physical, mental, and psychosocial well-being.19 In 

general, every SNF must have licensed nurses (RNs or LPNs) on duty 

around the clock, including one RN on duty for at least 8 consecutive 

hours per day, 7 days per week. According to one study, 34 states had 

established additional minimum requirements for the number of nursing 

hours per resident day as of 2010.20

 1942 U.S.C. § 1395i-3(b)(4)(A)(i); 42 C.F.R. §§ 483.1(b), 483.30 (2015).

20Charlene Harrington, Nursing Home Staffing Standards in State Statutes and 

Regulations (San Francisco, Calif.: University of California San Francisco, December 

2010).
Page 9 GAO-16-700 Skilled Nursing Facilities

Researchers have found that higher total nurse staffing levels (RNs, 

LPNs, and CNAs combined) and higher RN staffing levels are typically 

associated with higher quality of care, as shown by a wide range of 

indicators. For example, lower total nurse and RN staffing levels have 

been linked to higher rates of deficiency citations, which may involve 

actual harm or immediate jeopardy to residents. In addition, higher total 

nurse and RN staffing levels have been associated with better health 

outcomes, such as fewer cases of pressure ulcers, urinary tract 

infections, malnutrition, and dehydration, as well as improved resident 

functional status.21 In 2001, a CMS contractor reported the effect of nurse 

staffing on quality of care in SNFs. The contractor identified staffing 

thresholds in both a short-stay sample of Medicare SNF admissions and 

a long-stay sample of nursing home residents who were in the facility for 

at least 90 days. These thresholds demonstrated incremental benefits of 

nurse staffing; once these thresholds were met, there were no additional 

benefits in terms of quality. For the short-stay sample, the thresholds 

were 0.55 hours per resident day for RNs and 3.51 hours per resident day 

for all nurses. For the long-stay sample, the thresholds were 0.75 hours 

per resident day for RNs and 4.08 hours per resident day for all nurses.22

PPACA required SNFs to separately report expenditures for wages and 

benefits for direct care staff, including specific data on RNs, LPNs, CNAs, 

and other medical and therapy staff, and required CMS to redesign the 

cost report in consultation with private sector accountants experienced 

with SNF cost reports to meet this requirement. The act also required 

CMS, in consultation with others, to categorize the expenditures listed on 

the cost report, regardless of any source of payment for such 

expenditures, into four functional accounts—direct care (including 

nursing, therapy, and medical services), indirect care (including 

 21GAO, Nursing Homes: Quality of Care More Related to Staffing Than Spending, 

GAO-02-431R (Washington, D.C.: June 13, 2002); Charlene Harrington, “Quality of Care 

in Nursing Home Organizations: Establishing a Health Services Research Agenda,”

Nursing Outlook, vol. 53, no. 6 (2005); Institute of Medicine, Committee on the Work

Environment for Nurses and Patient Safety, Keeping Patients Safe: Transforming the 

Work Environment of Nurses (Washington, D.C.: The National Academies Press, 2004);

and Institute of Medicine, Committee on Improving Quality in Long-Term Care, Improving 

the Quality of Long-term Care (Washington, D.C.: The National Academies Press, 2001).

22These nurse staffing thresholds can be compared with the average case-mix adjusted 

nursing hours per resident day described in table 1. Centers for Medicare & Medicaid

Services, Appropriateness of Minimum Nurse Staffing Ratios.

PPACA Requirements for 

Reporting SNF 

Expenditures
Page 10 GAO-16-700 Skilled Nursing Facilities

housekeeping and dietary services), capital assets (including building and 

land costs), and administrative services—annually. Finally, the act 

required CMS to make information on SNFs’ expenditures “readily 

available to interested parties upon request.”23

CMS collects detailed SNF expenditure data in Medicare cost reports and 

posts the raw data on its website for the public. On their cost reports, 

SNFs must disclose total costs and allocate general services costs such 

as housekeeping and nursing administration. CMS officials told us they 

modified the cost report as required by PPACA in December 2011. 

Effective for cost reporting periods beginning on or after January 1, 2012, 

CMS required SNFs to provide expenditure data for full-time and parttime direct care employees who are directly hired and under contract.24

CMS officials said the agency implemented the PPACA requirement to 

make information on SNFs’ expenditures “readily available to interested 

parties upon request” by posting the raw data on its website. The CMS 

website contains the raw cost report data that SNFs submitted for fiscal 

years 1995 through 2015. The website also notes that CMS “has made a 

reasonable effort to ensure that the provided data/records/reports are up-

 23Pub. L. No. 111-148, § 6104, 124 Stat. 119, 711 (2010) (codified at 42 U.S.C. § 

1395yy(f)(4)).

24CMS estimates that providing these additional data will increase the average record 

keeping time for each SNF by 5 hours and the average reporting time by 1 hour. CMS 

officials told us they consulted with a small group of private sector accountants who were 

very experienced in the nursing home field before they modified the cost report to collect 

data on direct care wages and benefits. After making the modifications, CMS officials said 

they held a discussion with officials from the Medicare Payment Advisory Commission.

