Buy, Sell, Hold: Nursing Home Owners Weigh Options Amid Murky Future of Government Support

Financial government support accompanying ongoing public health emergencies (PHEs) is considered a major factor in transaction activity, since so many facilities currently depend on such funding.

What remains unclear is where that government support ship is headed as the industry continues into 2022. For operators, uncertain government funding could mean a continued rush of transactions if that safety net is removed.

“Operators that have been propped up by federal dollars during the pandemic may no longer be able to continue without that boost to their bottom line,” Hedy Rubinger, partner at law firm Arnall Golden Gregory, told Skilled Nursing News.


That may mean more deal activity for her firm. Rubinger is chair of the firm’s health care practice, which represents nursing home clients among other health care providers.

While the Department of Health and Human Services (HHS) last week made $2 billion in Provider Relief Fund (PRF) Phase 4 payments available to providers, the agency hasn’t announced a replenishment of funding for the year.

According to Health Resources and Services Administration (HRSA) official Scott Kodish, all PRF funding has been allocated but there is still $5 billion that as of yet hasn’t been disbursed to providers. HRSA plans to disburse remaining funds in “early 2022,” he said.


There has been no indication that such support would sunset either, but without a definitive answer some in the skilled nursing industry are proceeding assuming that safety net will not be there.

Operators appear to remain “very bullish” on their industry, according to Paul Mourning, partner at Crowell & Moring LLP and co-chair of the firm’s health care group. There’s a lot of eagerness to consider different options as buyers vie for attention, Mourning said, including holding onto property for a better deal.

Distressed property sales, bankruptcies upon PRF sunset

Operators have options at the moment, with more deal activity on the horizon and potential buyers eyeing “artificially high” bottom lines thanks to government funding in 2020 and 2021.

“I would think that could contribute to more deal activity,” Rubinger said of potential PRF removal. “On the other hand, for those purchasers that are getting into the market, and they are looking at the bottom line of an operator right now, the numbers might be artificially high with the relief funds.”

Large transactions were peppered throughout 2021, including a joint venture between heavy hitters Welltower Inc. (WELL), Aurora Health Network and Peace Capital – 35 former Genesis assets were sold for $500 million after the operator announced restructuring and delisting from the New York Stock Exchange in March.

Roughly 22% of respondents in the Skilled Nursing News 2022 outlook survey said they plan to hold onto their skilled nursing assets in 2022 – 12% said they’re looking to buy more SNF assets, while 8% said they may sell assets this year.

*The chart denotes respondents who indicated they were decision makers on the transactions process. Roughly 57% said the question was not applicable to their business.

More than half of respondents, 57%, said the question was not applicable to their business.

Be sure to download the report to see the full set of results — and where your organization stacks up against the crowd.

In a Jan. 30 note about health care real estate investment trusts (REITs) ahead of earnings calls this month, investment banking and securities firm Mizuho Securities Co. said analysts continue to monitor potential changes to PRF replenishment.

The firm, just like operators and REITs, await an update on additional federal and state support versus a “hand-off,” or operators being left to fend for themselves instead of having costs supplemented by federal and state dollars.

“We note there have been several requests for additional funding given omicron, high labor costs and ongoing testing requirements – but to our knowledge there is nothing specific in the works,” Mizuho said in its note, referring to letters sent by national aging services organizations like LeadingAge.

Mourning said a lot of his operator clients believe government financial support, including Payment Protection Program (PPP) funds at the beginning of the pandemic, have “gotten them through” 2021.

“This has played out differently for different players in the industry, but for some, it’s been a real lifeline – it’s kept them afloat,” Mourning said. “We’ve dealt with a number of clients who got more comfortable as the pandemic went along … it looked like it was going to fill gaps, you know, substantial gaps.”

Although omicron is less likely to cause hospitalization and nursing homes are better prepared in terms of infection control and prevention, Mourning said the variant still put a lot of stress on SNF providers.

“Obviously we have to see how bad it is going forward, but certainly [the PRF] was important to keeping them afloat in the last 18 months,” Mourning said.

That translates to more bankruptcies in 2022 – if an operator would get to that point – if such funding is lessened or sunsets completely later in the year, he said.

Transactions and PRF negotiations

Rubinger said she spends “a lot of time” navigating how PRF are apportioned when working with skilled nursing clients on a potential deal. Deals may close faster without this added element, she noted.

“The government is very clear that [PRF funds] can only be kept by the operator that actually incurred the expense. It has to be a direct match,” Rubinger explained. “We put escrows and other complicated provisions in place, just to account for Provider Relief Funds. If PRFs go away, then that whole part of a deal and negotiation will be eliminated.”

It’s a deal term that needs to be worked out in negotiations, Mourning added, because it ties into what assets are staying behind with the seller.

In some instances, the deal is structured in a way that the seller is entitled to all revenue that was derived for operations prior to closing and is responsible for all liabilities, according to Mourning.

“If you are buying a nursing home, you want to make sure that the predecessor has done everything right with respect to Medicare funds, Medicaid funds and relief funds to make sure that you as the successor are not cleaning up any mess left by the predecessor,” Rubinger said.

Just like with Medicare and Medicaid funding, there can be a delay with PRF payments which may hold up a transaction.

“If it comes in four months after the closing, who’s entitled to the funds?” asked Mourning.

PRF would likely be offset in the purchase price, Mourning added, instead of getting transferred to the seller post-transaction.

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