The pandemic has accelerated a shift to private rooms in the skilled nursing space, an attempt to help curb infection, with 31 percent of operators making the change in some capacity last year.

Chicago-based speciality investment bank Ziegler reported the statistic during a CFO workshop in April — research also showed 47 percent of operators took beds and/or units offline, and 16 percent permanently reduced bed count.

“We were essentially moving towards private rooms prior to the pandemic,” Chris Utz told Skilled Nursing News. Utz is managing director for Zieger’s health care investment banking team. “There are a lot of skilled nursing facilities around the country using a very old model that have some rooms with three, even four beds per room.”

Georgia-based operator Pruitt Health expects residents and family members to demand private rooms on its census, CEO Neil Pruitt Jr. told Skilled Nursing News in a previous report.

Pruitt looks to increase private room inventory from its current 14 percent to 32 percent in five years.

“We’re moving very quickly to open up new wings and create all-private-room facilities, and I think this will impact our ability to recover,” Pruitt said in a March interview. “I’ve said all along that there’s a 15% to 20% contraction in the skilled nursing industry that’s going to occur.”

That contraction won’t be seen in closures, but rather providers converting from semi-private to private rooms.

The main challenge to this shift, Utz said, falls on Medicaid reimbursed care.

“The revenue just isn’t there,” he added. “Every skilled nursing facility has a mix of Medicare, private pay, and Medicaid. The business model just isn’t supported at the reimbursement levels for private rooms.”

If that model shifts to more private pay and Medicare, more operators would be likely to get in on the trend.

Lenders like the Federal Housing Administration (FHA) and Department of Housing and Urban Development (HUD) may perceive single rooms as less of a risk long term, according to Lindsay Konkel, chief operating officer for senior housing and care finance at Ziegler.

“Right now, FHA is currently requiring lenders to demonstrate the impacts of limitations on wards — the analysis must consider the ability of the facility to maintain FHA minimum debt service requirements if wards were converted to semi private rooms,” explained Konkel. “The scrutiny has not disqualified any of our transactions but as you can imagine, you know to Chris’s points earlier, we’ve heard from many of our clients that decompressing these wards is currently cost prohibitive.”

Location is another big factor in the shift to private rooms — space available, state acceptance of more facilities being built nearby and local regulations dictate new builds and remodels.

“You look at places like California, where (the Office of Statewide Health Planning and Development) makes it impossible to build new beds in incredibly underbedded markets,” Utz said. “There are a lot of facilities in the California area, especially San Francisco, Los Angeles, San Diego, where they’re underbedded; a lot of the facilities have three-bed wards. Even if a new builder wanted to come in and try to build private rooms they wouldn’t be able to at a profitable level or even a sustainable level, due to the OSHPD regulations.”

Continued Utz: “LA and New York City, the real estate is worth more than the facility itself. In a lot of these areas you’re dealing with buildings that have a 30-year-old property and plan. But when you go out to a more rural area, you know, say, Nevada, or Texas where there is a ton of land and the land is cheap, you can build top-of-the-line facilities without any interference from other developers and/or regulatory bodies that will make it difficult for you.”

Utz mentioned that he’s seeing more for-profit operators building new facilities with private rooms, and not-for-profits with ties to continued care retirement communities.

“A lot of the new for-profit builders are the ones really putting in absolutely gorgeous, skilled nursing facilities that have a lot of private rooms. I’m actually working on one deal, and I can’t mention the name, but all of the facilities in the portfolio are brand new built private rooms,” he noted.