CMS Has Not Made 

SNF Expenditure 

Data Readily 

Accessible and Does 

Not Adequately 

Ensure Data 

Reliability

CMS Has Not Taken Steps

Needed to Make SNF 

Expenditure Data Posted 

on Its Website Readily 

Accessible
Page 11 GAO-16-700 Skilled Nursing Facilities

to-date, accurate, complete, and comprehensive at the time of 

disclosure.”

However, CMS has not taken two key steps to make SNF expenditure 

data readily accessible on the basis of our interviews with public 

stakeholders and our observations. First, CMS has not provided the 

expenditure data in an accessible way. The data’s format, volume, and 

organization can make it difficult for public stakeholders to use the data. 

CMS posts data for each fiscal year across three separate files. Because 

of how CMS formats the data, users need certain software packages and 

programming skills to analyze data for each fiscal year. In addition, CMS 

has acknowledged that the data files are so large that some users have 

been unable to download them. One of the researchers we interviewed 

stated that the amount of time needed to analyze the data typically 

requires a grant. CMS also does not organize SNF expenditures in a 

meaningful way for analysis. For example, 12 of the 15 cost centers in the 

general services category are related to indirect care, so a user must 

make additional calculations to determine a SNF’s total indirect care 

costs. Second, CMS has not provided the expenditure data in a place that 

is easy to find on its website. For example, representatives of the two 

beneficiary advocacy organizations we interviewed told us they were 

unable to find the cost report data on the CMS website and noted the 

importance of making the SNF expenditure data easy to locate.

CMS officials told us they did not know who would use SNF expenditure 

data or for what purpose. Public stakeholders could make better use of 

SNF expenditure data if CMS took steps to make the data more 

accessible. For example, representatives of the two beneficiary advocacy

organizations and one researcher we interviewed said CMS could 

incorporate summary expenditure measures into Nursing Home 

Compare, the CMS website that contains summary measures of SNF 

quality. Prior research has demonstrated that presenting cost and finance 

measures in a manner that consumers can easily interpret, displaying 

them alongside quality data, and focusing on information that is relevant 

to consumers can help increase their effectiveness.25 For example, the 

 25For example, see John F.P. Bridges et al., Public Reporting of Cost Measures in Health: 

An Environmental Scan of Current Practices and Assessment of Consumer 

Centeredness, 15-EHC009-EF (Rockville, Md.: Agency for Healthcare Research and 

Quality, March 2015); and Julia James, “Health Policy Brief: Public Reporting on Quality 

and Costs,” Health Affairs (Mar. 8, 2012).
Page 12 GAO-16-700 Skilled Nursing Facilities

California HealthCare Foundation’s CalQualityCare.org website provides 

ideas on how to communicate SNF expenditure measures to consumers. 

This website allows consumers to find facility data and compare long-term 

care providers across California.26

CMS officials told us that adding SNF expenditure measures to Nursing 

Home Compare is a possibility in the next 2 to 5 years. The officials noted 

that, as of December 2015, CMS had not begun considering the posting 

of SNF expenditure data on Nursing Home Compare nor begun 

systematically evaluating how to publicly report expenditure measures. 

The officials explained that the agency is currently focused on 

implementing an electronic system for collecting SNF direct care staffing 

data (known as the Payroll-Based Journal) and making changes to 

existing measures in Nursing Home Compare this year.27 In March 2016, 

CMS released a public data set on its website that contains information 

on utilization, payments, and submitted charges for services SNFs 

provided to Medicare beneficiaries in 2013. Upon releasing the data set, 

CMS officials stated they were committed to greater data transparency.

In making data accessible to public stakeholders, federal internal control 

standards related to external communication suggest that agencies 

consider the audience, nature of information, availability, cost, and legal 

or regulatory requirements to ensure that information is communicated in 

a quality manner.28 Until CMS takes steps to make SNF expenditure data 

easier to use and locate, public stakeholders will have difficulty accessing 

the only publicly available source of financial data for many SNFs.

 26In addition to quality measures, the website contains the following cost and finance 

measures: average total expenditures per resident day, expenditures as a percentage of 

revenues, average charges per resident day, resident care days by payment source, net 

operating income or loss, and operating margins. According to one researcher we 

interviewed, research has yet to be conducted on the effectiveness of publicly reporting 

these cost and finance measures. The researcher and CMS officials noted that it remains 

unknown whether reporting these measures at the national level would be beneficial to 

consumers.

27In accordance with PPACA, CMS recently launched the Payroll-Based Journal system. 

This system requires facilities to electronically submit direct care staffing information 

based on payroll and other auditable data. According to a CMS official, these data are at 

the employee level and cover every day of the year. The official noted that these data are 

difficult to manipulate and of much greater utility for staffing reporting on Nursing Home 

Compare. Voluntary reporting began October 1, 2015.

28GAO-14-704G, 62.
Page 13 GAO-16-700 Skilled Nursing Facilities

Despite CMS’s statement that it has made a reasonable effort to ensure 

the accuracy of SNF cost report data, we found that the agency performs 

minimal quality control of the SNF expenditure data in the Medicare cost 

reports to ensure data reliability. Instead, CMS largely relies on SNFs to 

validate their own data. CMS requires SNFs to self-certify to the accuracy

and completeness of their cost report data. However, according to CMS 

officials and one researcher we interviewed, there is little incentive for 

SNFs to ensure the accuracy and completeness of their data because the 

data do not affect the amount of Medicare payments each SNF receives. 

