When is the Skilled Nursing Wave Coming? Depends Who You Ask

Depending on whose earnings call you happened to catch this season, the predicted surge in demand for skilled nursing services is just around the corner — or it isn’t coming at all.

At Omega Healthcare Investors (NYSE: OHI), management enlisted the services of two consulting firms to crunch the numbers on demographic trends over the next decade, and the results were promising.

“With literally thousands of hours dedicated to this analysis, we believe we’ll begin to feel the demographic demand wave going into 2019,” CEO Taylor Pickett said on the real estate investment trust’s (REIT) fourth-quarter earnings call last week. “And finally we have unique business attributes that set us apart from our competitors.”

SNN Summit Ad
Advertisement

Meanwhile, over at Sabra Health Care REIT (NASDAQ: SBRA), CEO Rick Matros seemed skeptical that the long-predicted “silver tsunami” was even coming at all.

“We agree that we’ll start to see sort of the 75-plus crowd, some increase in occupancy starting at some point in 2019 — and there is no big wave coming in, as we all know. It’s just going to start trickling in,” Matros said on his company’s fourth-quarter earnings call last week.

As is often the case, both CEOs’ competing viewpoints have some kernels of truth, as well as a healthy amount of educated speculation.

“I would not be inclined to agree with Omega that ’19 is going to be a lot better,” Betsy Rust, a partner in the Southfield, Mich. office of accounting and consulting firm Plante Moran, told Skilled Nursing News. “I would be a lot more inclined to agree with Sabra that we might see a little more improvement in occupancy.”

Rust pointed to comments that American Health Care Association (AHCA) president and CEO Mark Parkinson made at his group’s annual meeting last fall in Las Vegas. The major surge in the 80-plus population — a core demographic for SNF operators — won’t be coming until the mid-2020s, Parkinson said, so providers and investors can’t just sit on their hands waiting for the residents and the cash to roll in.

But even defining the makeup of the demographic wave can be difficult. Instead of asking when the glut of residents will come, investors should be asking what type of customer a given operator is targeting — because the wave can be quite different.

“I think it has to do with the type of care that they’re providing, if it’s acute or post-acute care, [and] who the payors are,” Beth Burnham Mace, chief economist at the National Investment Center for Seniors Housing & Care (NIC), told SNN. “The demographics are pretty black-and-white.”

U.S. Census data has shown positive growth in the 87-and-older population for several years, Mace noted, but doesn’t indicate a large acceleration until around 2022 — while the population of Americans aged 75 to 81 will increase at a much higher rate in the near term.

A company that plans to target short-term, post-acute residents may thus be experiencing a demographic wave now or in the next few years, while salvation for long-term care providers isn’t coming until the middle of the next decade, just as Parkinson predicted.

Perhaps even more important than demographics, Mace said, is increasing competition with home health and other care settings for the coming wave — no matter which cohort a provider happens to be targeting.

“Who’s going to grab that market share? Is it going to be the skilled nursing facilities that are going to grab that market share?” Mace said.

Rust, meanwhile, predicted more pain in the near term for operators of all stripes.

“Occupancy was pretty miserable in ’16,” she said, “’17 wasn’t any better, ’18 is starting off weak, and frankly, I think ’19 is probably going to be more of the same.”

Written by Alex Spanko

Companies featured in this article:

, , , ,