Amid Medicaid Shortfalls, Nursing Home Demand Could Soon Exceed Supply

Skilled nursing utilization and occupancy have been on the decline in recent years, as both payers and consumers migrate to home health and other community care options for cost and preference reasons.

But as low Medicaid reimbursements force operators to scale back their long-term services or shut their doors entirely, available beds for residents who can’t receive care in any other setting are dwindling — and the supply-demand equation could flip within the next few years.

The number of Wisconsin residents needing nursing home care will exceed bed supply by 2027, according to a study released this week by provider group LeadingAge Wisconsin — with 17 of the state’s 72 counties at or above full capacity by 2020. In 2040, that mismatch will have spread to 65 counties, based on current utilization, closure, and demographic trends.

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The Badger State has seen its share of closures and receiverships in recent months, as Medicaid rates for nursing care perennially fail to cover the cost of caring for such residents. The Wisconsin Health Care Association estimates that the average building loses anywhere from $71 to $79 per day on Medicaid-covered nursing home patients, and the state ranks near the bottom for both Medicaid rates and profit margins, LeadingAge Wisconsin vice president of financial and regulatory services Brent Rapos told SNN.

“The way that the reimbursement is set up right now, the only option is for nursing homes to close,” Rapos said. “There’s no incentive for a nursing home to take on losses — and big losses — for 60% of their population. It’s not sustainable.”

Wisconsin has a particular Medicaid quirk that compounds the problem. The state bases the amount of money distributed to nursing homes on overall statewide utilization, which is currently declining at a rate of about 3% each year, according to LeadingAge Wisconsin. So unless replacement beds enter the marketplace after operators scale back their Medicaid operations or shutter them entirely, Medicaid underfunding could create a vicious cycle of closures as declines in both utilization and total Medicaid spending accelerate in tandem.

The effect is even present on the microeconomic level, Rapos noted: With staffing eating up about 70% of a building’s expenses, nurse and aide coverage is often the first domino to fall when a building runs into trouble.

“When you cut staff, you have to reduce admissions,” he said. “It just cycles itself down until the only option you have is to shut your doors.”

And it isn’t just a Wisconsin problem. Massachusetts, Washington state, and others around the country have all seen closures related to Medicaid stresses over the last year or more. And the problem will only get worse across the country, Genesis HealthCare (NYSE: GEN) CEO George Hager said this week.

“You’re going to continue to see an acceleration of the decline of nursing home beds,” Hager said during a Wednesday presentation at the RBC Capital Markets Global Healthcare Conference in New York City. “You just will. The state Medicaid systems still chronically underfund.”

At the same time, Hager noted, construction of new skilled nursing facilities with both Medicare and Medicaid options is largely nonexistent, with most new development focused entirely on short-stay, post-acute residents covered under Medicare — such as Genesis’s PowerBack-branded rehabilitation centers.

“I don’t see anyone investing in the space — new build, out-of-the-ground new build — unless you’re building our PowerBack-type model,” Hager said.

For the Kennett Square, Pa.-based Genesis, with more than 400 skilled nursing centers across the country and its own financial struggles in recent years, that trend is actually good news: With plenty of room to spare in its existing long-term care beds, Genesis is poised to capitalize on the shifting supply and demand equation moving forward.

“We’re very happy to bring on patients that need our services that have long-term care needs, and we think that that’s the real opportunity over the next couple of years here in continuing to grow that occupancy,” chief financial officer Tom DiVittorio said during the RBC presentation.

If all of Genesis’s facilities receive just a single extra long-term care resident with a 365-day stay, DiVittorio said, overall revenues would increase by $25 million — and the company projects growth of two such Medicaid residents per building over the coming years.

The nationwide operator also benefits from the moderating effect that scale can have on Medicaid reimbursement pressures. While individual markets may cause stress, Genesis predicts an overall 2% increase in Medicaid reimbursements across its entire portfolio, DiVittorio said Wednesday.

But that could be cold comfort for smaller operators in problem states such as Wisconsin, where the future of access and utilization remains uncertain. In calculating the projections for capacity through 2040, LeadingAge Wisconsin assumed utilization declines of 3% each year until 2021, when the rate would remain at 88% of the 2017 level.

That 2021 plateau is only an estimate, Rapos said, though given the needs of seniors who require round-the-clock nursing home care, the downward utilization trend must naturally find a bottom — and potentially require residents to seek care in the far costlier hospital setting.

“People can’t receive 24-hour nursing care in the home setting or in an assisted living setting, so there’s going to be a bottoming out,” Rapos said. “There’s going to be a time where if you take nursing homes completely out of the picture, then those people are going to be receiving that same care in a hospital, because that’s the only other setting currently that exists.”

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