Hurricanes Grab Headlines, But Staffing and Congress Represent Bigger Skilled Nursing Risks

Investors frequently point to “headline risk” as a reason to beware the skilled nursing space, typically referring to the kinds of negative press that arise due to natural disasters and lapses in care for vulnerable seniors. But a top executive at the nation’s largest skilled nursing real estate investment trust (REIT) says the prolonged staffing shortage is more worrisome than the next storm.

“One thing I never worry about, and our operators basically confirm this every time there’s a natural disaster, is staff support,” Jeff Marshall, senior vice president of operations at Omega Healthcare Investors (NYSE: OHI), said during a Friday panel discussion at the National Investment Center for Seniors Housing & Care (NIC) conference in Chicago.

Marshall praised the efforts of the workers at the skilled nursing facilities in his company’s portfolio, noting that many stay in buildings for days after storms to ensure ongoing quality care. But he also said a lack of quality candidates in many markets — amid record-low unemployment and competition from other, non-senior care employers — is more of a concern.

“I think that the inadequate staffing is the biggest risk that operators face — the ability to find and/or retain competent nurses, aides, and other staff,” Marshall said.

While Marshall was speaking as part of a talk on the various pitfalls that could derail operators — from storm damage to lawsuits to fraud by employees — he emphasized that staffing shortages can have a trickle-down effect on all of those other potential issues. An understaffed, poorly trained workforce opens up operators to the potential for lawsuits due to insufficient care, for instance, and can’t be trusted to carry out even the more comprehensively developed emergency plans.

“Sometimes there is false comfort in even training, [developing] cutting-edge procedures, hiring the best consultants,” moderator Allen Lynch, an attorney at the firm of Nixon Peabody LLP, said, adding that those plans aren’t worth anything if a provider can’t execute.

Medicaid worries

Staffing woes don’t just exist in the vacuum of local markets. In identifying another trend that should keep providers up at night, Marshall noted that ongoing government policy trends have a direct effect on a provider’s ability to hire.

“The low Medicaid reimbursement rates do not provide adequate resources to provide competitive wages, in many cases, with other industries,” Marshall said.

Marshall, like leaders at the American Health Care Association conference in San Diego earlier this month, expressed concerns about the fate of Medicaid in Congress. A concerted push to rein in Medicaid spending by switching the open-ended funding structure to per-capita caps or block grants failed last summer amid the Republicans’ stalled Affordable Care Act repeal efforts. But with both the House and Senate up for grabs in the coming midterm elections, skilled nursing providers could either see that plan revived or still dead next year.

“That gap between cost and rates that is the biggest risk on those rates,” Marshall said, citing the ongoing gulf between Medicaid reimbursement rates and skilled nursing costs. “Whether that gap widens any more creates risk for financial performance and resources for quality of care.”

Expect the unexpected 

While the panelists emphasized that facilities still need adequate plans for how to handle natural disasters, Aaron Bloom — general counsel for independent and assisted living provider Traditions Senior Living — said headline-grabbing hurricanes don’t necessarily represent the biggest risks for operators in senior housing and care.

“Hurricanes are an obvious risk. Hurricanes get all the headlines, but quite candidly, from an operator’s perspective, are easy to handle,” Bloom said. “Why? Because we see them coming.”

Instead, providers should focus more on the unexpected disasters that don’t necessarily come with days of warnings on the local and national news.

“Nobody is ever surprised by a hurricane. The true risk if it’s a Sunday night before a holiday and you get the call that a building has no power,” Bloom said. “… Those are the real risks that don’t get the attention that a hurricane gets. But you need to understand those risks.”

Written by Alex Spanko