Top Skilled Nursing Trends of 2018
Now that we’ve broken down the top 10 stories of the last year, it’s time for us to dive into our predictions for the top skilled nursing trends of the coming 12 months. Some key headwinds, such as questions over Medicaid reimbursements, declining occupancy, and new regulations — including the final round of the requirements of participation roll-out in November 2018 — will continue to plague the industry next year and likely many more to come.
But what about the more subtle shifts in the way the industry serves residents and investors? Here at SNN, we set out to identify the changes that we see coming next year, from SNF design to ancillary revenue streams to the possible decline of short-term rehabilitation.
As we ring in the new year, here are the top trends we see taking hold over the coming 12 months.
The rise of regionalism, or: So long, nationwide chains
Skilled Nursing News tackled the subject of mid-sized SNFs in one of our first longer-form features, in which multiple mergers-and-acquistions experts predicted the rise of smaller, regional operators and holding corporations.
As the year progressed, their predictions looked more and more prescient. Large, national chains like Genesis (NYSE: GEN) and HCR ManorCare faced strains from both regulators and lenders. And as an armchair quarterback, the trend makes sense: Long-term care is an intensely localized business, with residents not wanting to stray far from home and family supports, and operators vying for referrals from a small group of area hospitals.
Plus, despite stringent federal oversight, the nursing-home regulatory landscape often varies on a state-by-state basis — with the ongoing fight over backup generators in Florida serving as just one example. Nationwide chains might find it more difficult to keep up, or rein in rogue branches that happen to be violating laws that don’t apply to other facilities in the same ownership group.
As a result, smaller, regional operators are often better equipped to thrive in the space, with a more intimate knowledge of the factors that are so crucial to SNF success: the demands and desires of accountable care organizations (ACOs), discharge coordinator preferences at individual hospitals, and even local health department inspection schedules.
With so much turmoil at top providers, at least one major chain will bite the dust this year — with more nimble regional players filling the vacuum.
‘Small house’ adaptations will rule in SNF design
Saying that seniors don’t want to feel like they’re in a nursing home is pretty much ancient news at this point: With younger boomers harboring bad memories of visiting their elders in cold, institutional nursing homes, even the humblest of SNF operators has taken steps to make their properties skew more “hotel” and less “Nurse Ratched.”
But with the oldest physical plants in the senior-housing game, skilled nursing providers face gigantic renovation bills if they want to convert their facilities to something like the “small house” model — a style that focuses on separate, manageable living areas for smaller groups of seniors with communal kitchens and shared spaces.
As those kinds of amenities become even more desirable — and existing SNFs in the industry continue to age — look for more operators to attempt what St. John’s Senior Services of Rochester, N.Y. did: gradually upgrade its facilities to meet the “small house” model over time by diverting maintenance budgets into meaningful physical and cultural changes.
And with small house pioneer Bill Thomas — whose “Green House” model serves as a basis for many similar projects, including the one at St. John’s — rolling out the tiny-home “MAGIC” template late in 2017, expect the trend to only gain steam through the year and beyond.
Medicare and Medicaid in the crosshairs
This holiday season, it might have seemed to the skilled nursing industry that Speaker of the House Paul Ryan was doing his best to play The Grinch. Through the month of December, the Wisconsin Republican was making noise about potential Medicare and Medicaid cuts in 2018 and beyond.
The impetus comes, in part, from the major tax reform legislation that President Trump signed into law on Dec. 22. New tax cuts will shrink government revenue and lead to growth in the budget deficit by as much as $1 trillion, according to some estimates. Entitlement reform is one way to shrink spending and prevent such a ballooning deficit. Medicare in particular is “the biggest entitlement that’s got to have reform,” Ryan said on a talk radio show in early December. In the week before Christmas, he walked that back a bit, saying that major Medicare cuts would not happen in 2018—for beneficiaries.
“There are some provider issues that we may be addressing as you know,” Ryan said. “Some providers in the Medicare field in some cases are getting overpaid. We want to make sure that’s being dealt with.”
Furthermore, he said that welfare reform would be a top priority, and Medicaid cuts or changes could be part of that effort.
Some are skeptical that Congress can accomplish Medicare and Medicaid reform in an election year, but 2018 could still begin with a cut to SNF reimbursements. It’s widely expected that SNF payments will be reduced to help offset the costs of repealing Medicare therapy caps.
So, the next 12 months could challenge skilled nursing margins, further complicating the picture for some major providers that are already strapped after a tough 2017. And industry leaders could be racking up a lot of frequent flyer miles on trips to Washington, D.C., to lobby for their interests.
SNFs get more niche
The era of the neighborhood nursing home, where grandma and grandpa go to receive extended long-term care, continues to wane. Rick Matros, CEO of major skilled nursing landlord Sabra Health Care REIT (Nasdaq: SBRA), put it bluntly back in September: “If you’re an operator continuing to take care of custodial patients, you’re going to get killed.”
But if SNF providers think that the answer is to devote more beds to Medicare-reimbursed short-term rehab, they should think again. Managed care plans and Affordable Care Act policies are putting pressure on length of stay for these patients, and diverting as many patients as possible to receive care at home.
Rather, expect to see more SNFs specialize in the type of care they provide to meet specific needs in their markets. Matros, for one, is a believer in this model. Back in 2015, Sabra paid $234 million for four SNFs focused on particular types of complex care, including ventilator and dialysis services. And Matros is not alone. Doug Leidig, CEO of non-profit senior living and care provider Asbury Communities, recently told Senior Housing News that he also foresees more SNFs turning into “specialty care units.”
