Private Pay Skilled Nursing Shouldn’t Be Ignored, Especially in Rural Areas

Private-pay residents are frequently overlooked as a revenue source in the skilled nursing world, and with some cause: They don’t have the staying power of Medicaid or the sizable market share of Medicare or managed care.

But ignoring that stream altogether could be a mistake, particularly for operators with more rural locations.

“There are so many payor sources in a nursing home right now with the influx of managed care and other payor sources,” Isaac Dole, founder and managing partner at Chicago-based real estate investment firm Birchwood Healthcare Partners, told Skilled Nursing News. “So not only are rates low in some cases, but it’s really hard to collect. Private pay is very simple to collect because people pay their bills, and at times — if you’re in a decent market— the rate could be higher than Medicaid.”

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The urban-rural divide

When the National Investment Center for Seniors Housing & Care (NIC) broke down its skilled nursing facility data for the fourth quarter of 2017 by rural and urban categories, it found a notable disparity in terms of private pay in skilled nursing. Specifically, private pay patient day mix came in at 15.6% in rural locations, compared with 6.5% in urban ones.

But there’s no one answer for that, Bill Kauffman, senior principal at NIC, told Skilled Nursing News.

“It was the first time we actually released this data,” he said, referring to the urban-rural breakdown. “What it does say to us is that further research is absolutely needed to understand what exactly is driving the difference between urban and rural.”

Trilogy Health Services, which offers a variety of services that include skilled nursing, has about 20% of its skilled nursing revenue come from private pay sources, Trilogy Chief Operating Officer Leigh Ann Barney told SNN.

Trilogy’s locations, which number more than 100 senior living communities throughout Indiana, Ohio, Kentucky, and Michigan, may have something to do with that, if the NIC data is anything to go by.

“Trilogy was founded in more secondary markets so we tend to be more rural than urban,” Barney said. “Our more urban locations are newer facilities, maybe in the past five years… Our initial growth was definitely in rural secondary markets.”

Not to be overlooked

Private pay as a source of revenue doesn’t draw the headlines and attention that Medicare and Medicaid do. But Birchwood sees about 10% to 30% of revenue coming from private pay, depending on the nursing home in question, Dole said. Though 30% is on the higher end and most of Birchwood’s communities are in the 10% 20% range for private pay, it’s still a meaningful source of revenue because the cost of caring for a private-pay resident is the same as the cost of caring for a Medicaid resident, he explained.

“People don’t really pay attention, honestly, because it is small,” Dole said. “It’s small, but it’s also meaningful.”

But the individual market is crucial to any strategy involving private pay. Birchwood has taken a strategic initiative to pursue private pay in a Midwestern city with a population of about 35,000.

That city, which Dole declined to name, has some particular demographics that make it a good fit for private pay. There’s “a lot of old oil money there,” and the inhabitants have a fair amount of savings, Dole explained. The relative stability of private pay, especially given the state-by-state variability of Medicaid and the fact that Medicare length-of-stays are decreasing, makes it attractive for that particular community, he said.

Those are considerations that could come into play for other nursing homes, though, and Trilogy’s Barney also noted the length-of-stay factor.

“Medicare is a short-term benefit, so when someone is admitted to our facility with Medicare as a payor source, they have to meet requirements through the hospital stay, and after 20 days there is the co-pay,” she said. “The folks that are with us under private pay are there for the long term.”

That in and of itself has its power, Dole noted.

“Just having 10% to 20% of private pay census just really helps with the stability of a nursing home census,” he said.

Written by Maggie Flynn

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