Why HUD Financing Has Potential to Propel the Nursing Home Industry Forward

Loans and other types of financing through the Department of Housing and Urban Development (HUD) may be key to incentivizing operators to seek innovation, such as scaling the small home model in a meaningful way – but the program isn’t quite at that point yet.

The National Academy of Sciences, Engineering, and Medicine (NASEM) report said just as much in its “ambitious vision for the future of nursing home care,” according to an article on the matter in Health Affairs.

Authors of the article include notable names such as Harvard University Professor David Grabowski,  ATI Advisory CEO Anne Tumlinson; Robert Kramer, co-founder and strategic advisor at the National Investment Center for Seniors Housing and Care (NIC) as well as founder and fellow of Nexus Insights; and Conner Esworthy, an adviser to ATI Advisory.

Specifically, NASEM called on HUD and the Centers for Medicare & Medicaid Services (CMS) to develop incentives to support changes to facility structure. Such renovations would include a smaller, more homelike environment or smaller units within a larger campus to promote infection control and person-centered care.

The Green House Project, founded in 2001 by Dr. Bill Thomas and backed by a $10 million grant from the Robert Wood Johnson Foundation, is a prime example of a small home model in action, but such homes only make up about 2% of the country’s 15,000 nursing homes, according to the article.

That could change if HUD better aligned itself with federal goals for the sector – quicker access to HUD funds linked to nursing home innovations would be a start, authors noted.

Currently, HUD remains the preferred nursing home lender thanks to its long-term financing conditions and lower interest rates.

A majority of the $4.9 billion in loans were made through the program in 2021, according to HUD’s Office of Residential Care Facilities. But, the program as it stands has not been able to adequately incentivize capital investments tied to larger federal goals included in the Biden reforms.

“These specific funds could be structured as outright grants that would decrease the time to secure capital and incentivize the type of change needed to modernize the nation’s nursing homes,” Health Affairs authors wrote. “These special grant structures could be contingent on consistent ownership and the operator committing to using the funds for a specific purpose over a specified duration.”

CMS and HUD could work together on a list of approved grant items, authors said, like construction and renovation for implementing the small home design, or less “capital-intensive” options like investing in technology and telecommunication upgrades or air purification systems.

HUD has used such grants in the past; the model would be more of a supplement rather than a replacement for HUD’s basic loan process, according to the article.

Innovation initiatives need to hold more weight in the current HUD loan process, preserving the lowest rates for borrowers with a progressive plan in mind; Health Affairs authors suggest a point system for certain initiatives, like designing private rooms, implementing telehealth or remote patient monitoring, and investing in data systems and analytics.

A special tier of HUD loans tied to CMS quality measurements, like those that put a creative staffing model in place or have a high ratio of universal workers, doubles down on linking favorable loan terms to innovation.

“The likely benefits from these initiatives, including consistency in patient-staff relationships, minimized disease exposure, and reduced staffing gaps in particular specialties, all align with CMS quality goals,” added Health Affairs authors.

It’s an interesting companion inventive to what is already happening with state Medicaid rates. Illinois, for example, tied its $700 million increase to nursing home funding to staffing incentives and direct care staff compensation, among other long-term goals.

“Given the HUD program’s predominance among nursing homes of all sizes, it has the potential to drive change across the industry quickly,” authors said, calling potential expansion a “significant opportunity” to further support all facilities, and by extension the communities they serve.