Insurance deals drive transformation
2017 ended with a flurry of blockbuster M&A activity, including insurer Humana acquiring a stake in the home health, hospice, and community-care operations of Kindred Healthcare (NYSE: KND) for $4.1 billion.
The deal comes as Kindred is completing its exit from skilled nursing, but it shows how post-acute care has become a top priority for the nation’s largest insurers. Humana believes that by more closely managing this part of the continuum, it can better manage costs and outcomes for its beneficiaries. Look for this to ratchet up the pressure on SNFs to win increasingly scarce referrals, as big payors become more aggressive and efficient at identifying which patients can receive care at home.
In another major end-of-year deal, pharmacy giant CVS acquired the nation’s third-largest insurer, Aetna. Like the Kindred transaction, this deal did not directly involve a SNF provider, but CVS is a major long-term care pharmacy company, through its Omnicare arm. Furthermore, the merger is meant to boost community-based health services, accelerating the ongoing trend of retail pharmacies doubling as health care hubs. The idea is that this will make it easier for people to remain at home as they age—for example, by receiving more support for managing chronic conditions such as diabetes.
With these transformational deals, it appears that a senior’s home is a greater competitor of SNFs than ever before. However, SNF providers staunchly assert that the home is not the best setting in all circumstances. In 2018, it’s a safe bet that they will press this case with more and better data. More SNF providers might opt to start their own Medicare Advantage plans, and the sector as a whole will seek out new ways of partnering with payors. The merger of a SNF company and an insurer is not out of the question, as the Humana deal shows that vertical integration of insurance and post-acute providers is already underway.
Telemedicine takes off
For years, skilled nursing providers have been excited about telemedicine, saying that virtual visits with physicians and other clinicians could improve care quality while decreasing the stress and costs of transporting residents. With Congress making moves to loosen some obstacles to adoption, and evidence piling up as to the benefits of telemedicine, 2018 could be a turning point for the technology.
Over the past several years, lawmakers and regulators have taken steps to make telemedicine more accessible. For instance, the 21st Century Cures Act required a report to Congress on potential ways to increase telemedicine’s role in the Medicare program, where there have been strict rules in place regarding when these services can be reimbursed.
Meanwhile, vendors and providers are already taking action, encouraged by recent research findings. Results from the TRECS Institute (Targeting Revolutionary Elder Care Solutions), released last August, showed that telemedicine is a highly effective way of preventing hospital readmissions from SNFs. TRECS Executive Director John Whitman predicted every SNF will be utilizing telemedicine within three to five years.
Saber Healthcare Group is one major provider that is on board. In late November, Saber announced a telemedicine rollout across 88 SNFs. The whole company is expected to be up and running with the program by the end of the first quarter of fiscal 2018.
Don’t expect emergency prep to go away
The Centers for Medicare & Medicaid Services (CMS) already made sure that 2017 would be the year of emergency preparations, with a sweeping new rule taking effect November. Then the hurricanes came, bringing with them destruction and truly horrifying tales from nursing homes — most prominently the deaths of 14 residents of a Hollywood, Fla. SNF after it lost power.
The Hollywood deaths shocked the nation, and prompted lawmakers on the state and federal levels to take action: Florida Gov. Rick Scott tangled with operators over an emergency generator rule, while members of the U.S. Congress introduced legislation that would bring about stricter emergency rules for SNFs — while also forcing local utilities to prioritize skilled nursing facilities in disasters.
Though the storms are over, and the CMS rule officially hit the books in the fall, don’t expect the calls for greater regulation surrounding SNFs and storms to let up.
Outrage over the deaths in Hollywood was swift, nationwide, and perfectly justified, and in a polarized political environment where the two parties can’t seem to agree on much of anything, protecting vulnerable seniors will be fertile ground for fleeting bipartisanship.
Intergenerational living gets a boost
As the baby-boom generation continues to age, the United States is getting grayer, but not at the same rate. Nursing homes will no longer be the domain of the lucky men and (mostly) women who managed to survive into their 80s and 90s. Soon, 60-year-olds will be mingling with 90-year-olds and a widening crop of centenarians, all of whom will be relatively sprier and healthier than their counterparts from a generation ago.
And that means that SNFs will need to diversify their offerings to appeal to a wider swath of age groups in their ranks. This could also extend to expanding the idea of what types of people can receive treatment in nursing homes: With surging opioid abuse and a widespread need for better mental health care, SNFs could find themselves equipped to handle the next generation of care. After all, they already have physical plants dedicated to long-term management of complex health issues, with the ultimate goal of rehabilitating residents so they can return into their communities.
But aside from new types of care, intergenerational living could be as simple as breaking down the barriers between short- and long-term care areas of a facility to foster a community that benefits all. Look for more providers to explore ways to diversify their populations and help them mingle.
Cucumber water is over
If the SNF of tomorrow takes its cues from the hospitality industry, it logically follows that the skilled nursing industry lies somewhere at the end of the trend cycle. So that means that it’s time to officially declare the end of cucumber water, that slightly off-tasting (to my palate, in any case) welcome offering that’s become a staple of even the humblest non-profit SNF.
You’ve had a good run, watery pickle punch, but it’s time for a new trendy feature to take your place. Perhaps home-brewed beer for visitors and residents alike? Uber Eats deliveries straight to your room? Avocado toast in the small-house kitchen?
Whatever takes its place, thank you for your service, cucumber water, and we wish you the best as you join bistro-style dining in trend retirement.