Prior to the start of the COVID-19 pandemic, skilled nursing facilities that specialize in post-acute care were a rare target of true investor excitement in the greater institutional senior care continuum.
With a shiny new Medicare payment model that gave providers more financial credit for the high-acuity services they’d increasingly added over the years, and demographic trends portending a rise in demand for post-surgical care, rehab attracted serious attention — and cash.
Then COVID-19 struck the post-acute model on two crippling fronts.
Buildings that target post-surgical stays have the same infection-control challenges as their long-term counterparts, but they also face a substantial blow to their main source of income: patients recovering from non-emergency surgeries.
The Centers for Medicare & Medicaid Services (CMS) issued a blanket ban on all non-essential procedures on March 18, cutting off the stream of joint replacements and other routine surgeries that often require a few days in a post-acute setting.
“Financially, there’s been much better days than what we’re going through right now,” Mark Fritz, president of Bridgemoor Transitional Care, told SNN last week.
Bridgemoor, which operates four specialty post-acute SNFs in major markets in Texas, has seen a 50% drop in its census as result of the COVID-19 ban, though Fritz noted that figure represents an average — with some markets seeing less of an impact.
“Without the non-essential surgeries going on, basically the fear across the country in general, I’m not even going to the doctor’s office unless it’s completely unavoidable,” Fritz said of the mindset in his market. “It’s certainly had an impact on our model, and I would say others’ as well.”
The COVID-19 crisis has exposed many long-simmering problems in the health care world, including the precarious mix of funding sources that nursing home operators must balance to stay open.
Providers that specialize in long-term care, covered primarily by Medicaid, must often take in short-term rehab patients as well to make up for funding shortfalls: Medicare rates for post-acute stays average about $544 per patient day nationwide, according to the most recent set of data from the National Investment Center for Seniors Housing & Care (NIC). Medicaid, by contrast, only supplied $216 per patient day.
Medicaid rates vary more significantly state by state than Medicare payments, and operators across the country have blamed the program’s inability to cover basic long-term care expenses for serious financial hardships — and, in some cases, waves of facility closures over the last decade.
Those macro-level trends have made investment in Medicaid-only facilities almost nonexistent, while providers that specialize in higher-end, higher-acuity rehab facilities have seen significant cash infusions over the last few years.
But in just under two months, COVID-19 shuffled the pecking order, putting mixed Medicare-Medicaid buildings at something of a temporary financial advantage.
“Long-term, I’ve never thought that was a good business model, because your Medicaid rates aren’t keeping up with inflation, generally don’t cover costs,” Sabra Health Care REIT (Nasdaq: SBRA) CEO Rick Matros said. “But during this pandemic, there’s definitely an advantage if that’s been your model. Any operators that are post-acute, if you will, are taking a bigger hit.”
Matros has long described the future of nursing homes as something closer to what Bridgemoor and other post-acute providers offer — a step-down unit from a hospital that can offer similar levels of care, but at a much lower cost.
But if far fewer people are undergoing the kinds of surgeries that require such care, the model breaks down fairly quickly.
Matros declined to put an exact figure on the occupancy declines among Sabra’s skilled nursing tenants — though he did acknowledge that census has held steady among facilities that do not yet have COVID-19 cases.
The real estate investment trust (REIT) also has not had to offer any rent concessions to its operators so far, Matros said, though he expects that will happen over the coming months. Even that outcome, given the current trends in the space, is a victory in his mind.
“I fully expect that we’ll be helping guys out on rent, but we haven’t had to yet,” he said. “I mean, here we are almost eight weeks into it. I never thought, two months ago, that I would be saying that now.”
But if post-acute operators face short-term pain, both Matros and leaders in the niche think that they’re set up for a quick rebound.
Matros in particular pointed to the positive effects of the Patient-Driven Payment Model (PDPM), the new Medicare reimbursement structure for post-acute care that took effect last October 1.
The old Resource Utilization Group (RUG) model put even more emphasis on residents’ immediate post-acute needs, in Matros’s view, while PDPM has encouraged operators to invest in specialty services for which they are now more appropriately — and directly — paid.
“Just intuitively, if you had RUGs right now, you’d be way worse, because the only incentive you had was to take short-term rehab,” Matros said. “But because of PDPM, people already started branching out.”
Ignite Medical Resorts, a Park Ridge, Ill.-based operator of post-acute specialty centers, has served as a prime example of the model’s growth potential, attracting a $25 million investment from National Health Investors (NYSE: NHI) to develop a new facility in the Milwaukee market in 2018 — as well $38 million from LTC Properties (NYSE: LTC) for a pair of buildings last summer.
Like many other players in the space, Ignite has seen census declines across its seven-building portfolio, though CEO Tim Fields emphasized that the effect hasn’t been consistent in all seven of its markets.
“People are still getting pressure ulcers, pneumonia — still falling and breaking their hips,” Fields said. “We’re still getting the patient flow from those types of patients. Some buildings have dropped, some buildings have not. It’s really been market-dependent, and that’s nationally the case.”
At the start of the COVID-19 crisis, Ignite also stepped up to provide backup for hospital systems in the markets where it operates, according to Fields. Depending on the exact layout of the building, Ignite has divided its facilities into three dedicated units — COVID-positive, COVID-negative, and unknown — and worked to develop a stockpile of vital personal protective equipment (PPE) from vendors domestically and abroad.
Unlike hybrid post-acute and long-term facilities, Ignite’s buildings primarily feature private rooms with more advanced clinical capabilities, making the SNFs a valuable target for hospitals looking to reserve capacity for the most immediate COVID-19 needs — and helping Ignite offset some of the occupancy declines stemming from the suspension of elective surgeries.
The model also has brought results: Ignite facilities have begun discharging some former COVID-19 patients home to he community, Fields said.
“To have them go home, recovered, and have their spouse pick them up from the facility while we’re all sitting there clapping, is a remarkable thing,” Fields said.
Back in Texas, Fritz had a similar idea at the start of the crisis, proactively working with hospital partners to prepare Bridgemoor for a predicted wave of patients once the acute setting became overrun with COVID-19 cases.
But the surge never came.
“We never even got close to hitting the numbers that were projected,” Fritz said. “The hospital systems were certainly seeing what’s going in New York, were recoiling and getting braced for something that was predicted [to be] far worse than what actually happened.”
That outcome represents a major victory for the Texas health care system in general — and for Bridgemoor, just the process of preparing for the worst gave Fritz a chance to show off what his buildings can do, in both good and bad times, to hospital leaders in his markets.
“I was getting text messages from CEOs: We’re thinking it’s going to be in two weeks, it’s going to hit,” Fritz said. “That two weeks never did, but it’s a new experience when you have CEOs at hospitals reaching out, wanting to make sure you’re ready to go.”
Texas, like other states, has announced a plan to begin allowing elective surgeries in May, and the experience of COVID preparation could solidify the relationships that operators like Bridgemoor have built up with their referral partners at hospitals and home health agencies.
“Even though it never did really come about needing that, it was very enlightening to me — the hospital systems reaching out in particular,” Fritz said. “We were the only ones sitting around the table with them, deciding how we’re going to manage the patients that aren’t positive.”
Post-acute facilities could even see a surge in demand as the nation slowly emerges from the peak of the pandemic, as elderly people who delayed their procedures show up to the hospital with even more profound medical needs.
“They’re going to be sicker than they would have been otherwise,” Matros said. “By waiting too long, when you’re 85 and 90 years old, to have an elective operation, chances are you may have some other things going on as well.”