Sabra’s Matros Sees Strong Future for Skilled Nursing: ‘We’ve Been Through the Worst of It’

While he cautioned that there are still many unknowns around COVID-19, Sabra Health Care REIT (Nasdaq: SBRA) CEO Rick Matros on Tuesday struck an optimistic tone about his company’s skilled nursing holdings, as well as the industry in general as it starts to look toward a post-COVID future.

“Right now, we feel like we’ve been through the worst of it,” Matros said during his company’s virtual presentation at Nareit’s annual REITweek event.

Matros pointed to one key metric for the Irvine, Calif.-based real estate investment trust (REIT): Skilled mix, or the proportion of residents covered by Medicare, has actually increased above pre-pandemic levels.

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Two of the factors that played into that skilled mix gain will benefit all operators and investors in the space, Matros observed: The May 1 suspension of a 2% across-the-board sequestration cut on Medicare payments, implemented on an emergency basis, as well as a pandemic-spanning waiver on the three-day hospital stay rule for Medicare-reimbursed skilled nursing stays.

But a third factor is more specific to Sabra’s portfolio — an advantage that, according to Matros, had been a driver of its 2017 decision to merge with fellow REIT Care Capital Properties.

“We don’t have traditional long-term care operators; we have all post-acute operators in our portfolio,” Matros said. “It was one of the things that attracted us to CCP, despite the restructuring that we knew we would have to do — is the operators they had fit our profile.”

Another portfolio strategy led to a positive COVID-19 outcome for the company, according to chief investment officer Talya Nevo-Hacohen: The company’s focus on secondary and tertiary markets over primary metropolitan statistical areas (MSAs), which have generally borne the brunt of the pandemic’s impact.

“We have had, so far, significantly less exposure overall to COVID, and that’s been really meaningful,” Nevo-Hacohen said. “So it’s less about suburban versus urban and more about primary MSAs versus secondary and tertiary MSAs.”

Looking forward, Matros reiterated his belief that skilled nursing providers started off the pandemic on a better footing thanks to the October 1, 2019 implementation of the Patient-Driven Payment Model (PDPM) for Medicare reimbursements, which shifted payment incentives away from therapy volume and toward meeting resident needs.

While group and concurrent therapy — one of the main cost-saving levers operators can pull under PDPM — has been suspended amid the coronavirus, Matros predicted the modalities will return as soon as it is safe, along with the associated financial benefits for providers.

In addition, PDPM’s emphasis on properly compensating nursing homes for taking on higher-acuity residents already prompted operators to consider more diverse service offerings, instead of simply relying on providing as much therapy as possible. This, in Matros’s view, sets operators up for a speedier recovery.

“I think once we get past the pandemic, we’ll go back to seeing what you saw right before the pandemic — and that is a lot more emphasis on complex nursing, specialized units for different nursing patients, and things like that,” he said.

The CEO’s Tuesday comments track with his previous public statements on the future of skilled nursing post-COVID. Back in April, Matros told SNN that occupancy should bounce back for post-acute operators as soon as bans on elective surgeries were lifted, pointing to the essential nature of after-hospital rehab.

Though the REIT, like many of its peers, reported occupancy declines during its first-quarter 2020 earnings update, Matros again pointed to that non-emergency surgery suspension as a key driver.

“The occupancy drop is almost entirely due to the cessation of elective surgeries,” he said. “When we take the facilities that are positive [for] COVID and exclude them from our census, we see almost no difference, because the drop from elective surgeries is such a huge proportion.”

That said, Sabra and Matros aren’t going to go all-in on nursing facilities in the future. The REIT’s portfolio currently sits at about 60% skilled nursing versus senior living, and Matros said they’re happy to sit around that range for now — though the company could add skilled assets if the price is right.

“The most important thing for us to get back to, when we get through the pandemic, is growing the company, and if the best opportunities are on the skilled side, we’re happy to increase our skilled exposure — because there’ll be other opportunities on the senior housing side to provide balance at some other point in time,” he said.

And at least in his mind, those opportunities could have a serious upside.

“We think that skilled has a really strong future,” he said. “We already started seeing some demographic benefit. You have PDPM. You have a decline in supply with an increase in demand. So all those things converge to make a long run.”

Matros also took the opportunity to criticize the government’s response to COVID-19 in skilled nursing facilities and senior housing properties, arguing that the virus’s fatality rate would have been lower if the settings had been prioritized with the proper quantities of supplies from the beginning.

Though he asserted that some providers did not handle the crisis well — specifically pointing to the facility in Kirkland, Wash. that was home to the initial major U.S. coronavirus outbreak — he noted that operational leadership can also overcome challenges.

An employee at the Kirkland facility additionally worked part-time at one of Sabra’s North American Health Care-operated properties, he said, leading to infections there — but official reviews did not find any wrongdoing or result in fines, as they had in Kirkland.

“Everything was being handled in all the right ways. There aren’t fines levied, nothing like that,” Matros said. “That got no attention.”

Overall, he called for accountability at all levels instead of simply “throwing operators under the bus.”

“Even though it was identified early on that the elderly would be the most vulnerable population — and we’ve seen minorities as well now — but logically, it should have been assumed that the institutionalized elderly, who have a lot of other conditions, would be even more vulnerable,” Matros said. “And yet nothing was done.”