However, CMS does use the cost report data to update overall SNF 

payment rates. Despite this, CMS officials told us the agency conducts 

“extremely limited” reviews of cost report data because of funding and 

resource constraints. The officials said they rarely adjust SNFs’ reported 

costs and focus instead on improper payment reviews. For these 

reasons, CMS officials and the two researchers we interviewed told us 

they could not place full confidence in the reliability of the SNF

expenditure data in the cost reports.

Federal internal control standards require agencies to use quality 

information.29 The standards highlight the importance of processing 

obtained data into quality information, central to which is its accessibility 

and reliability. Reliable information that is accurate and complete can help 

agencies evaluate performance, make informed decisions, address risks, 

and achieve key objectives. Until CMS takes steps to ensure the 

accuracy and completeness of the SNF expenditure data, the data’s 

reliability cannot be ensured.

 29GAO-14-704G, 59.

CMS Does Not Adequately 

Ensure the Reliability of 

SNF Expenditure Data
Page 14 GAO-16-700 Skilled Nursing Facilities

Our analysis found that, for each fiscal year from 2011 through 2014, 

direct and indirect care costs were lower as a percentage of revenue, on 

average, at for-profit SNFs compared with nonprofit and government 

SNFs. Costs were similarly lower at chain SNFs compared with 

independent SNFs.30 Over the 4-year period we examined, the 

percentage of revenue spent on direct and indirect care remained 

relatively constant, on average, at for-profit and nonprofit SNFs but 

decreased at government SNFs. For both chain and independent SNFs, 

the percentage of revenue spent on direct and indirect care remained 

relatively constant, on average, from fiscal years 2011 through 2014. 

(See fig. 1.)

 30Direct care includes costs for inpatient routine services. Indirect care includes the 

following cost centers: central services and supply; dietary; employee benefits; 

housekeeping; laundry and linen service; medical records and library; nursing 

administration; nursing and allied health education; other general service costs; pharmacy; 

plant operation, maintenance, and repairs; and social services.

For-Profit SNFs 

Generally Had Lower 

Direct and Indirect 

Care Costs as a 

Percentage of 

Revenue and Higher 

Margins than Did 

Nonprofit and 

Government SNFs
Page 15 GAO-16-700 Skilled Nursing Facilities

Figure 1: Average Costs Related to Direct Care and Indirect Care as a Percentage of Revenue for Skilled Nursing Facilities 

(SNF), by Organization Type, Fiscal Years 2011-2014

Note: A fiscal year refers to each SNF’s cost reporting year, which covers different ranges of months. 

Direct care includes costs for inpatient routine services. Indirect care includes dietary, employee 

benefits, housekeeping, and other costs.
Page 16 GAO-16-700 Skilled Nursing Facilities

For for-profit and nonprofit SNFs, both overall costs and total revenues 

increased, on average, in each of the 4 years we examined. For example, 

for-profit and nonprofit SNFs generally had small annual increases in their 

direct care costs. However, because their revenue also increased slightly 

each year, on average, their direct care costs remained relatively 

constant as a percentage of revenue. Both overall costs and direct care 

costs decreased, on average, at government SNFs in each fiscal year 

from 2011 through 2014. Total revenues also decreased, on average, at 

government SNFs between fiscal years 2011 and 2014.

Regardless of ownership type and chain affiliation, SNFs’ costs for 

capital-related assets and administrative services accounted for a similar 

percentage of revenue, on average, during each fiscal year from 2011 

through 2014.31 According to the cost report data, capital-related asset 

costs accounted for 4 percent to 7 percent of revenue, on average, at forprofit, nonprofit, and government SNFs in each year. Similarly, costs for 

capital-related assets at chain and independent SNFs generally 

accounted for 5 percent to 6 percent of revenue, on average, in each 

year. During these 4 years, costs for administrative services accounted 

for 8 percent to 9 percent of revenue, on average, regardless of 

ownership type and chain affiliation.

In addition, median margins were higher for for-profit and chain SNFs 

than for other SNFs. As a group, for-profit SNFs had a higher median 

margin (between 16 percent and 19 percent) than nonprofit and 

government SNFs (between 12 percent and 15 percent and between 3 

percent and 13 percent, respectively) for each fiscal year between 2011 

and 2014. Similarly, median margins were generally higher at chain SNFs 

(between 16 percent and 19 percent) than at independent SNFs (between 

12 percent and 17 percent) in each year. All SNF organization types had 

positive median all-payer margins each year, meaning that their 

payments more than covered their costs.

Moreover, from fiscal years 2011 through 2014, median margins 

increased regardless of ownership type and chain affiliation, but the 

amount of the increase differed between organization types. The median 

 31Examining capital-related assets and administrative services is useful because these 

categories indicate revenue not spent on resident care. Capital-related assets include 

costs for buildings and fixtures and movable equipment. Administrative services include 

administrative and general costs.
Page 17 GAO-16-700 Skilled Nursing Facilities

margin increased more at government SNFs than at for-profit and 

nonprofit SNFs and more at independent SNFs than at chain SNFs. 

