FY2026 SNF Payment Rule Takes Effect: What Changed on October 1

The Centers for Medicare & Medicaid Services’ FY2026 Skilled Nursing Facility Prospective Payment System (SNF PPS) final rule took effect on October 1, 2025, bringing a net 4.0% increase in Medicare payments to the sector. The update, which CMS estimates will add approximately $1.4 billion in Medicare spending, comes as facilities continue to navigate workforce challenges and post-pandemic operational adjustments.

Payment Update Components

The 4.0% net increase reflects a 4.6% market basket update, reduced by a 0.4% productivity adjustment and a 0.2% budget neutrality adjustment for PDPM recalibration. The market basket update accounts for projected increases in wages, benefits, and other operational costs, while the productivity adjustment reflects economy-wide productivity gains that CMS applies to all Medicare prospective payment systems.

Per-diem rates under the Patient Driven Payment Model (PDPM) increased across all case-mix classifications. The national average per-diem rate for FY2026 is projected at $602.53, up from $579.36 in FY2025.

Quality Measure Updates

The SNF Quality Reporting Program (QRP) adds three new publicly reported measures beginning with this October’s data refresh: Transfer of Health Information to Provider, Transfer of Health Information to Patient, and COVID-19 Vaccination Status. These measures will appear on Medicare’s Care Compare website and influence the facility’s quality rating.

CMS also finalized removal of the Health Equity Adjustment from the SNF Value-Based Purchasing program, aligning with changes across other Medicare quality programs. The adjustment had provided additional points to facilities serving disadvantaged populations.

Value-Based Purchasing Changes

The SNF VBP program withhold increases to 4% in FY2026, up from 3% in FY2025, meaning a larger portion of Medicare payments is at risk based on hospital readmission performance. Facilities in the top performance quartile can earn back up to 5.2% of their Medicare revenue, while those in the bottom quartile may lose the full withhold.

CMS reports that the program has contributed to an overall 3.2 percentage point reduction in hospital readmissions from SNFs since its inception.

Industry Response

The American Health Care Association characterized the payment update as “a step in the right direction” but noted it falls short of covering actual cost increases. AHCA analysis suggests facility costs have increased 6-8% annually in recent years, driven primarily by wage inflation in a competitive labor market.

LeadingAge, representing nonprofit providers, emphasized the need for continued Medicaid rate increases to complement Medicare adjustments, noting that Medicaid represents approximately 60% of nursing home revenue nationally.