If skilled nursing operators are planning to provide custodial long-term care for years to come, they might want to think again.

“Custodial care has no place in skilled nursing, in my opinion,” Rick Matros, CEO of Sabra Health Care REIT (Nasdaq: SBRA), said Wednesday at the National Investment Center for Seniors Housing & Care (NIC) annual conference in Chicago. Irvine, Calif.-based Sabra is one of the largest skilled nursing owners nationally.

These days, it’s common for a skilled nursing operator to offer both Medicare-reimbursed rehabilitation and Medicaid-reimbursed long-term care. The higher Medicare margin can help subsidize the lower Medicaid rates for the custodial care.

Some of the best operators also have a strategy for transitioning some Medicare patients onto the Medicaid rolls, noted Jacquelyn Kung, principal at Atruya LLC, a firm that offers advisory services to Asian investors interested in the U.S. senior housing market.

The issue is that these Medicare patients usually are being rehabbed and sent home, and if they do stay at the facility, it’s because they have serious co-morbidities or other issues that make them high acuity residents — not the type of traditional long-term care resident that needs help with activities of daily living, Matros said. But he sees some operators, mostly mom-and-pops, still providing this custodial care to residents on Medicaid, which he does not think is sustainable.

“If you’re an operator continuing to take care of custodial patients, you’re going to get killed,” he said.

That’s because a variety of factors — including consumer preferences, evolving technology, and changes in payment incentives — are making it impossible for SNFs to care for this population, he believes.

Distinctions have to be drawn between urban and rural SNFs, though, emphasized Anne Stuart, executive vice president and CFO of Avalon Health Care Group, a Salt Lake City-based operator with nearly 40 communities in seven western states.

“We have many facilities in our portfolio that are the only facility in town,” she said. “That’s what happens in secondary or tertiary markets … in those, you have to really be a full-service nursing facility, and take a lot of different payor sources.”

In dense urban markets, SNFs have more options to specialize in the type of care they provide, and can select to work more exclusively with managed Medicare plans, for instance.

Matros conceded that this is true, but he thinks there still is an end date for custodial care in rural SNFs. It might take longer than in cities, but technological advancements, growth in community-based care, and changes in the payment system will come to the rural areas as well, he said.

Projections show that there will be an explosion of the older adult Medicaid population in the 2020s, said Bill Kauffman, senior principal in research and analytics at NIC.

If a workable reimbursement model can be implemented, the demographics suggest an opportunity for SNFs to serve these lower-income seniors needing long-term care, he said.

At the state level, some Medicaid programs are doing add-ons for SNFs to compensate them for taking higher-acuity patients, showing that steps are being taken to adjust to changing needs, said Kung.

Advocacy will be important to make government an ally instead of an adversary, and ensure that dollars are flowing toward senior care providers, said Stuart.

Matros painted a much bleaker picture of a “really horrible societal situation.” There will be a vast number of people who cannot afford assisted living or home care, and who will find that Medicaid-reimbursed custodial care in a SNF is no longer an option. The government appears to be alarmingly incapable of addressing this coming crisis, in his view.

“In terms of the long-term demographic wave, there’s nothing that’s happening politically that should give anybody any level of confidence that they can get it done in advance of blood in the street,” he said.

Written by Tim Mullaney