Sabra’s Matros: Skilled Nursing Facilities Should Rebound Quickly Once Elective Surgeries Return

It’s certainly too early to determine what the senior housing and care landscape will look like post-pandemic, but the leader of a leading real estate investment trust (REIT) in the space thinks post-acute facilities will have an easier time returning to some kind of normalcy once the peak of the COVID-19 crisis passes.

Unlike the more optional decision to enter an assisted living or memory care facility, the vital nature of a post-acute admission means that SNFs will bounce back more quickly from any losses seen during the pandemic, Sabra Health Care REIT (Nasdaq: SBRA) CEO Rick Matros told SNN last week.

Even if a projected surge of overflow demand from hospitals never came to fruition in many markets, just the act of working with acute-care partners to prepare for worst-case COVID-19 scenarios may have further bolstered their place in the health care landscape.

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If anything, according to Matros, the coronavirus crisis gave facilities that specialize in higher-acuity care a chance to shine in the darkest of circumstances.

“There haven’t been that many discharges, and I think this says something really good about the operators,” Matros said. “People are only getting discharged back to the hospital when they absolutely need ventilator care. Short of that, they’re being treated in the facilities.”

SNN spoke with Matros late last week to get a feel for the COVID-19 pandemic’s effects on the skilled nursing and senior living providers in the Irvine, Calif.-based REIT’s portfolio — as well as the changes he thinks should come out of the crisis.

Tell me about the short-term effects you’re seeing in the portfolio.

If you extract the facilities that have tested positive for COVID-19 from the portfolio, there’s almost no difference in occupancy. The entire occupancy drop that we’ve been experiencing is purely a result of hospitals trying to free beds up for COVID-19 patients, and stopping elective surgeries. So if you’re a provider — which our operators fall into — that was always very heavily into that, you’re going to take a bigger hit than the half of the industry, or close to it, that’s still that small, traditional Medicaid shop, long-term care provider. They’re not going to be hit the same way.

Long-term, I’ve never thought that was a good business model, because your Medicaid rates aren’t keeping up with inflation, and generally don’t cover costs, and all that kind of stuff. 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.

Now, that said, they are also in better shape coming into the pandemic, and that’s really because of PDPM. So what we’ve seen, now that we’ve had some time, is: Just even intuitively, if you had RUGs right now, you’d be way worse, because the only incentive you had was to take short-term rehab. But because of PDPM, people already started branching out.

Through the end of January, our coverage as a result of PDPM — excluding the market basket, so take that out — was up, in the aggregate, about .045 in four months. That’s pretty significant, right? If we were 1.67 EBITDARM, you’re back up over 1.7.

They were much stronger going into the pandemic than they would have been otherwise. Of that PDPM improvement in coverage, about three quarters of it is rate-related, and one quarter is expense-reduction-related. So that helped.

Not a whole lot of states have done things with FMAP [Federal Medical Assistance Percentages], but a number of them have, and certainly in the states that we needed it most — like Washington, Oregon — we got a lot of help. And now Texas is getting help on the QIPP [Quality Incentive Payment] program. So because of that, and the CARES Act and all this other stuff, we actually have not provided any rent deferrals yet — nor has anybody asked.

We still expect to, and I think that comes as a surprise to most people when I tell them that. But they started off in a better spot; there’s been enough help that they’ve had. Some of them are accessing the advance Medicare payment program, some aren’t. The reason that some aren’t is some of the ABL lenders are not being really flexible — so that if you get that money, they’re just expecting you to pay down the line. So what’s the point?

Then there are some that are concerned because there’s not a long period of time to pay it back. If your Medicare occupancy comes back a little bit slower than you would like, that’s going to still keep you in a tough position.

I fully expect that we’ll be helping guys out on rent. But we haven’t had to yet, and here we are almost eight weeks into it. I never thought two months ago that I would be saying that now.

So I think that’s good, and we’re starting to see some cautiously positive signs — the rate of decline on occupancy has slowed down the last two weeks. One of our larger operators who got hit hard early on, because of [the situation in] Washington, had an occupancy increase in the last week for the first time. The increase in the number of facilities, week to week, that have someone that tests positive, has slowed down pretty dramatically as well.

It kind of feels like we’re maybe close to the bottom. We’re just cautiously optimistic there.

The other thing that we’ve noticed is within the facilities that have positive COVID patients or residents, there’s no discernible pattern to what happens. In other words, we’ve got facilities where it spreads to a bunch of people — patients, residents, or employees. We’ve got other facilities, and quite a few actually, where one or two or three test positive, and that’s it.

Look, we understand that there’s not enough testing out there. If you tested every nursing home in the country, there’d be a lot more positive nursing homes than there currently are — same with senior housing. But when we have someone that tests positive in a facility, there is a lot of testing that’s done in that building, so we can look at those patterns. That’s been interesting, that there just is no discernible pattern.

When the flu hits your building, it just runs through your building, right? That doesn’t seem to be the case here. We even had one really odd situation with a senior housing facility where we had seven residents that were In shared rooms that tested positive, but none of the roommates did. That’s weird.