During the 4-year period, the median margin at government SNFs 

increased 10 percentage points (from 3 percent to 13 percent), while it 

increased 3 percentage points at for-profit SNFs (from 16 percent to 19 

percent) and at nonprofit SNFs (from 12 percent to 15 percent). In 

addition, independent SNFs’ median margin increased by 5 percentage 

points (from 12 percent to 17 percent) and chain SNFs’ median margin 

increased by 3 percentage points (from 16 percent to 19 percent). (See 

fig. 2.)
Page 18 GAO-16-700 Skilled Nursing Facilities

Figure 2: Median Margins for Skilled Nursing Facilities (SNF), by Organization Type, 

Fiscal Years 2011-2014

Note: A margin is the difference between revenues and costs, divided by revenues, and expressed as 

a percentage. A fiscal year refers to each SNF’s cost reporting year, which covers different ranges of 

months.
Page 19 GAO-16-700 Skilled Nursing Facilities

SNFs’ nursing staff levels, as measured by nurse time per resident day, 

were relatively stable for fiscal years 2012 through 2014, but there was 

some variation by type of ownership. For-profit SNFs generally had less 

nursing time per resident day in each of the 3 years we examined. After 

our adjustment for resident case-mix, we continued to observe the same 

trends.32 These trends were generally consistent with the small annual 

increases in direct care costs we observed at for-profit and nonprofit

SNFs during this period. Table 1 shows SNFs’ reported (unadjusted) and 

adjusted total nurse and RN time per resident day.

Table 1: Nursing Time at Skilled Nursing Facilities (SNF), by Ownership Type, Fiscal Years 2012-2014

Average reported (unadjusted)

nursing hours per resident day

Average case-mix adjusted

nursing hours per resident day

Ownership type All nursesa Registered nurses All nursesa Registered nurses

For-profit

FY 2012 3.74 0.48 3.30 0.18

FY 2013 3.75 0.51 3.32 0.19

FY 2014 3.89 0.57 3.46 0.22

Nonprofit

FY 2012 3.99 0.61 3.58 0.23

FY 2013 4.05 0.65 3.63 0.25

FY 2014 4.11 0.64 3.68 0.25

Government

FY 2012 4.11 0.55 3.67 0.21

FY 2013 4.23 0.55 3.75 0.21

FY 2014 3.99 0.53 3.52 0.20

Legend: FY = fiscal year

Source: GAO analysis of Medicare cost report data. | GAO-16-700

a

Includes registered nurses, licensed practical nurses, and certified nursing assistants.

 32In general, throughout the 3-year period, SNFs’ case-mix adjusted nursing time per 

resident day was below the staffing thresholds identified by a CMS contractor in 2001. 

These thresholds demonstrated incremental benefits of nurse staffing; once these 

thresholds were met, there were no additional benefits in terms of quality. For short-stay 

residents, the contractor identified staffing level thresholds of 0.55 hours per resident day 

for RNs and 3.51 hours per resident day for all nurses. For long-stay residents, the 

contractor identified thresholds of 0.75 hours per resident day for RNs and 4.08 hours per 

resident day for all nurses. Centers for Medicare & Medicaid Services, Appropriateness of 

Minimum Nurse Staffing Ratios.

For-Profit SNFs Had 

Lower Nurse Staffing 

Levels Than Other 

SNFs, and Nurse 

Staffing Levels 

Estimated to Decline 

Slightly as Margins 

Increase
Page 20 GAO-16-700 Skilled Nursing Facilities

Examining each fiscal year separately, we estimated that a SNF’s margin 

generally had a small, but statistically significant, effect on its nursing time 

per resident day. After controlling for other factors, we estimated that a 

SNF’s case-mix adjusted total nurse and RN time per resident day 

(reflecting the time nurses spend on both direct patient care and 

administrative duties) decreased slightly as its margin increased. For 

fiscal year 2012, we estimated that if a SNF with a margin of 20 percent 

and a case-mix adjusted total nurse time of 4 hours per resident day 

increased its margin to 21 percent, its total nurse time would fall to 3 

hours and 51.9 minutes per resident day (a decrease of 8.1 minutes). For 

the same year, we estimated that a SNF’s case-mix adjusted RN time per 

resident day decreased by 0.6 minutes for each percentage point 

increase in its margin. Similarly, for fiscal year 2013, we estimated that a 

1 percentage point increase in a SNF’s margin decreased its case-mix 

adjusted total nurse time per resident day by 5.1 minutes and its case-mix 

adjusted RN time per resident day by 0.4 minutes. Finally, for fiscal year 

2014, we estimated that a SNF’s case-mix adjusted total nurse time per 

resident day decreased by 7.4 minutes and its case-mix adjusted RN time 

per resident day decreased by 0.2 minutes for each percentage point 

increase in its margin.

