With Current Operating Costs, 40% of Nursing Homes Could Shut Down in Six Months or Less

The costs of operating a skilled nursing facility have increased significantly during the COVID-19 pandemic, and a new survey from the nursing home trade group American Health Care Association indicates that providers may not be able to keep up with them much longer.

The survey, which drew from the responses of 463 nursing home providers from August 8 to 10, found that 72% cannot sustain operations at the current pace for another year, while 40% said they would last less than six months.

It was released shortly after one of the largest skilled nursing operators in the country, Genesis Healthcare (NYSE: GEN), reported in its second-quarter earnings update that the costs associated with the pandemic put its ability to survive the next 12 months “in substantial doubt.” The company pointed to, among other challenges, the high cost of labor in some of the areas hardest-hit by COVID-19 as one of the major issues in maintaining the cash flow needed to meet its obligations.

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Fifty-five percent of respondents reported to AHCA that they are currently operating at a loss, and 97% of nursing homes have lost revenue because of COVID-19, the survey indicated.

“This has been largely driven by the increase in costs responding to COVID-19 (personal protective equipment [PPE], additional staffing and testing) and Medicaid’s underfunding, which only covers 70 to 80% of the actual cost of care,” AHCA said in its announcement releasing the results of the survey.

Specifically, PPE supplies were the top costs related to the ongoing COVID-19 response for 95% of providers, while staffing expenses and testing followed at 78% and 74% respectively.

Chart showing the expected ongoing, regular expenses for nursing homes during COVID-19 pandemic American Health Care Association

The survey also found that almost all nursing homes, or 96%, have received some kind of government assistance: 82% received aid from the Provider Relief Fund (PRF) created by the CARES Act, while 52% received a Medicaid add-on or increase from their state government. Other sources of aid included the Paycheck Protection Program (PPP), from which 47% of providers received funds, while 30% received additional payments from COVID from their state governments.

The Department of Health and Human Services (HHS) has issued several rounds of relief funding for health care providers, including two rounds dedicated specifically to SNFs of $4.9 billion and $5 billion. The first round of SNF-specific aid, announced at the end of May, included a baseline payment of $50,000 with an additional $2,500 per bed, according to HHS.

But providers are not optimistic about how they’ll go on when these sources of funding run out or expire, with 58% of survey respondents indicating they will “experience significant problems with increased costs and lost revenue.”

Perhaps not surprisingly, 93% of nursing homes rated government funding as “extremely” or “very important” to help with COVID-19 related costs and losses.

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