The federal government this week announced that hospitals and other Medicare-reimbursed health care providers will receive the first disbursements from a $100 billion emergency COVID-19 stimulus fund.
For skilled nursing facilities that primarily derive their income from Medicare, the windfall could be significant.
“We estimate an allocation of about $1.5 billion to skilled nursing based on this allocation system,” Mizuho Securities USA managing director Omotayo Okusanya wrote in an analyst note released Wednesday — titled “Skilled Nursing: Here Comes the COVID-19 Cash.”
Under the $2 trillion coronavirus stimulus bill passed last month, the Department of Health and Human Services (HHS) received a total of $100 billion to fund a variety of financial relief efforts.
Centers for Medicare & Medicaid Services (CMS) administrator Seema Verma on Tuesday announced that the initial payout of $30 billion from the fund would go toward providers based on the amount of Medicare revenue they have historically received.
“There are no strings attached, so the health care providers that are receiving these dollars can essentially spend that in any way that they see fit,” Verma said during a White House press conference.
Verma also emphasized that the money will not be distributed on first-come, first-served basis, with all Medicare providers set to receive the money.
“Even if it takes a few days, there shouldn’t be any panic in the system,” she said.
Health care providers that derive most of their funding from sources other than Medicare, including long-term nursing homes, will receive a second set of relief at a later date.
“Those organizations will be addressed in the second tranche of funding, and we will have a priority for these organizations and these types of health care providers,” Verma said.
More than 60% of nursing home residents receive coverage under Medicaid, which funds the provision of long-term care services; Medicare only covers post-acute stays after a qualifying stint in the hospital.
But though the nation’s more than 15,000 nursing homes may need to wait a little longer to see the full effects of the stimulus money, the cash puts the industry in a relatively strong position, Okusanya observed — especially when paired with the $34 billion in advance Medicare payments that CMS has already extended to providers.
“This all suggests skilled nursing operators are gaining access to much-needed funding sources in the middle of the pandemic, reducing the risk these operators may default on their leases to their landlords,” Okusanya wrote. “As such, we remain positive on the skilled nursing-focused REITs.”
In the same note, Mizuho and Okusanya affirmed the company’s “buy” rating for Sabra Health Care REIT (Nasdaq: SBRA) and Omega Healthcare Investors (NYSE: OHI). LTC Properties (NYSE: LTC) and CareTrust REIT (Nasdaq: CTRE) maintain “neutral” ratings from Mizuho.
Mizuho did note that many public real estate investment trusts (REITs) are currently down 30% to 50% on a year-to-date basis, admitting that “things could get ugly near-term” for REITs as operators grapple with profitability issues — with rent coverages potentially falling “materially below 1.0x.”
But based on the government support coming from CMS and elsewhere, the firm concluded that skilled nursing REITs are still oversold.
“We believe the stocks still reflect investor fear that rents may need to be cut 40% to 50% as their tenants feel earnings pain due to the COVID-19 pandemic,” Okusanya observed. “However, our analysis suggests that while rent coverage will be pressured, we likely see more rent deferrals versus outright rent cuts. The bridge financing from the $100 billion emergency fund and CMS Advance Payment Program provide even further support.”