In each of the 3 fiscal years, which we examined separately, the 

relationship between SNF nursing time and margins varied by ownership 

type. Table 2 shows our estimates for the change in a SNF’s case-mix 

adjusted total nurse and RN time per resident day for each percentage 

point increase in its margin. For example, for fiscal year 2012, we 

estimated that if a for-profit SNF with a margin of 20 percent and a casemix adjusted total nurse time of 4 hours per resident day increased its 

margin to 21 percent, holding all other variables constant, its total nurse 

time would fall to 3 hours and 49 minutes per resident day (a decrease of 

11.0 minutes).
Page 21 GAO-16-700 Skilled Nursing Facilities

Table 2: Estimated Effect of a 1 Percentage Point Increase in a Skilled Nursing Facility’s (SNF) Margin on Its Case-Mix 

Adjusted Nursing Time, by Ownership Type, Fiscal Years 2012-2014

Nursing time in minutes per resident day

All nursesa Registered nurses

Ownership type FY 2012 FY 2013 FY 2014 FY 2012 FY 2013 FY 2014

For-profit SNFs -11.0b -6.5b -4.1b -0.5c -0.2 -0.0

Nonprofit SNFs -15.3b -14.7b -16.7b -1.4b -1.0c -1.4c

Government SNFs -1.3 -0.8 -35.4b -0.2 -0.7 -1.6c

Legend: FY = Fiscal year

Source: GAO analysis of Medicare cost report data. | GAO-16-700

Notes: This table is a summary of results from 18 regression models. The models included the 

following independent variables: average hourly registered nurse wage, average resident length of 

stay, chain affiliation (chain or independent), number of beds, number of competitors within 15 miles, 

proportion of Medicare days, and urban or rural status. The models also accounted for the state 

where each SNF was located. The number of for-profit SNFs ranged from 8,118 to 9,499, the number 

of nonprofit SNFs ranged from 1,728 to 2,567, and the number of government SNFs ranged from 410 

to 546. All nurses include registered nurses, licensed practical nurses, and certified nursing 

assistants.

a

Includes registered nurses, licensed practical nurses, and certified nursing assistants.

b

Significant at the <.0001 level.

c

Significant at the .01 level.

The relationship between a SNF’s total nurse time per resident day and 

its margin also differed slightly by chain affiliation. We estimated that the 

total nurse time per resident day decreased slightly more at SNFs that 

were part of chains than at those that were independent. For example, we 

estimated that for each percentage point increase in a SNF’s margin, the 

case-mix adjusted total nurse time per resident day decreased by 6.9 

minutes at chain-affiliated SNFs and by 4.3 minutes at independent SNFs 

in fiscal year 2014. For each of the 3 years we examined, a chainaffiliated SNF’s margin did not have a statistically significant effect on its 

RN time per resident day.

Although the effect of margins in our regression analyses was statistically 

significant, margins were not the strongest predictor of case-mix adjusted 

total nurse and RN time per resident day. Accounting for the state where 

each SNF was located was very important in explaining its nursing time. 

This could be attributable to variation across states in staffing 

requirements, Medicaid reimbursement rates, or other factors. Because of 

the strong effect of the state where each SNF was located, we needed to 

statistically control for a SNF’s state to isolate the effects of a SNF’s total 

nurse and RN time per resident day on its margin. In addition, we 

estimated that a SNF’s proportion of Medicare days increased its total 
Page 22 GAO-16-700 Skilled Nursing Facilities

nurse and RN time per resident day. See appendix I for additional detail 

on the methods and results of our expenditure analyses.

The collection of SNF expenditure data gives CMS the opportunity to 

provide information to the public on SNFs’ relative expenditures. Data that 

are readily accessible to the public and validated for completeness and 

accuracy to ensure reliability can contribute to SNF data transparency. 

However, public stakeholders have experienced difficulty accessing the 

data—including locating and using the data—and CMS efforts to ensure 

data accessibility and reliability have been limited.

To improve the accessibility and reliability of SNF expenditure data, we 

recommend the Acting Administrator of CMS take the following two 

actions:

1. Take steps to improve the accessibility of SNF expenditure data, 

making it easier for public stakeholders to locate and use the data.

2. Take steps to ensure the accuracy and completeness of SNF 

expenditure data.

We provided a draft of this report to HHS for comment. In its written 

comments, HHS concurred with our recommendation to improve the 

accessibility of SNF expenditure data. HHS disagreed with our 

recommendation that it take steps to ensure the accuracy and 

completeness of the SNF expenditure data. HHS said that it has made a 

reasonable effort to ensure the accuracy of the expenditure data, that the 

data are used for general purposes, and that the amount of time and 

resources that may be required to verify the accuracy and completeness 

of the data could be substantial and might not create significant benefit to 

the agency or the public. However, during the course of our work, CMS 

told us that the agency conducts only “extremely limited” reviews of the 

expenditure data due to resource constraints. Moreover, we found that 

CMS uses the expenditure data to update overall SNF payment rates, in 

addition to more general purposes. Therefore, we continue to believe that 

CMS should take steps to ensure reliable expenditure data that are 

accurate and complete. HHS’s comments on a draft of this report are 

reproduced in appendix II.

Conclusions

Recommendations for 

Executive Action

Agency Comments 

and Our Evaluation
Page 23 GAO-16-700 Skilled Nursing Facilities

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to the appropriate 

congressional committees, the Secretary of Health and Human Services, 

and the Acting CMS Administrator. In addition, the report will be available 

at no charge on the GAO website at http://www.gao.gov.

If you or your staffs have any questions about this report, please contact 

me at (202) 512-7114 or cosgrovej@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff who made key contributions to this 

report are listed in appendix III.

James Cosgrove

Director, Health Care
Page 24 GAO-16-700 Skilled Nursing Facilities

List of Requesters

The Honorable Frank Pallone, Jr.

