The COVID-19 pandemic continued to put pressure on an already strained skilled nursing industry in 2021. The next 12 months will be yet another test of resilience.
Looking ahead to 2022, SNFs must stay nimble and inventive to not only survive but thrive. Private equity will continue to lead the nursing home transaction market pack, and the present staffing situation and waning government support may spell trouble for distressed facilities — all the while home care remains the fan favorite among the Biden administration, Congress and much of the general public.
If nursing home operators don’t move past that breaking point and decide to make the tough decisions for the future of skilled nursing now – it may never come.
With all that in mind, the following are a few trends the Skilled Nursing News team believes the industry could see in the next 12 months. If you have any thoughts on our predictions or would like to provide your own musings on what 2022 will look like please reach out directly at [email protected].
Private Equity Will Dominate M&A Again in 2022 — to the frustration of some
Even though occupancy remains below pre-pandemic levels, the skilled nursing acquisition market has not slowed – and we don’t expect it to anytime soon.
My inbox since the start of 2022 has been flooded with newly announced transactions both from the start of this year and ones that wrapped up in the 11th hour of last year.
Many in the industry, including Walker & Dunlop Managing Directors Josh Jandris and Mark Myers, have pointed to the abundance of federal aid the nursing home industry has received as one reason why the market has remained active.
“The buying community for skilled has a healthy appetite, I daresay maybe even voracious in some cases, depending on the types of facilities in the marketplaces,” Myers told SNN.
Most active buyers throughout 2021 were in private equity, while many real estate investment trusts (REITs) took a wait-and-see approach given the price-per-bed valuations.
While a June 2021 report from the Medicare Payment Advisory Commission (MedPAC) showed that PE firms owned about 11% of nursing homes, that number is likely low due to the lack of a single comprehensive source of information.
“One major reason health care has become a focus of PE investment in the U.S. is the projected demand for services related to the aging population,” the authors noted. “Before the current pandemic, the combination of stable and often growing demand for health care, the use of insurance, and the prominence of fee-for-service (FFS) payment meant predictable cash flow to health care providers.”
Just a few months ago DAC Acquisition LLC completed its merger with Diversicare Healthcare Services in a deal that gave Diversicare’s stockholders an amount of cash equal to $10.10 per share. The price represents a value of approximately 256% from Diversicare’s closing share price on Aug. 19.
And earlier in September DigitalBridge Group, Inc. announced its exit from the wellness infrastructure business, which included 83 skilled nursing facilities and other health care assets, in a transaction valued at $3.2 billion.
The global infrastructure REIT, formerly known as Colony Capital, announced its sale to an investment group composed of two real estate investment firms, Highgate Capital Investments and Aurora Health Network.
New York City-based Aurora Health Network was co-founded by managing directors Joel Landau — chairman and founder of nursing home operator The Allure Group — and fellow health care operator Leo Friedman, CEO of Citadel Care Centers, according to its website.
Aurora Health Network was part of a joint venture announced in 2021 that saw 35 former Genesis assets sold for a total of $500 million. The joint venture included Aurora, Welltower Inc. (NYSE: WELL) and Peace Capital.
Private equity in SNFs came under scrutiny even before the start of the pandemic; several lawmakers demanded answers from firms on their nursing home ownership in 2019.
According to an October 2020 study published in JAMA Network Open, nursing homes owned by PE firms had COVID-19 outcomes comparable to facilities with other ownership structures, including similar staffing levels, case counts, and COVID-19 deaths — as well as deaths from any cause.
But private equity firms won’t be the only active buyers in 2022.
Major players in the skilled nursing space like The Ensign Group have already announced their aggressive approach to the market moving forward.
Ensign Chief Investment Officer Chad Keetch said back in December during the Stephens Annual Investment Conference that the real estate environment is prime for the company to grow in 2022, and Ensign felt that a captive REIT will better show the company’sEnsign’s operational prowess.
Given that the REIT is expected to be formally created early in the first quarter of this year, we expect to hear Ensign’s name often on the deal front.
The End of Government Support Spells the End For More Nursing Home Businesses
In spite of the ongoing pandemic the reality is that government support and funding – at least at the federal level – is largely over.
As the legislative season gets underway, there have been some early signs that states may provide financial support to long-term care facilities through Medicaid increases or short-term funding, but it remains to be seen how much that will help in the long run.
This year it will be evident who the most creative, innovative operators are because even when PRF was available, leaders with decades of experience bowed out and sold their facilities – especially given the market.
Who can blame them though? This pandemic has gone on far longer than anyone predicted and the price-per-bed currently is red hot.
That combined with the current workforce shortage has created a very, very difficult situation for operators. The sector has lost hundreds of thousands of jobs during the pandemic.
Nursing home staffing challenges can be attributed to multiple factors, one being workers leaving for jobs in other health care settings or other fields altogether.
Amazon can offer entry-level positions for more than $18 an hour, with the chance to make as much as $22.50 an hour and a $3,000 signing bonus, depending on the shift and location, according to a Kaiser Health News report.
“Chick-fil-A can raise their prices,” Betsy Johnson, president of the Kentucky Association of Health Care Facilities, recently told Kaiser Health News. “We can’t pass the costs on to our customer. The payer of the service is the government, and the government sets the rates.”
Or places like Walmart, which recently announced its expansion into InHome delivery to as many as 30 million households, according to a CNBC report, and would need 3,000 employees to do said expansion.
That doesn’t even take into account full-time benefits and other perks larger companies like Amazon and Walmart can offer employees that nursing homes just can’t provide.
