Skilled nursing facility owners, operators and administrators rely on performance indicators to inform their strategy. Patient satisfaction, clinical outcomes, staffing patterns and operational efficiency all guide critical decision-making. Yet when it comes to interpreting the financial impact of those decisions, many leaders defer to their CFOs and finance teams, creating a disconnect between operations and the data that should inform them.
When leadership builds a shared understanding of financial performance, data becomes a strategic roadmap to help identify challenges sooner, move quickly on opportunities and make deliberate choices about where to direct resources across the facility.
Balance Sheet Fundamentals for Financial Health
Each month, skilled nursing facilities generate one of their most powerful management tools: the financial statement. When delivered on time and understood by leadership, these reports provide insights and opportunities for operational changes that can strengthen performance and highlight strategies that can be rolled out across other business units.
Days Accounts Receivable (AR) Outstanding
(Accounts Receivable ÷ Annual Revenue) × 365
This metric reveals how efficiently a skilled nursing facility collects payment for services provided. Using the formula, most successful facilities aim for 60 days or fewer. When AR days exceed this threshold, significant funds become tied up in uncollected claims, threatening cash flow. Reducing AR by even five to ten days can generate a meaningful cash infusion to reinvest in the facility.
Days Accounts Payable (AP) Outstanding
(AP ÷ (Annual Expenses – Salaries & Benefits – Depreciation – Bad debt)) × 365
This ratio shows how quickly vendor invoices are paid. While prompt payment maintains vendor trust, paying too quickly can unnecessarily strain cash flow. Many facilities target 60 to 75 days, aligning payments with reimbursement cycles to protect liquidity while preserving strong vendor relationships.
Days of Cash on Hand
(Cash + Reserves) ÷ ((Annual Operating Expenses – Depreciation – Bad Debt) ÷ 365)
This formula provides a “survival” metric, indicating how long a skilled nursing facility could continue operating with existing reserves if no new revenue were collected. Lenders and regulators view a high number as a key indicator of resilience. However, seasonal reimbursement patterns can distort results, making context essential for accurate interpretation.
Operational Metrics That Drive Performance
Balance sheet ratios provide the foundation, but effective financial management requires connecting daily operations to long-term sustainability.
EBITDA Analysis: Understanding Operational Profitability
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) strips away accounting variables to reveal the true profitability of daily operations. This metric can help leadership understand exactly how well the skilled nursing facility generates cash from patient care activities, independent of financing decisions or asset depreciation schedules.
EBITDA becomes most valuable when analyzed alongside per patient day (PPD) benchmarks, including food costs, salary costs, and agency staffing costs PPD. In context, these insights can help reveal how efficiently resources are being deployed and where intervention is needed.
Payer Mix Strategy: Managing Revenue Streams
Administrators should also examine their service mix and payer composition. Well-managed facilities typically dedicate 20 to 30 percent of their capacity to higher-reimbursement services like rehabilitation, which helps offset pressures from declining government payment rates.
Each payer type requires a distinct management approach:
- Medicare delivers higher reimbursement rates but requires strict compliance and thorough documentation.
- Medicaid provides steady patient volume but at lower and at times negative margins that demand careful cost management.
- Private insurance offers strong profit potential when contracts are negotiated skillfully.
- Self-pay patients require upfront financial counseling to prevent collection problems that strain cash flow.
By understanding these dynamics, administrators can make informed decisions about capacity allocation and service line development
Strategic Implementation and Timing
Financial data drives results only when it is timely, accurate and placed in the proper context. Monthly financial statements should be available by mid-month to guide decisions about staffing, vendor negotiations and resource allocation.
Operational metrics require even more frequent monitoring. Daily or weekly reviews of census, denials and payer mix enable leadership to respond before issues affect cash flow. Leaders should proactively track patient transitions, particularly transitions to Medicaid after Medicare coverage ends.
Both internal and external benchmarking provide valuable insights for different purposes: internal trend analysis reveals how operational changes affect performance over time, while external comparisons help identify whether results fall within acceptable industry ranges. However, external data should be interpreted carefully, as differences in patient populations, service mix, and operational structures can distort meaningful comparisons.
Building Financial Accountability Across Leadership
When operations teams understand these core financial metrics, strategic decisions can be made in natural alignment with financial goals. This shared understanding can help turn budget discussions into more strategic conversations about operations and the patient care that matters most.
Tailored Advice for Your Skilled Nursing Facility
Grassi’s Healthcare advisors are available to help providers and facilities connect clinical, operational and financial performance. Whether you need support with turnaround advisory, performance strategies or regulatory compliance, Grassi’s advisors can help you achieve your sustainability goals while maintaining the highest standards of patient care.
For more information on how your organization can leverage financial metrics to improve performance, reach out to a Grassi advisor today, or watch our recent webinar for more insights.
Frequently Asked Questions
What are the key financial statements a skilled nursing facility should review each month? The key financial statements that a skilled nursing facility should generate and review each month include the Balance Sheet, Income Statement and Cash Flow Statement. These statements provide essential information about the skilled nursing facility’s financial position, profitability, and cash management.
What is Days Accounts Receivable (AR) Outstanding, and why is it important for skilled nursing facilities? Days Accounts Receivable (AR) Outstanding measures how efficiently a skilled nursing facility collects payments for its services. Successful facilities aim to keep this at 60 days or less, as exceeding this can lock up significant funds in uncollected claims and threaten cash flow.
How can EBITDA analysis help skilled nursing facilities understand their operational profitability? EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) strips away accounting variables to reveal the true profitability of daily operations in skilled nursing facilities. When analyzed alongside per patient day (PPD) benchmarks, EBITDA can help leadership understand how efficiently resources are being deployed and where intervention is needed in their skilled nursing facility.
What are some key operational metrics that skilled nursing facilities should monitor frequently? Skilled nursing facilities should closely monitor several operational metrics on a regular basis, including census, denials, payer mix, and patient transitions (particularly transitions to Medicaid after Medicare coverage ends). Frequent monitoring of these metrics enables skilled nursing facility leadership to respond proactively before issues affect cash flow.