Ranking Member

Committee on Energy and Commerce

House of Representatives

The Honorable Sander M. Levin

Ranking Member

Committee on Ways and Means

House of Representatives

The Honorable Jim McDermott

Ranking Member

Subcommittee on Health

Committee on Ways and Means

House of Representatives

The Honorable Janice Schakowsky

House of Representatives
Appendix I: Additional Detail on the Methods 

and Results of Our Expenditure Analyses

Page 25 GAO-16-700 Skilled Nursing Facilities

This appendix describes our methodology for examining (1) how skilled 

nursing facility (SNF) costs and margins vary by facility characteristics 

and (2) how SNF nurse staffing levels vary by facility characteristics and 

the relationship between SNF nurse staffing levels and margins. The 

appendix also provides further details of the results of our analyses.

To examine how SNF costs and margins vary by facility characteristics, 

we developed cost categories, calculated the total costs for each category 

as a percentage of revenue, and made comparisons across SNF groups. 

We organized each SNF’s costs into four categories: direct care, indirect 

care, capital-related assets, and administrative services. Officials from the 

Centers for Medicare & Medicaid Services (CMS) said the categories we 

used included the appropriate expenses listed on the cost reports. Table 

3 provides a crosswalk between the cost categories we used and the cost 

centers from the cost report.

Table 3: Components of Cost Categories

Cost category Cost center from the Medicare cost report

Direct care Inpatient routine services

Indirect care Central services and supply

Dietary

Employee benefits

Housekeeping

Laundry and linen service

Medical records and library

Nursing administration

Nursing and allied health education

Other general service costs

Pharmacy

Plant operation, maintenance, and repairs

Social services

Capital-related assets Capital-related costs – buildings and fixtures

Capital-related costs – movable equipment

Administrative services Administrative and general

Source: Centers for Medicare & Medicaid Services information. | GAO-16-700

We then calculated each SNF’s costs as a percentage of revenue. We 

also computed each SNF’s margin, reflecting the percentage of revenue 

each SNF retained. While SNFs may be part of larger nursing homes that 

operate multiple lines of business (such as hospices, ancillary services, 

Appendix I: Additional Detail on the Methods 

and Results of Our Expenditure Analyses

Examining SNF Costs and 

Margins by Facility 

Characteristics
Appendix I: Additional Detail on the Methods 

and Results of Our Expenditure Analyses

Page 26 GAO-16-700 Skilled Nursing Facilities

and home health care services), we focused our analyses on the SNF line 

of business. We compared SNF costs and margins by ownership type 

and chain affiliation.

To examine how SNF nurse staffing levels vary by facility characteristics 

and the relationship between SNF nurse staffing levels and margins, we 

performed statistical analyses to identify factors associated with each 

SNF’s total nurse and registered nurse (RN) staffing levels. To measure 

nurse staffing levels, we calculated each SNF’s total nurse and RN time 

per resident day. A SNF’s total nurse time per resident day reflects the 

number of hours that RNs, licensed practical nurses (LPN), and certified 

nursing assistants (CNA) worked per resident day. We computed each 

SNF’s total nurse and RN time per resident day using a complex formula. 

We first calculated a SNF’s total paid hours for full-time and part-time 

RNs, LPNs, and CNAs who are both directly hired and under contract.1

Because the time needed for treating residents varies with their clinical 

conditions and treatments, we then adjusted each SNF’s nursing time per 

resident day on the basis of its Medicare residents’ health care needs. 

This process is known as case-mix adjustment. We developed our 

formula based largely on CMS’s methodology for case-mix adjusting 

nurse staffing measures for Nursing Home Compare, the CMS website 

that contains summary measures of SNF quality data.2 CMS’s approach 

is based on the distribution of a SNF’s residents’ assignments into one of 

53 different payment groups, called resource utilization groups. Each 

group describes residents with similar therapy, nursing, and special care 

needs. CMS’s model uses the estimated RN, LPN, and CNA minutes for 

each resource utilization group based on the results from the Staff Time 

Measurement Studies conducted in 1995 and 1997.

For our analyses, we used a different source of data than what CMS uses 

for Nursing Home Compare. CMS obtains staffing data from Form CMS671 (Long Term Care Facility Application for Medicare and Medicaid) 

 1

Paid hours include regular hours; overtime hours; paid holiday, vacation, sick, and other 

paid-time-off hours; and hours associated with severance pay. Paid hours exclude nonpaid lunch periods and on-call hours. An overtime hour is calculated as one hour when an 

RN, LPN, or CNA is paid time and a half. The cost report form instructs SNFs not to 

include hours for nurses who perform solely administrative functions.

2

Centers for Medicare & Medicaid Services, Design for Nursing Home Compare Five-Star 

Quality Rating System: Technical Users’ Guide (Baltimore, Md.: February 2015).

Examining How SNF 

Nurse Staffing Levels Vary 

by Facility Characteristics 

and the Relationship 

between SNF Nurse 

Staffing Levels and 

Margins
Appendix I: Additional Detail on the Methods 

and Results of Our Expenditure Analyses

Page 27 GAO-16-700 Skilled Nursing Facilities

from the Certification and Survey Provider Enhanced Reports (CASPER) 

system and census data from Form CMS-672 (Resident Census and 

Conditions of Residents). CMS officials advised us against using the 

CASPER data. CMS has observed that the CASPER data, which are 

collected over a 2-week period at the time of a SNF’s annual inspection 

survey, generally indicate higher RN staffing levels and lower LPN and 

CNA staffing levels compared with the Medicare cost reports. Table 4 

shows CMS’s analysis of the staffing levels using 2013 data from the 

Medicare cost reports and CASPER.