Whenever I’ve asked operators what they think the solution to this staffing problem is, there never is just one. There’s no silver bullet.
It’s going to take collaboration from the facilities themselves, the various advocacy and trade groups representing the industry and federal and state governments to make sure that being a direct care worker in a skilled nursing facility is not only a decent paying job, but a career that those late in their high school careers or early in college say, ‘I could and would do that for the next several years.’
The Federal Government Doesn’t Want People in Nursing Homes — Home Care Has Extended Their Lead
The Biden administration, politicians and a majority of the American people have decided that home is the place they want to age.
Even though it has appeared to have been squashed in the halls of Congress, President Biden’s Build Back Better plan allocated $150 billion for in-home care, specifically funding to help reduce waiting lists for in-home care services and improve low wages for workers.
The bill lumped in some of the proposals in the Nursing Home Improvement and Accountability Act of 2021, including funding to improve nursing home surveys and ensuring staffing ratios are being monitored and adjusted accordingly.
Nevertheless the lines have largely been drawn.
As a candidate, Biden proposed spending $400 billion on home- and community-based services (HCBS) to help make up for years of underinvestment.
There’s also the Choose Home Care Act of 2021.
The bill was introduced in the U.S. Senate toward the end of July 2021, creating an add-on payment to traditional Medicare home health benefits for patients 30 days after their hospital discharge. A bipartisan effort, the legislation would give Americans more choices of where to recover following a hospital stay.
Keith Myers, chairman and CEO of LHC Group (Nasdaq: LHCG), said during Home Health Care News’ FUTURE conference in October that of the 2 million patients admitted to nursing homes every year, an anticipated 35% could be diverted to home care if the bill becomes law.
“Those [700,000 patients] would become home health beneficiaries and added to the 3.3 million that we have now,” said Myers. “From a spending perspective, the SNFs spend currently is around $28 billion, and home health is $10 [billion]. Choose Home, if you do some quick math over a decade, could shift that dynamic where home health spend is higher than SNF spend.”
Myers doesn’t see this as a bad thing necessarily for nursing homes as they can shift toward a higher acuity patient.
They’re going to have to. Home care and technology are coming for lower acuity residents and skilled nursing facilities are going to have to diversify and follow the lead of those who have successfully spanned the care continuum or get out of the game altogether.
If the skilled nursing industry has taught us anything in the last two years it’s that many of the operators still out there are incredibly resilient and can do just about anything when need be.
The time is now, there’s no more time to wait.
Nursing Home Operators Must Accept That There is no COVID-19 ‘Finish Line’
Sometimes it’s hard to believe we’re nearing two years since the World Health Organization declared COVID-19 a pandemic — though I’m sure I’m not the only one who sometimes feels like it’s been 12 years since this all began.
American Health Care Association (AHCA) President and CEO Mark Parkinson said back in October that the nursing home industry’s fight against COVID-19 was not over – pointing then to the emergence of the delta variant and slowed facility occupancy recovery.
He went on to say that “it may be that it will never be over and Covid will be an endemic problem that we’ll always have to fix.”
Last week six health experts who formerly advised President Biden’s transition team on the pandemic published a series of opinion articles in The Journal of the American Medical Association, essentially calling on Biden to develop a strategy surrounding learning to live with the virus indefinitely as opposed to trying to eliminate it.
I find those statements are more true now than ever, especially as we ride the latest staggering wave of cases.
Data from the Centers for Disease Control and Prevention (CDC) show that since Dec. 19, nursing home resident and staff COVID-19 cases have risen by 635% and 867% respectively.
Regardless of when this latest surge subsides, which early indications show it may be sooner than later, the pandemic has impacted and likely forever changed nearly every aspect of the skilled nursing industry – from staffing to what nursing homes look like to occupancy recovery and more.
Many operators had previously predicted that occupancy recovery would take place by the end of 2021, but that did not materialize. The next finish line appears to be sometime toward the middle or end of this year, or in 2023.
CareTrust REIT said during its third quarter earnings call in November that it expected its skilled nursing assets would return to pre-pandemic levels by next summer. At that time about 60% of the real estate investment trust’s (REIT) skilled nursing operators were “within 90% of their pre-pandemic census or better.”
Phil Fogg Jr., president and CEO of Milwaukie, Ore.-based Marquis Companies, likened it in a conversation with SNN back in October to “running a race and you don’t know where the finish line is.”
The reality for some facilities is that pre-pandemic occupancy may be a thing of the past, especially if they are consistently unable to fully staff buildings to care for more patients. As a result, they may have to downsize in order to reach sustainable census numbers.
Indeed, many nursing homes are getting smaller to make more space for private rooms. Some facilities are renovating while others are starting from scratch with one common goal in mind: single-occupancy rooms are essentially non-negotiable.
While this trend emerged before the pandemic, it has only become more popular and frankly necessary for the industry going forward.
No one has a crystal ball to tell us what our lives will look like 10, five or even one year from now, and where COVID-19 will fit in all of that. If we’ve learned anything from the last two years, we can glean that the virus will play a lead role in many of the decisions nursing home operators have to make in 2022 — and for many years in the future.
Companies featured in this article:
AHCA, American Health Care Association, Aurora Health Network, CareTrust REIT, Centers for Medicare & Medicaid Services, CMS, Colony Capital, DAC Acquisition LLC, DigitalBridge Group, Diversicare Healthcare Services, Highgate Capital Investments, JAMA, Kentucky Association of Health Care Facilities, LHC Group, Marquis Companies, Medicare Payment Advisory Commission, MedPAC, The Allure Group, The Ensign Group, Walker & Dunlop