The Future of the Industry

The bloated and expensive nursing home industry is finally becoming more efficient. More than 300 nursing homes have closed during the COVID-19 pandemic and another 400 could go out of business this year. There are 15,600 nursing homes in the United States. 400 is 2.5%.

Lack of occupancy, unsafe staffing levels, and CMS fixing the reimbursement model to prevent overpayments is causing a new era in  long term care. Many of the bad apples are abandoning the industry. That is good news for quality of care.

Occupancy

Why hasn’t occupancy gotten back to normal? Welltower’s skilled nursing portfolio saw the strongest occupancy growth since mid-January at 1,110 basis points, followed by National Health Investors (NHI) at 800 basis points and Omega Healthcare Investors (OHI) at 690 basis points. LTC Properties, at 130 basis points and Sabra Health Care REIT at 480 basis points, lagged heading into 1Q earnings calls, BMO analysts noted. The latest data from the Centers for Medicare & Medicaid Services’ latest data shows occupancy only grew a “disappointing” 15 basis points month-over-month through April 10.

BMO analysts wrote:

“Government funds have been instrumental in helping operators survive COVID-19, while fundamentals recover. The pace of the occupancy recovery and waning government support will be key in maintaining rents.” 

Hospital patients are not going to nursing homes for therapy and rehabilitation. Hospitals provide therapy services or home health services are increased in use.

Unsafe Staffing

According to an analysis from Seniorly, 25% of facilities in the US report staff shortages in 2022, up from 16% in 2021.

In Minnesota alone in 2022, 41% of SNF operators report experiencing shortages compared to only 18.4% the year before. Washington (37.9%), Maine (37.7%), Kansas (36.1%) and Wyoming (35%) are in the top five states with reported labor shortages. South Carolina maintains unsafe staffing levels.

Funding

The industry was bailed out in 2020 and 2021. The industry is lobbying for more. The Department of Health and Human Services (HHS) announced the distribution of more than $1.75 billion in Phase 4 Provider Relief Fund (PRF) payments to 3,680 providers across the country. Mizuho Securities analysts wrote in an April 21 note that the additional funding “will allow operators to cover some operational cost and also attract talent.”

CMS last month unveiled a 4.6% cut to the Patient-Driven Payment Model (PDPM) and 3.9% increase to Medicare payments. The PDPM cut amounts to a total loss of $320 million in Medicare funding. A very small drop in a very big bucket.

However, the industry claims the sky is falling. A CliftonLarsonAllen guesses that 33% and 38% of nursing homes would be at financial risk if Medicare is cut by 5% but that is unfounded and speculative.

MedPAC’s March 2022 report to Congress found that since 2020, the aggregate Medicare profit margin for freestanding SNFs has consistently been about 10% each year. The aggregate profit margin in 2020 increased to an estimated 19.2% when including Public Health Emergency (PHE) COVID-19 relief funds.