Table 4: Average Nursing Time per Resident Day for Skilled Nursing Facilities (SNF) from Medicare Cost Reports and the 

Certification and Survey Provider Enhanced Reports (CASPER), 2013

Nurse type

Nursing hours per resident day

from Medicare cost report

Nursing hours per resident day

from CASPER

Registered nurse 0.54 0.73

Licensed practical nurse 0.93 0.83

Certified nursing assistant 2.53 2.42

All nurses 3.98 3.98

Source: Centers for Medicare & Medicaid Services’ (CMS) analysis of Medicare cost report data from fiscal year 2013 and CASPER data from December 2013. | GAO-16-700

Note: Numbers may not add because of rounding. CMS excluded SNFs with fewer than 1.5 or more 

than 12 total nursing hours per resident day from either data source.

Because of the available data in the cost reports, there were some 

limitations with our case-mix adjustment calculation. While the cost 

reports include data on the resource needs for Medicare residents, they 

do not capture data on the resource needs for non-Medicare residents. 

Accordingly, we estimated a SNF’s resident case-mix based only on its 

Medicare residents’ resource utilization groups. In addition, the cost 

reports obtain data on 13 additional resource utilization groups that CMS 

implemented in 2010 to reflect updated staff time measurement data. For 

our calculation, we could not use Medicare days attributable to these 

groups on the cost reports. Finally, because SNFs’ staffing data on the 

cost reports were incomplete for fiscal year 2011 and were generally 

unavailable beyond fiscal year 2014 when we began our analyses, we 

limited our analyses to fiscal years 2012 through 2014.

Our formula for calculating the case-mix adjusted total nurse and RN 

hours per resident day was as follows:

HoursAdjusted = (HoursReported/HoursExpected) * HoursNational Average
Appendix I: Additional Detail on the Methods 

and Results of Our Expenditure Analyses

Page 28 GAO-16-700 Skilled Nursing Facilities

In this calculation:

• HoursAdjusted is the case-mix adjusted total nurse or RN hours per 

resident day.

• HoursReported is each SNF’s number of reported total nurse or RN 

hours per resident day.

• HoursExpected is each SNF’s number of expected total nurse or RN 

hours per resident day. 

• HoursNational Average is the national average of reported total nurse or RN 

hours per resident day.

We then used multiple linear regression analysis, a statistical procedure 

that allowed us to assess the relationship between a SNF’s margin and its 

case-mix adjusted total nurse and RN time per resident day, controlling 

for other factors. The other factors in our models included a SNF’s 

average hourly RN wage, average resident length of stay, chain affiliation, 

number of beds, number of competitors within 15 miles, ownership type, 

proportion of Medicare days, and urban or rural status. Our models also 

accounted for the state where each SNF was located. We performed 

separate regressions for all SNFs in fiscal years 2012, 2013, and 2014. 

We also performed regressions by ownership type and chain affiliation.

Table 5 shows the results of our regressions for all SNFs where the 

dependent variable is the case-mix adjusted total nursing hours per 

resident day, and table 6 shows the results of our regressions for all 

SNFs where the dependent variable is the case-mix adjusted RN hours 

per resident day. The tables include regression coefficients and R2 

statistics. Regression coefficients can be interpreted as the predicted 

change in nursing time per resident day for every unit change in the 

independent variable. In general, it is not meaningful to compare the size 

of these coefficients because our independent variables are on different 

scales. We used R2 statistics to estimate how much of the variation in the 

nursing time per resident day can be explained by all the independent 

variables in our models. Taken together, the independent variables 

explained between 27 percent and 31 percent of the variation in the casemix adjusted total nursing hours per resident day and between 36 percent 

and 39 percent of the variation in the case-mix adjusted RN hours per 

resident day for fiscal years 2012 through 2014. Accounting for the state 

where each SNF was located was very important in explaining its nursing 

time per resident day. This could be attributable to variation across states 

in staffing requirements, Medicaid reimbursement rates, or other factors.
Appendix I: Additional Detail on the Methods 

and Results of Our Expenditure Analyses

Page 29 GAO-16-700 Skilled Nursing Facilities

Table 5: Regression Analysis on the Effect of Various Independent Variables on Skilled Nursing Facilities’ (SNF) Case-Mix 

Adjusted Total Nursing Hours per Resident Day, Fiscal Years 2012-2014

Regression coefficient

Independent variable FY 2012 FY 2013 FY 2014

Margin -0.13a -0.09a -0.12a

Average resident length of stay -0.00a -0.00a -0.00a

Average hourly registered nurse wage -0.00 -0.00a -0.00b

Chain affiliation -0.18a -0.16a -0.14a

Number of beds 0.00a 0.00a 0.00a

Number of competitors within 15 miles -0.00a -0.00a -0.00b

Ownership type

For-profit -0.36a -0.41a -0.40a

Nonprofit -0.04 -0.06c -0.02

Government (reference group) d d d

Proportion of Medicare days 0.96a 1.09a 1.12a

Urban status 0.08a 0.06a 0.06a

Intercept 3.92a 3.73a 3.42a

R-Square 0.28 0.27 0.31

Number of SNFs 11,417 12,219 10,280

Legend: FY = fiscal year

Source: GAO analysis of Medicare cost report data. | GAO-16-700

Note: This table is a summary of results from three models, corresponding to each fiscal year. The 

models also included state dummy variables.

