March 14, 2023

The Rocky Road Ahead: Three Threats to Revenue in 2023

By Maureen McCarthy, Founder, President and CEO, Celtic Consulting, LLC

The Rocky Road Ahead: Three Threats to Revenue in 2023 Senior Living Services

The months ahead are shaping up to be challenging for healthcare providers. Skyrocketing expenses compounded by reduced reimbursement rates; increased scrutiny on nursing home staffing levels; and complications resulting from a new Minimum Data Set (MDS) assessment are all expected to trouble long-term care facilities in 2023.

The Centers for Medicare and Medicaid Services (CMS) implemented a two-year parity adjustment to correct increases resulting from the Patient-Driven Payment Model (PDPM), implemented in 2019. The first round of reductions, which hit providers on October 1, 2022, applied a 2.3% reduction to each PDPM case mix-adjusted component. Providers will face another 2.3% reduction on October 1, 2023.

Medicare Advantage rates have been dropping significantly since 2012, further hindering revenue. There is currently a disparity of approximately $120 per day between traditional fee-for-service (FFS) Medicare payments and Medicare advantage payments. With the popularity of Medicare Advantage plans growing exponentially, decreasing rates will be problematic. In 2022, more than 49% of Medicare beneficiaries were enrolled in Medicare Advantage plans. The Congressional Budget Office estimated this total will increase to more than 50% by 2030.

CMS and individual states are considering minimum staffing mandates. Last year, CMS announced an initiative to revise minimum staffing requirements and release draft proposals in 2023. Now one step closer, CMS is reviewing data from its one-year study to provide insight into new staffing ratios.

While many organizations agree with the intent behind CMS’s initiative — higher staffing levels are directly linked to improved quality — the reality of the situation is far more complicated. An unfunded staffing mandate will hit providers hard, potentially worsening the current staffing crisis and penalizing SNFs that simply can’t attract enough staff to comply.

The MDS 3.0 Item Sets version (v) 1.18.11, scheduled to go into effect on October 1, 2023, is widely recognized as the largest change to the MDS in over a decade. The MDS assessment tool drives SNF reimbursement; therefore changes to it and its ancillary processes are a particular concern for facilities. The MDS Manual has yet to be released.

Changes contained in the draft MDS will have a domino effect on two components of SNF reimbursement: quality measures (QMs) and the transition away from Resource Utilization Group (RUG) items used to determine Medicaid reimbursement.

The removal of Section G (functional status) and the transition to section GG (functional abilities and goals) have the potential to impact QMs. Currently many of the QMs in the CMS Five-Star rating program have components of Section G built into the measure. The removal of Section G (or most of it) will likely force changes to the Five-Star reporting program calculations as well.

Before PDPM was implemented as the SNF prospective payment system (PPS) classification system, many states used aspects of PPS to determine Medicaid reimbursement. When PDPM was introduced in 2019, CMS created the Optional State Assessment (OSA) to address the coding differences between RUGs and PDPM.

Notably, the OSA (currently item A0300 in MDS v1.17.2) was missing from the draft MDS released. While CMS could add the OSA back into the final version of the MDS, CMS already made plans to sunset RUG-3 and RUG-4 items by removing Section G from the MDS. This is forcing state Medicaid directors to consider moving to a PDPM reimbursement system for Medicaid payments in just a handful of months.

Providers will need to look for a silver lining to some of these challenges and take advantage of any opportunities to improve, or at least maintain, levels of reimbursement.

Changes in the new MDS allow for creative thinking to optimize reimbursement. Process development and education take time to integrate, and waiting until the end of summer to determine how to incorporate systems for the new MDS won’t allow enough time to optimally adapt.


  • How will CMS adjust five-star rating calculations?
  • What tasks is your MDS coordinator doing that can be given to someone else?
  • Will CNAs collect section GG data?
  • Without section G, what will trigger Care Area Assessments (CAAs)?
  • With the addition of social determinants of health to the MDS, who will collect it and how will they do it?
  • What process do you have to ensure specific supporting diagnostic information for coding antipsychotics in section N?
  • Who will report and transfer a reconciled medication list to the resident/subsequent provider? How will they carry this out?

Providers can also prepare now to improve their outcomes under the forthcoming minimum staffing requirements. A commitment to staff recruitment and retention can help providers achieve their best possible standing when minimum staffing levels are released.


  • What does your team commonly value? How can you motivate them?
  • Does mentorship extend beyond your orientation program?
  • Do you offer the chance to gain new skills and create opportunities for leadership?
  • How does your management staff impact retention?
  • How can you address staff burnout?

Celtic Consulting, a post-acute advisory firm, provides operational, clinical, and financial support to healthcare providers. Celtic partners with organizations to prevent or remediate decreased revenue and is skilled in launching operational assessments to reveal barriers and factors contributing to reimbursement success. By engaging our clients in multi-pronged action plans, we have helped providers sustain gains with multiple payment sources.

Let’s work together to develop your game plan for 2023.