Non-Profits Exit Skilled Nursing Amid Consolidation, Strong M&A Activity
Non-profits have felt particularly squeezed by recent skilled nursing pressures on multiple fronts, prompting them to sell off their skilled facilities — typically to for-profit entities.
Many of them are feeling the pressures of staffing, Luann Gutierrez, Greystone & Co.’s managing director for bridge finance, told SNN. In addition, the non-profits that have just one or two facilities are having trouble securing the kinds of vendor contracts that they need to survive in the space.
But the sell-off isn’t limited to standalone skilled nursing facilities run by non-profits, according to Lisa McCracken, who serves as director of senior living research and development at the Chicago-based investment firm Ziegler.
“It’s not just small freestanding nursing homes,” she stressed to Skilled Nursing News. “The majority of them are from systems or multistate sponsors … It’s a lot of these systems that are selling and disposing as well. I think that’s an important point. It’s not always this little rural nursing home that is selling, but it’s these larger systems that are saying, ‘We need to reconfigure.'”
Staffing and skilled nursing-specific pressures
Though being a non-profit comes with tax benefits, those revenues aren’t enough to offset other obligations, especially the operators that provide services in the skilled space, Gutierrez explained.
“The best way for them to minimize the exposure that they have is to sell the property to a for-profit owner and kind of get that off their books,” she said.
The concerns about skilled nursing were prominent in a survey of chief financial officers for non-profit entities that came out in February of this year. Staff recruitment and labor costs were the top two concerns in that survey for the year 2018, and this matches what Gutierrez said she has seen when she visits non-profit skilled entities. Such employers generally provide benefit programs that many other employers no longer offer, or have different health insurance, she noted.
Both for-profit and non-profit entities are facing workforce pressures, McCracken and Dan Revie, who serves as director of corporate finance—senior living at Ziegler, told SNN. But in the non-profit arena, different types of entities may have even more varied hurdles related to their workforce. County-owned nursing homes, for instance, are more likely to have unionized workforces, Gutierrez noted.
All those pressures add up.
“I think it’s a lot of people that are trying to tighten their belts and cut where they can,” she said. “This is a segment that’s — I don’t want to say losing money, but it’s a cash drain.”
Not just the standalones
At the start of the year, McCracken and Revie wrote about how the difficulties in the skilled nursing space have forced many non-profits to operate at a significant financial loss.
“Many not-for-profit providers got into the stand-alone skilled nursing business years ago to enhance their mission,” the authors wrote in January. “However, the changes in the skilled care industry have caused a large percentage of the nursing facilities to operate at a significant financial loss, and in turn, have now become a detriment to their mission.”
Most non-profits are invested in the continuum of care, McCracken told SNN, with several in the continuing care retirement community (CCRC) space. But those that focus on the rehabilitation and post-acute world are feeling the same pressures as the for-profit entities — and they’re feeling increasingly pressured to exit.
“It’s the freestanding nursing homes in particular, or a CCRC that is very heavy on the skilled nursing … these are the ones that we tend to see coming up more with dispositions and sales to the for-profit sector,” McCracken said. “If a not-for-profit nursing home decides to go out into the market and decides to sell, nine times out of ten it’s going to go to a for-profit.”
In fact, since 2010, 130 different not-for-profit nursing homes have been sold into the for-profit sector, and McCracken stressed that that number is incomplete, as it doesn’t include closures and other transactions that Ziegler itself doesn’t catch.
Both Revie and McCracken noted in an interview with SNN that M&A activity has been strong this year even among for-profit skilled nursing entities. But they also noted that in the not-for-profit space senior living and health care space — beyond the SNF world — there’s a trend toward consolidation, which could be affecting the sales of non-profit entities.
“The macro view of it is we know there are more systems talking to each other, like Good Samaritan and Sanford Health,” McCracken said. “While that’s unique in terms of [Sanford] being a hospital provider, we do see more systems talking to each other.”
Written by Maggie Flynn