The financial toll of the COVID-19 pandemic in skilled nursing facilities, though in no degree comparable to the toll in human life and health, is likely to be significant in the months to come, according to a new analysis from the professional services firm CliftonLarsonAllen (CLA).
Specifically, the devastation caused by the coronavirus will lead to “a negative cash impact of $6 billion to $9 billion,” putting up to 70% of roughly 14,000 SNFs on which CLA has data in a negative cash position over the next three months, CLA health care principal Cory Rutledge explained in an e-mailed interview on April 15 with Skilled Nursing News.
Those numbers, staggering as they are, do not include the increased costs of the desperately needed personal protective equipment (PPE) and the increased costs of adequate staffing, Rutledge noted in an earlier message dated April 9.
Both the skyrocketing cost of PPE and struggles to secure adequate staffing are already causing serious pain for SNFs as they try to combat the surge of the disease among their residents and front-line staff, and the coming cash flow challenges could make those problems even worse in the months to come.
The type of facility most vulnerable to ending up in a negative cash position is the same one that, before the crisis, was one of the few hot spots in skilled nursing investment: the short-term rehab focused facility, Rutledge told SNN.
“Facilities with more short-stay residents (particularly those with higher therapy activity and lower clinical complexity) are most vulnerable, because their residents are more likely to avoid the hospitalization that would lead to a SNF stay or are skipping the SNF and rehabilitating at home,” Rutledge wrote.
But the facilities that are at the most risk are the ones with “a COVID-19 surge,” he added.
“We are anticipating those facilities will have a more prolonged reduction in census, and the revenue derived from caring for those residents is not expected to keep pace with the costs associated with that care,” he said.
More than 3,400 long-term care facilities in 39 states had known coronavirus infections, according to an April 15 report from NBC News.
Urban SNFs are seeing the most disruption from COVID-19, while rural facilities with less short-stay revenue are being less severely affected, according to Rutledge.
The SNFs in urban areas, as well as those with larger volumes of Medicare and Medicare Advantage patients, will be the most affected, he said. Because hospital volumes have decreased, the profitable short-stay Medicare patient volume has dropped as well, with many of CLA’s clients anecdotally reporting a 50% or more reduction in short-stay days.
Ever 10% decrease in short-stay business over 90 days translates to “approximately $550 million — $600 million of cash burn” over the same time frame, Rutledge wrote.
But CLA is also hearing about reduced long-stay census, and that combination is wreaking havoc on SNF balance sheets — which were challenging even before COVID-19.
Ultimately, whether or not a SNF survives depends on the manager or owner of a SNF or SNF chain, Rutledge said. The most significant factor in financial survival is perhaps the most obvious one: the balance sheet health of the SNF.
But the damage caused by COVID-19 might outweigh even a healthy balance sheet.
“As we analyzed SNFs in various states, we observed certain states have a larger percentage of SNFs at risk as a result of the COVID-19 cash burn, but in nearly all states, we saw that more than 50% of facilities are at risk of negative cash before any sort of intervention,” Rutledge wrote.
If a SNF has other cash sources that are not on the facility’s balance sheet, a given facility might be able to survive on short-term borrowings or lines of credit — but some facilities lack those safety nets, which in turn leads to challenges providing supplies for care and meeting payroll, he said.
That makes it all the more important for SNFs to take advantage of the aid coming from both the federal and state governments, Rutledge said, such as the first wave of funds from the coronavirus stimulus bill.
Even though funds from the Accelerated and Advance Payment Program from the Centers for Medicare & Medicaid Services (CMS) need to be repaid in 210 days, it can buy SNFs some time. Those without the support of a large chain could be eligible for some Small Business Administration loans as well.
In addition, some SNFs are taking advantage of a CARES Act provision that lets them defer the employer part of their payroll taxes between March 27 and December 31, 2020. Half the tax can be paid by December 31, 2021 and the other half at December 31, 2022, which Rutledge noted could be a significant boost “given the large percentage of operating expense spent on personnel.”
“There are also a number of state-specific funding mechanisms that facilities can explore,” he added. “While most of these funding opportunities don’t have a specific deadline, we encourage our clients to act swiftly to increase the likelihood of success. Finally, I think it’s worth noting that some of these funds may have reporting requirements, so SNFs should be sure to understand those requirements at the onset.”
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