The Centers for Medicare & Medicaid Services (CMS) has released its final rule for fiscal year 2026 skilled nursing facility (SNF) reimbursement, delivering a net 3.7% increase in Medicare payments. The rule, published in the Federal Register on January 22, represents the largest single-year rate increase for the sector since the transition to the Patient Driven Payment Model (PDPM) in 2019.

What the Rule Changes

At the heart of the update is a 2.8% market basket increase, reflecting rising costs for labor, supplies, and capital expenses. CMS applied an additional 0.9% adjustment tied to updated wage index calculations that more accurately reflect geographic labor market conditions. Together, these adjustments translate to an estimated $1.4 billion in additional Medicare spending on SNF services in FY2026.

The rule also introduces refinements to the PDPM case-mix classification system. CMS has recalibrated several nursing and therapy component weights based on updated utilization data, addressing long-standing industry concerns that certain patient categories were systematically under-resourced. Facilities treating medically complex patients with high nursing needs stand to benefit the most from these adjustments.

Wage Index Overhaul

Perhaps the most consequential change is the wage index methodology update. CMS adopted a blended approach that incorporates both hospital and SNF-specific labor data, moving away from the pure hospital-based wage index that the industry has long argued fails to capture the unique labor costs of post-acute care settings. Rural facilities and those in mid-tier metropolitan areas are projected to see the largest relative gains.

The American Health Care Association (AHCA) called the wage index reform “a meaningful step toward equity” but noted that many facilities, particularly those in high-cost urban markets, will still face significant margin pressure. According to AHCA’s analysis, approximately 60% of SNFs operated at a loss or break-even on Medicare patients in 2025.

Industry Reaction

Operator responses have been mixed. Large multi-facility chains with diversified payer mixes are generally optimistic, viewing the rate increase as a stabilizing force. Mid-size and single-facility operators, however, express concern that the increase may not keep pace with wage inflation, particularly in states where minimum wage increases have outpaced national averages.

“A 3.7% increase sounds substantial until you factor in the 5-6% wage growth we’re seeing in competitive labor markets,” said one Midwest-based operator who requested anonymity. “It’s better than flat, but it doesn’t close the gap.”

What Comes Next

The rule takes effect October 1, 2026, at the start of the federal fiscal year. CMS has also signaled that it will release a proposed rule for FY2027 in the spring that may include further PDPM recalibrations and new quality reporting requirements tied to the SNF Value-Based Purchasing (VBP) program.

For administrators and financial teams, the immediate priority is modeling the impact of the new rates on their specific patient mix and geographic market. Facilities with strong PDPM coding practices and a high proportion of medically complex admissions are best positioned to capitalize on the updated payment weights.