COVID-19 Hitting Small Skilled Nursing Operators Hardest

Just like with COVID-19 infection, no one was immune when it came to senior housing operators and the subsequent financial challenges created by the pandemic.

It affected every community type – all sizes, all business models— including skilled nursing.

All have been struggling with occupancy. Recent numbers from CliftonLarsonAllen show that as of January 2021, no states are reporting average occupancy of higher than 80%, with New York the top state at approximately 79%; Texas has the lowest SNF occupancy at around 56%.


Some in the nursing home industry are starting to question whether the smaller operators will have the resources to survive much longer.

There are several ways to define a smaller operator, said Joshua Rosen, Senior Vice President and Managing Director, Walker & Dunlop. Is it a mom-and-pop community with 40 beds, or one that is a regional player with a smaller portfolio.

These smaller and more localized operators are being hit the hardest from COVID-19, Rosen said.


“Mom-and-pop operators were previously struggling to adjust their models based on the new The Patient-Driven Payment Model (PDPM) reimbursement, and once COVID hit it became evident that the smaller, less resourceful operators were likely to exit the business rather than retool their way of thinking,” Rosen said.

Staying Afloat with Stimulus

Until now, the industry has been supported by significant backing from the government.

“Many small operators are small businesses that have qualified for Payroll Protection Program (PPP), the Provider Relief Fund, and other special funding from the state and local agencies and tax credits,” said Betsy Rust, Partner at Plante Moran. “This is what’s kept many of them afloat.”

Those funds from the Federal government are starting to run dry, and the challenges and expense related to the pandemic aren’t going away anytime soon.

“For communities where census doesn’t rebound as fast as they’d like, cash flow will start to dwindle,” added Rust. “A bit of panic is setting in. We’ve [may have] turned the corner on the pandemic, but not by much.”

Being Forced to Sell

Rust said that given the way real estate investment cycles can go, “we anticipate significant increases in transactions but right now, most [small operators] are in a ‘ride it out’ state.”

In terms of reimbursement, Rust said locality could help or hurt smaller operators. There are no states with Medicaid nursing home payments that cover all operator costs. States that reimburse at a higher percentage of an operator’s actual costs are Colorado, Maryland, and Michigan, she said, and those at the lower end include Texas, South Dakota and Illinois.

“What could come out of this pandemic is shedding light on the lack of funding provided to senior living communities and showing that we need to do better as a nation to take care of our older citizens,” Rust said.

Private Room Demand Surges and Sustainable Financing Are Key

Hygiene and infection control concerns have led to a demand surge for private rooms, Rosen said.

Communities that are built to only include 3- or 4-bed room layouts may struggle to survive. But in some rural areas, that’s all that is available, so efforts will need to be made to enable them to survive.

The shift to private rooms is happening across the industry, and even larger operators like PruittHealth expect 32% of its inventory will be dedicated to private rooms within five years. That’s a significant jump from the 14% it stands at today.

“We do expect that [on] the census, people are going to demand private rooms,” said CEO Neil Pruitt Jr. recently in an interview with SNN. “An operator’s ability to shift and meet those needs will depend how quickly they are able to recover.”

Rust said another growing concern is how operators finance their buildings and the leverage many have on these facilities will make it hard to invest in the physical plant upgrades they need.

“It’s important today and going forward that these owners aren’t overpaying their landlords,” she said. “You will see more tenant-landlord discussions and negotiations going on in an effort to lower the rent.

By Paul Bergeron

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