Assisted Living Construction Has Negative Impact on Skilled Nursing Facilities’ Finances

Assisted living facilities have increasingly represented a viable alternative to skilled nursing for many older consumers, and a recent study found that the rise of lower-acuity senior housing has a direct impact on SNFs’ profit margins.

The addition of every 10 assisted living beds — per 1,000 residents over the age of 65 in a given county — resulted in a 1.1% decline in operating margins for nearby nursing homes, according to research published in INQUIRY: The Journal of Health Care Organization, Provision, and Financing in August.

“The increased assisted living supply may create additional financial/competitive pressures, such as more acute residents, that can result in decreased nursing home financial performance,” the team — which included researchers from Louisiana State University, the University of Alabama, Brown University, and the University of South Florida — wrote. “In addition, the increase of assisted living supply result in higher operating costs as nursing homes potentially have to increase spending on marketing and other amenities to remain competitive in the market.”


The researchers specifically looked at the financial performance and census of nursing homes and assisted living facilities in the state of Florida between 2003 and 2015, inspired by industry reports of acuity creep between the two settings. For instance, the team notes that nursing home occupancy in the Sunshine State sat at 93% in 1981, the first year that assisted living and residential care offerings hit the scene; 23 years later, that number fell to 82%, in line with the most recent set of occupancy data for the second quarter of 2018.

Florida in particular represented a ripe area of inquiry, as it’s one of the states that allows seniors to use their Medicaid benefits toward assisted living services, and together with California and Texas accounts for 33% of all assisted living units nationwide.

Still, despite the direct correlation the team found between available assisted living beds and nursing homes’ profit margins, there wasn’t a significant connection between census at the two settings.


“It is possible that when nursing homes were facing decreasing occupancy, they evolved and focused more of their business to skilled nursing, as to reduce the potential impact of having fewer long-term care residents,” the team wrote.

That tracks with overarching trends in the skilled nursing industry: Sabra Health Care REIT (Nasdaq: SBRA) Rick Matros has declared that “custodial care has no place in skilled nursing,” while many operators have moved to target short-term rehab patients as those with longer-term care needs migrate to the less institutional assisted and independent living options in their areas.

The team also discovered that nursing homes with generally higher patient acuity rates had lower occupancy, positing that some potential residents might take sicker patients to mean lower care quality — thus prompting them to avoid such properties. In addition, the paper notes that increases in managed Medicare penetration actually resulted in better overall financial performance for nursing homes.  While allowing that those results seemed counterintuitive — given the blame many operators place on managed Medicare for their occupancy woes — the team observed that managed care organizations (MCOs) might serve as strong referral sources for participating providers.

“Although Medicare MCOs may attempt to control costs and limit utilization by restricting provider networks and adjusting post-acute cost-sharing arrangements, their ability to steer Medicare skilled nursing patients may still be financially beneficial for the nursing home,” they wrote.

Written by Alex Spanko

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