SNF cost report margin vs EBITDAR, and why they differ

The margin on a skilled nursing facility’s Medicare cost report is net patient revenue minus total operating expenses, and total operating expenses already include the building: depreciation, rent and lease payments for the facility and equipment, and interest on money borrowed to buy property. EBITDAR leaves all of those out. That is why the median US facility in CMS’s newest cost report file shows a reported operating margin of about -0.3% while most buildings still pay their rent and debt.

Where the number comes from

On Worksheet G-3, line 3 is net patient revenue and line 4 is total operating expenses. Line 4 is carried from Worksheet G-2, which starts from Worksheet A, line 100, the total of the facility’s expenses as booked.

Worksheet A’s first two lines are the capital-related cost centers. The instructions for the CMS-2540-10 form (Provider Reimbursement Manual, Part 2, chapter 41, section 4113) say those lines “include depreciation, leases, and rentals for the use of facilities and/or equipment, interest incurred in acquiring land or depreciable assets used for patient care,” along with insurance and taxes on depreciable assets. Interest on working-capital borrowing is not a capital cost; it is booked in administrative and general, which is also inside line 100.

So G-3 line 5, “net income from service to patients,” is roughly an after-rent, after-depreciation, after-interest figure. It also leaves out other income on lines 6 onward.

From reported margin to EBITDAR

Take a 120-bed building at 85% occupancy, which works out to 37,230 patient days, with these annual figures from its own statements:

Line	Amount
Net patient revenue ($380 a day)	$14,147,400
Total operating expenses on the cost report	$14,000,000
Reported result	$147,400
Add back rent paid to the landlord	$1,450,000
Add back depreciation and amortization	$240,000
Add back interest	$60,000
EBITDAR	$1,897,400

The building earns about 1% on the cost report and covers its rent 1.31 times. The gap is the building cost.

Two adjustments usually follow. A buyer or lender replaces the operator’s actual management fee with a market fee, which can move EBITDAR either way. And related-party leases are a trap: the cost report rules can require a related-party lease to be reported at the owner’s cost rather than the rent paid, so the “rent” you add back may not match the lease.

Why the state benchmarks still use the reported margin

It is the only margin every facility reports the same way. The rent, depreciation and interest add-backs need line-level worksheet data that the CMS summary file does not include. Use the reported margin to compare states and ownership types. It is not a profit measure. In CMS’s newest file the median for-profit facility reports about +1.1% and the median nonprofit about -8.6%, a gap that partly reflects how each books its capital.

A form change to know about

CMS retired the CMS-2540-10 form for cost reporting periods ending on or after September 30, 2025, and replaced it with CMS-2540-24 (Provider Reimbursement Manual, Part 2, chapter 49). The new instructions keep the same structure for these lines: G-3 total operating expenses still come from Worksheet A, and Worksheet A’s capital lines still include depreciation, leases, rentals and capital interest.

To build EBITDAR, NOI and value from your own numbers, use the valuation calculator.