Up to 400,000 Residents Living in Nursing Homes Facing Financial Peril

Slow occupancy recovery and workforce shortages have created unprecedented challenges for the skilled nursing industry, with projected operating margins expected to stay in the negative for at least the next year.

In fact, as many as 40% of nursing home residents could be “at risk” to be displaced as the sector’s median operating margin is projected to be -4.8% for 2022, according to a report released Wednesday by professional services firm CliftonLarsonAllen (CLA) as part of a partnership with the American Health Care Association/National Center for Assisted Living (AHCA/NCAL).

American Health Care Association President and CEO Mark Parkinson described the results as “sobering” and illustrated that the sector is in “deep risk” when presenting the data during the agency’s state of the industry webinar on Wednesday.

Rather than looking at the sector through the lens of a single, national payment system, CLA took a more holistic approach as factors that played a role in the analysis included occupancy, inflation, labor cost, Medicaid rates, Medicare Advantage rates and penetration as well as Medicare PDPM.

Negative operating margin projected amid inflation and labor challenges

In order to understand the broader financial outlook of the SNF industry, CLA constructed over 12,800 site level simulations in its assessment, utilizing various key driver assumptions.

In light of its finding, Deb Emerson, principal at CliftonLarsonAllen, warned there may be serious access and quality issues down the line.

She noted increases in negative margins, enhanced possibilities of more closures and challenges with access to capital.

Emerson projected an operating margin between -3% to -8% for the sector in 2022.

Additional reimbursement decreases and the end of public health emergency funding is also expected to further exacerbate the problem.

Looking at potential occupancy recovery in 2022, CLA researchers found an operating margin of -4.8% was the most probable 2022 year-end SNF sector performance, with occupancy recovery trending towards 77.3%.

If occupancy recovery increased to 81% for the year, the operating margin would increase to -3.3%, whereas if occupancy recovery sat at 76% in 2022 the SNF operating margin would drop to -5.3%.

CLA simulations indicate negative median operating margins in all scenarios due to inflation and continued increases in labor and other costs.

“If facilities no longer receive enhanced Medicaid funding due to the end of the public health emergency, and Medicare cuts PDPM rates by 5%, we estimate that more than 400,000 residents are going to be at risk of displacement,” Emerson said. “This would be a nationwide problem as these residents live in more than two thirds of the U.S. counties.”

Emerson said the most important data point, average daily census, or the number of individuals in the facilities that are being served, shows that 32 to 40% nursing home residents may be in at-risk facilities.

Staffing ratio requirements may only make things worse

Nathan Schema, president and CEO of the Good Samaritan Society, one of the nation’s largest not for profit providers, has already seen rising labor costs and tighter margins impact his organization’s ability to provide care, especially in rural areas.

Staffing challenges have already led to closures in Nebraska, Colorado and Kansas for the Good Samaritan Society as neither he nor Parkinson see minimum staffing requirements, like the one proposed in Biden’s nursing home reform package, as a realistic solution for operators at this time.

“We have nearly 2,500 open positions within our organization,” he said during the press conference. “With nearly 240,000 people leaving the workforce, we are in an unsustainable and untenable situation.”

Since May 2021, Good Sam has spent more than $62 million as an organization in contingent labor on a budget of roughly $20 million, equating to a 300% increase in agency costs, he said.

“I’m deeply concerned about our ability to keep our doors open in many of our communities,” he said.

Based on public data released by the Centers for Medicare & Medicaid Services in 2022, total hourly nursing wages grew by 8.1% in 2021, after a 5.3% growth in 2020. Aides salaries increased the most, to 9.7% in 2021 as average wage rate increases at all levels doubled in 2021.

Compared with its 2017 to 2019 average, contracted nursing costs per hour increased 9.2% post-COVID and have increased two to three times historical levels, according to the CLA report.

Parkinson felt the negative possibilities laid out in the CLA report can still be avoided, but if policymakers are “unwilling” to take those steps, he believes more closures may be on the way.

One of those steps would be to curb staffing agency price gouging. Another would be to replenish the Provider Relief Fund.

“We believe that as we’ve seen with the Good Samaritan Society, there will be more closures, less access and less availability for care for thousands, possibly hundreds of thousands,” Parkinson said.