To Fix Nursing Homes, Landlords and Payers Must Change Broken Incentives — for Both Owners and Operators

Among the many long-standing issues that COVID-19 exposed in long-term care, the design of the facilities themselves stands as one of the most obvious.

With new development of long-term care facilities almost nonexistent, nursing homes frequently rank as the oldest health care properties in their given markets. “Semi-private” rooms with up to four beds remain common in many areas, a reality that made COVID cohorting difficult and also puts a serious strain on residents’ overall dignity and quality of life.

And while there has been recent investor interest in building high-end facilities that target more profitable Medicare post-acute patients, the options for many long-term residents covered under Medicaid look a lot like they did during the Ford and Carter administrations.


To fix that problem, a pair of operational leaders this week called on both government payers and landlords to rethink the ways that operators are — and, in most cases, aren’t — encouraged to develop new physical infrastructure to care for an American population that won’t stop greying after the COVID-19 crisis is over.

“The elephant in the room is that for patients and employees, and quite frankly, for operators as well, the incentive for building and replacing obsolete buildings hasn’t been there for 35 years,” Eric Tanner, CEO of skilled nursing and home health provider OnPointe, said Tuesday during a presentation at SNN’s virtual Payments, Policy, and Capital Summit. “The incentive in our industry is actually to hold on to older buildings, and almost drain them of operating capital.”

Tanner described a nursing home landscape that remains stuck in a “specialty real estate model” developed in the 1970s and 1980s, and which has not caught up with the older, more clinically complex patients that increasingly populate long-term facilities — as compared to the catch-all custodial convalescent homes of the past.


Payments for other care settings may have changed, but with rent payments and leasehold interest accounting for 30% to 40% of a typical facility’s revenue in Tanner’s estimation, nursing home physical plants remain firmly planted the past.

“If you go into a hospital today, it’s very unlikely that you’re going to feel like you’re in a 1970s building, right? Because the hospitals are reimbursed based off of their clinical efficiencies or lack thereof, whereas the skilled nursing facilities are not reimbursed that way,” Tanner said.

Michael Wasserman, a geriatrician and the former CEO of California nursing home giant Rockport Healthcare Services, was even more blunt in his diagnosis of the problem.

“COVID has shown us that not having direct access to all that capital that exists in nursing home real estate has kept the industry from having abundant PPE and testing and capital improvements to get rid of those four-bed rooms, et cetera,” he said. “I do not believe this industry will survive with the specialty real estate model.”

As a short-term solution, Wasserman floated a temporary moratorium on nursing home rent payments to ensure that all available funding goes directly to patient care for the duration of the COVID-19 crisis. Looking further ahead, Tanner suggested indexing lease payments to the depreciated value of the real estate.

“You’d free up a ton of investment capital to actually then be able to do the things that need doing to buoy up your clinical model, which primarily is staffing,” he said.

States may also need to consider a more tailored set of Medicaid payments to encourage the development of specialty buildings that Tanner believes will become increasingly necessary as more and more care is provided in the home. With the general public skeptical of institutional nursing care and home health agencies looking for ways to solidify COVID-era diversions from SNFs into a permanent trend, the nursing home population will only become more complex.

“My bet is that over the next five, 15, 20 years, those patients are going to have a couple commonalities — they’re going to be extremely fragile, as it relates to their clinical condition, and they’re going to have some significant portion of dementia, or confusion that doesn’t allow for any self care outside of the buildings,” Tanner said. “And so we should be building our structures for them.”

To that end, Tanner suggested dividing up Medicaid reimbursements into different categories for different levels of institutional care, instead of the current one-size-fits-all model.

Part of that equation is acknowledging the fact that despite its position as a less intensive setting than a post-acute rehabilitation facility, long-term care still has a significant care component that can fail with disastrous consequences, as the COVID-19 crisis illuminated.

“We cannot run businesses that treat them like apartment complexes, and so we’re going really have to come to grips with the fact that long-term care does have a clinical component to it,” Wasserman said. “Maybe not as great as post-acute, but it’s still there, and I think that’s been one of the foundational problems with how we structure all that.”

Both Wasserman and Tanner emphasized that greater funding for the sector has to come with better pay for frontline caregivers, along with concrete improvements in other metrics that clearly illustrate quality — such as developing a way to incorporate resident and family satisfaction in “value-based” payment reform efforts, for instance.

Such attempts so far have been largely limited to the SNF Value-Based Purchasing (VBP) model, which punishes and rewards operators for their hospital readmission rates. But with only 2% of Medicare reimbursements at stake, even former Centers for Medicare & Medicaid Services (CMS) administrator Seema Verma admitted that the program isn’t enough to force changes in provider behavior — even as she called for a greater link between payments and value in an op-ed published last month.

Any future work to guide operators’ actions through payment tweaks should have geriatricians at the forefront, Wasserman emphasized.

“When we’re talking about the care of complex, frail, older adults, the metrics that we use to describe value generally don’t make a lot of sense,” Wasserman said. “It shouldn’t be lost on anyone that the folks developing these metrics generally aren’t experts in the field of geriatrics and long-term care medicine.”

And true reform goes both ways: better, smarter payment structures and incentives have to benefit those with the most direct need.

“Some of that’s on government and reimbursement. Some of it’s on transparency, as it relates to real estate and related parties, to figure out how everyone can chip in,” Wasserman said. “That’s why I always struggle with: ‘Just give us more money, give us more money.’ Well, where’s that money going? If it’s not going to those frontline staff, I’ve got a problem.”