a

Significant at the <.0001 level.

b

Significant at the .01 level.

c

Significant at the .05 level.

d

Not available because the method calculates coefficients for the included groups relative to the 

reference group.
Appendix I: Additional Detail on the Methods 

and Results of Our Expenditure Analyses

Page 30 GAO-16-700 Skilled Nursing Facilities

Table 6: Regression Analysis on the Effect of Various Independent Variables on Skilled Nursing Facilities’ (SNF) Case-Mix 

Adjusted Registered Nurse Hours per Resident Day, Fiscal Years 2012-2014

Regression coefficient

Independent variable FY 2012 FY 2013 FY 2014

Margin -0.01a -0.01a -0.00c

Average resident length of stay -0.00a -0.00a -0.00a

Average hourly registered nurse wage -0.00b -0.00a -0.00a

Chain affiliation 0.01b 0.01a 0.01a

Number of beds 0.00c 0.00b 0.00b

Number of competitors within 15 miles -0.00 0.00 -0.00

Ownership type

For-profit -0.03a -0.03a -0.02a

Nonprofit -0.01 -0.01 -0.00

Government (reference group) d d d

Proportion of Medicare days 0.15a 0.18a 0.20a

Urban status 0.01a 0.01a 0.01a

Intercept 0.30a 0.31a 0.27a

R-Square 0.36 0.36 0.39

Number of SNFs 11,998 12,743 10,628

Legend: FY = fiscal year

Source: GAO analysis of Medicare cost report data. | GAO-16-700

Note: This table is a summary of results from three models, corresponding to each fiscal year. The 

models also included state dummy variables.

a

Significant at the <.0001 level.

b

Significant at the .01 level.

c

Significant at the .05 level.

d

Not available because the method calculates coefficients for the included groups relative to the 

reference group.
Appendix II: Comments from the Department 

of Health and Human Services

Page 31 GAO-16-700 Skilled Nursing Facilities

Appendix II: Comments from the Department 

of Health and Human Services 
Appendix II: Comments from the Department 

of Health and Human Services

Page 32 GAO-16-700 Skilled Nursing Facilities
Appendix II: Comments from the Department 

of Health and Human Services

Page 33 GAO-16-700 Skilled Nursing Facilities
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 34 GAO-16-700 Skilled Nursing Facilities

James Cosgrove, (202) 512-7114 or cosgrovej@gao.gov

In addition to the contact named above, Martin T. Gahart, Assistant 

Director; David Grossman, Analyst-in-Charge; Todd D. Anderson; and 

Jane Eyre made key contributions to this report. Also contributing were 

Elizabeth T. Morrison, Vikki Porter, Eric Wedum, and Jennifer Whitworth.

Appendix III: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(100197)
The Government Accountability Office, the audit, evaluation, and investigative 

arm of Congress, exists to support Congress in meeting its constitutional 

responsibilities and to help improve the performance and accountability of the 

federal government for the American people. GAO examines the use of public 

funds; evaluates federal programs and policies; and provides analyses, 

recommendations, and other assistance to help Congress make informed 

oversight, policy, and funding decisions. GAO’s commitment to good government 

is reflected in its core values of accountability, integrity, and reliability.

The fastest and easiest way to obtain copies of GAO documents at no cost is 

through GAO’s website (http://www.gao.gov). Each weekday afternoon, GAO 

posts on its website newly released reports, testimony, and correspondence. To 

have GAO e-mail you a list of newly posted products, go to http://www.gao.gov

and select “E-mail Updates.”

The price of each GAO publication reflects GAO’s actual cost of production and 

distribution and depends on the number of pages in the publication and whether 

the publication is printed in color or black and white. Pricing and ordering 

information is posted on GAO’s website, http://www.gao.gov/ordering.htm. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or 

TDD (202) 512-2537.

Orders may be paid for using American Express, Discover Card, MasterCard, 

Visa, check, or money order. Call for additional information.

Connect with GAO on Facebook, Flickr, Twitter, and YouTube.

Subscribe to our RSS Feeds or E-mail Updates. Listen to our Podcasts.

Visit GAO on the web at www.gao.gov.

Contact:

Website: http://www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470

Katherine Siggerud, Managing Director, siggerudk@gao.gov, (202) 512-4400, 

U.S. Government Accountability Office, 441 G Street NW, Room 7125, 

Washington, DC 20548

Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, DC 20548

James-Christian Blockwood, Managing Director, spel@gao.gov, (202) 512-4707

U.S. Government Accountability Office, 441 G Street NW, Room 7814, 

Washington, DC 20548

GAO’s Mission

Obtaining Copies of 

GAO Reports and 

Testimony

Order by Phone

Connect with GAO

To Report Fraud, 

Waste, and Abuse in 

Federal Programs

Congressional 

Relations

Public Affairs

Strategic Planning and 

External Liaison

Please Print on Recycled Paper.