On senior housing though, that’s actually been a bright spot. The narrative has been: SHOP’s [senior housing operating portfolio] going to get killed. With our portfolio, it just has not been the case. We just haven’t seen it. Admissions have slowed down, but the back door has slowed down, because residents either feel more secure staying in the building, and/or they don’t really have a support system on the outside. Enlivant’s down some, but not horribly, and Sienna and Holiday are flat.

We’ll see, because no one’s really putting numbers out other than spot numbers here and there. We’ll see what happens on earnings. It seems like some of our peers had seen more declines in senior housing. But as you know, our focus has been on secondary markets — and even those secondary markets get short shrift. You know why we feel good about them.

I think in this pandemic, the communities own these facilities, and labor has been more stable; there’s more loyalty to the facilities, it’s a less competitive, dynamic market. There’s positives and negatives to every market that you’re in, large or small.

It’ll be interesting to see how our portfolio holds up against the others, but we just haven’t seen senior housing take a hit, like everybody has expected it to — which is a good thing, not just because it didn’t take as bad a hit as everybody thought, but because I think senior housing takes longer to come back than skilled nursing.

Independent living is an optional service. Assisted living and memory care is much more needs-based, but there’s still some level of optionality there. To the extent that they don’t take as big a hit, I think that’s a positive, because I think they’d maybe take a little bit longer to come back.

On the skilled side, we think once electives start getting rescheduled — and obviously, it’s going to be different in different states, and within states, and different in different geographic areas, municipalities and counties — we’re going to see pretty dramatic improvements in occupancy, because there’s no optionality here.

I also believe that once we start seeing these individuals come in for treatment, they’re going to be sicker than they would have been otherwise. 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. So we think we actually may get them sicker [on admission] than we would if we had gotten them in a more timely manner.

Certainly I think this will be beneficial to senior housing, because there’s this narrative out there that this is going to make people think twice about going into all these facilities. I don’t know how you don’t go to a skilled nursing facility, because that’s completely needs-based.

But I think that once we progress with the science of this, and particularly with testing, and you can test people and get the five-minute results before you admit them — whether it’s a senior housing facility or a skilled nursing facility — that’s going to give folks some level of comfort. They have to be able to be more proactive on the front end to ensure a more secure environment when they get admitted.

I’ve heard from some post-acute operators that prepared for a wave of hospital-overflow demand that never came — have you seen that in your portfolio?

That’s true. In fact, not only did we have operators within our portfolio, and I know outside of our portfolio, that prepared, but there was actually dialogue with hospitals and operators — really on the part of the hospitals, just trying to assess who they knew, that they would normally discharge to, that would have the capacity to take on some additional patients in case there were capacity issues. But yeah, it just hasn’t occurred.

Outside of New York or some hot spots, many markets just didn’t see anything close to the projections.

The coverage is driving me crazy. The New York Times finally put an okay article out, and I had an interview with them. They put it out last week, talking about how underfunded the space has been.

First, there was no coverage, and no help, and now all of a sudden, every article is like: 2,000 people dead in nursing homes, whatever it is. Well, what the [expletive] did you expect? First of all, the hospitals are getting all the attention — and they should get a lot of attention, and those staff are heroes.

But our staff is way more exposed. When they go in, they expose people that are way more vulnerable. Early on, everybody understood that the elderly were the most vulnerable. So where was the disconnect — that if the elderly are the most vulnerable, the institutionalized elderly, with comorbidities, and all this other stuff, were more vulnerable, right? It’s like: Come on, what did you expect there to be?

I think in terms of additional regulation, there’s not a whole lot more on the skilled side you can do on infection control. I do think, from a survey perspective, they’ll continue to be much more focused on infection control, as a priority going forward — and these protocols that everybody adheres to now, relative to COVID-19, maybe they become codified, and everybody knows they go into effect automatically under certain circumstances.

On the senior housing side, even talking to the associations, it’s still not going to be federalized; it’s just going to be state-by-state. Some states are going to put more regulation in place relative to infection control, specifically, and some will do whatever.

We’ll see going forward, but I’m still hopeful that, at least from a funding perspective, it’s going to become apparent to everybody that skilled, and senior housing, as well as home health and everything else — everybody’s an important part of this continuum. It isn’t just the hospitals.

Do you have a blanket number for occupancy declines throughout the portfolio?

We decided to stop putting it out until the earnings call.

One other point I want to make: One of the things that people miss is that even though there clearly should have been a lot more testing, and we know that we’ve had a lot more positives than we know because they haven’t been testing — but we also know that they’re being treated so strictly according to these protocols that they’re getting most everybody through it.

There haven’t been that many discharges, and I think this says something really good about the operators. People are only getting discharged back to the hospital when they absolutely need ventilator care. Short of that, they’re being treated in the facilities. I know there’s no data points on it; it’s only anecdotal, but I think that had to have helped capacity.

There hasn’t been this just huge, huge surge in admission into the hospitals from skilled nursing facilities because they just can’t take care of these people.

This interview has been condensed and edited for clarity.

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