As the close of 2021 draws near, 2022 budgets should be taking center stage for skilled nursing facilities (SNFs) with a December fiscal year end. A well-planned budget is an important tool for realistically anticipating revenues, prudently managing expenses and successfully overcoming unforeseen challenges (for example, the occasional global pandemic).

Although budget planning may have been a rather mechanical exercise in previous years, COVID-19 illuminated the importance of carefully thought-out yet flexible budgets that are monitored continuously and adjusted as needed.

As you prepare your 2022 budget, we suggest a particular focus on the following three key budgetary components.

In the past, budget planning began with projecting the upcoming year’s census levels based on occupancy percentages for the previous 12 months – a typically straightforward task. The irregularity of census levels at SNFs over recent months, however, will make census projections difficult to determine. While SNF occupancy reached 73.4% in August – up from the January 2021 low of 68.4% – it is still a far cry from the pre-pandemic rate of 89.6% (source: McKnights).

Previously, budget planning was also based in part on your marketing plan, and you could count on your efforts to work with hospitals and other referrers as you estimated census. Considering that the trend toward increased home health care and decreased hospital discharges to skilled nursing has not reversed, however, you may not see the results of your marketing efforts in your census numbers. Thus, although occupancy is important as it will drive both revenue and expense budget estimates, it may be wise to be conservative with census projections for 2022.

Revenue Projections

Once you’ve determined census, those numbers can be used to project revenue. Include the following considerations in your revenue projections:

• Estimated census levels should be broken down by payer mix to determine your revenue projections. Carefully consider how your current census is divided among Medicare, Medicaid and private payments as the payer mix can make a large difference when it comes to total revenue dollars.
• Make sure all rates are updated and budget for any changes related to Medicare or Medicaid as they occur. Be conservative and consider potential future rate decreases when using rates to calculate revenue projections. Factor your contractual allowance rate (i.e., the difference between gross revenue and what providers actually pay) into your revenue projections.
• If you submitted an application for a Phase 4 Provider Relief Fund (PRF) payment by November 3rd, you should make note of the potential payment in your revenue projections. Remember, however, that the amount you include should be only the amount to be used against COVID-19 expenses or related lost revenue. Additionally, American Rescue Plan Act (ARP) Rural payments that have been released should be included in your budget plan.

Expense Projections

Your census levels are also used to project your variable expenses. Keep in mind these considerations for your expense projections:

• It is best to break your monthly occupancy down into payer mix as well as per-patient-day (PPD) numbers. PPD is a daily average that can be used to more accurately project operating expenses. Furthermore, PPD budget comparisons (i.e., budgeted PPD versus actual PPD) are a good way to analyze your financials.
• COVID-19-related expenses will continue to be high in 2022. Personal protective equipment (PPE) like masks, gowns, gloves and disinfecting supplies will still be necessary for proper infection prevention and control and the cost is astronomical. According to a February 2021 forecast by the American Health Care Association/National Center for Assisted Living (AHCA/NCAL), providers spent an estimated $30 billion in 2020 on COVID-19-related costs and that number is projected to be around $30 billion again for 2021. COVID-19-related expenses will continue to be a large part of your budget for the foreseeable future.
• Certain fixed expenses, such as insurance, are less difficult to include in your budget, however it’s a good idea to review policies and vendor contracts to determine if better rates are available or if there are opportunities to find savings. Increased efforts to find savings may become imperative in 2022. According to a survey conducted by Willis Towers Watson, a London-based insurance company, recent large increases in loss costs within the long-term care industry will likely result in increased liability costs.

Healthcare is certainly not the only industry experiencing a labor shortage. Yet for organizations like SNFs that are struggling to attract and retain employees who essentially risk their health to perform their jobs, budgeting for full-time employees (FTEs) seems particularly onerous. In fact, according to a survey released in June from the AHCA/NCAL, 94% of nursing home providers had a shortage of staff members in the previous month, and more than half lost key employees who quit during the pandemic.

Projecting your staffing budget amid the escalation in variables like hazard pay, overtime and bonuses, the skyrocketing rates and the volatility of census levels may make the budget planning process more challenging than ever. As such, it’s important not to underestimate the impact of contract labor on your budget.

Contract labor, albeit an unpredictable expense, may necessarily become a large chunk of your staffing budget for 2022 and for as long as full staffing levels continue to be difficult to attain. Consider the following factors when including contract labor in your 2022 budget:

• Make sure to budget for contract labor during periods when you’ve historically had a staffing shortage, such as seasonal census increases or large training initiatives, as well as to address potential increased shortages due to illnesses or resignations that result from vaccination mandates.
• Make sure your accounting staff thoroughly reviews contract employee invoices for accuracy and to ensure that amounts are broken out in the correct months of service and recorded in the proper fiscal period.
• Review contracts thoroughly and be wary of overpriced contract labor. During the hotbed of the pandemic, many vendors charged steep prices for traveling nurses, although limits for such work have been proposed.

As a final word on staffing, new CDC guidance was announced in September that may require you to add an FTE responsible solely for infection control. Awareness of changing guidelines is important to ensure that you’ve budgeted for adequate staff.

Most SNFs won’t have the luxury of including elective capital improvements in their 2022 budgets. If you anticipate that certain costs, such as building repair or equipment replacement, will likely occur in the short-term, funds should be allocated for those necessary items. Otherwise, it’s advisable to include only COVID-19-related capital expenditures, primarily costs related to the construction of private rooms or modifications that create adequate social distancing, in your budget planning.

Budget planning for 2022 will be, as expected, more tedious than in years past. Focusing on the items you can control and realistically projecting revenue and expenses will help your facility continue to make progress despite ongoing, pandemic-related challenges.