Closures, Consolidation, Sales: Skilled Nursing Ownership Goes Through Shakeup

For-profit nursing home owners such as private equity firms and real estate investment trusts are under fire from the federal government — but current trends suggest that not-for-profit ownership alone is not a viable alternative to meet the needs of the United States’ aging population.

Freestanding senior housing and care not-for-profits (NFPs) are closing altogether, consolidating, or selling to for-profit entities, according to data collected by specialty investment bank Ziegler.

In the sector overall, more than 3,000 skilled nursing facilities experienced a change in ownership between 2016 and 2021, according to data from the Centers for Medicare & Medicaid Services (CMS).

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Not-for-profit to for-profit ownership made up the majority of NFP transactions from 2015 to 2021, followed by NFP consolidation at 25.8%, closures making up 13.2% of transactions, and for-profit to NFP transactions last at 12.6%, according to Ziegler’s data.

Between 2020 and 2021, 35% of NFP transactions were from NFP to for-profit, 28% closed, 27% consolidated among NFPs and 10% transferred ownership from for-profit to NFP.

Approximately 25% of all nursing home closures between 2015 and 2019 were not-for-profit, according to a report released Thursday by the American Health Care Association/National Center for Assisted Living. That number has jumped to 29% during the pandemic.

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“I would not be surprised if there’s more than that. Some of those smaller, freestanding not-for-profit nursing homes in rural markets are a little under the radar,” Ziegler’s Director of Senior Living Research and Development Lisa McCracken said.

Katie Smith Sloan, president and CEO of LeadingAge, believes the ownership makeup of the nursing home industry hinges on potential federal and state reform.

“[Both for-profit and not-for-profit nursing homes] haven’t received the kind of attention that they deserve in terms of funding and in terms of quality improvement and regulatory structure that actually fosters quality,” she told Skilled Nursing News.

The aging services organization represents more than 5,000 not-for-profit providers and other mission-minded organizations throughout the nation.

Evangelical Lutheran Good Samaritan Society CEO Nate Schema said he believes there will be significant change to the industry, but it will not be exclusive to the not-for-profit sector.

“I don’t think you can go through a period like we’ve just been through with the pandemic the last two years, and certainly now on the heels of the crisis that we have on the workforce front, without significant change across the entire industry,” Schema said.

More than 1,000 nursing homes have closed since 2015 – 327 of which closed during the pandemic, according to the AHCA/NCAL report.

So far in 2022, 20 nursing homes have reportedly closed but AHCA/NCAL projects that number could reach more than 400 by the end of the year.

The industry still has a group of strong, dynamic not-for-profit providers, including Good Sam – Schema remains “bullish” on the organization’s future in skilled nursing.

The organization merged with South Dakota-based hospital system Sanford Health in January 2019, and its combined footprint spans 26 states.

“We’re under extraordinary pressure right now. If we don’t continue to see investment from CMS and in the government as a whole, I think you’re going to continue to see people explore options,” Schema added.

Skilled nursing not-for-profits in continuum-based care

The sector’s ownership can be categorized into for-profit and not-for-profit, but then there are further differentiations between continuum-based versus freestanding nursing homes and short-stay rehabilitation versus long-term custodial care, according to McCracken.

“Of that 20% that are not-for-profit sponsored, that number continues to go down,” McCracken said. “Freestanding not-for-profit nursing home numbers are going down without a doubt. Increasingly what we’re seeing is [they’re] part of a continuum, that’s the first thing. The second thing is we generally are seeing a downsizing of the footprint.”

Skilled nursing services provided by NFPs will be part of a continuum of care business model moving forward – mainly through continuing care retirement communities (CCRCs). However, CCRCs have also been squeezing skilled nursing care out of its services altogether, McCracken said.

“They’re not just downsizing, they’re shutting down their nursing,” added McCracken. “That’s been a trend on the West Coast in particular, even pre-pandemic, but we know that’s happening outside of the West Coast [as well].”

West Coast states have been trying for a number of years to downsize overall skilled nursing footprints, encouraging providers to get out of the space in favor of the flexibility assisted living offers, she added.

California specifically has expensive building standards for earthquake mitigation on top of the industry’s tight regulatory environment. Renovations come at a heavy cost for operators relying on federal dollars.

“It is so cost prohibitive, because now it instantly triggers those requirements that financially don’t make sense on top of all the other pressures,” McCracken said. “Some of these are national trends but then there are some of these regional and state specific ones. That may be accelerating the trend a little further.”

While Ziegler expects the number of freestanding NFP nursing homes to continue its decline, some market-specific NFPs thrive on robust platforms and strong hospital arrangements, and are therefore able to navigate the workforce pressures, McCracken said.

“It’s a very interesting sort of transition and evolution that we’re going through in terms of the business model,” added McCracken.

LeadingAge Florida’s Stephen Bahmer told Skilled Nursing News that it’s also a trend he’s seeing in the state.

LeadingAge Florida provider members have dealt with inadequate Medicaid reimbursements for years coupled with “cost explosions” as a result of the pandemic and occupancy issues, he said.

“Those standalone, largely nonprofit nursing homes that don’t have corporate backing and structure, they’ve struggled before and they’re struggling even more now,” Bahmer said. “All of those economic and other factors have created a storm that’s difficult for those kinds of nursing homes to weather.”

Consolidating for resources, closures and underfunding

Consolidation among not-for-profit facilities started, at least those that occurred during the pandemic, out of a need to share resources, Smith Sloan told SNN.

Staffing, access to personal protective equipment (PPE) and technology solutions were huge drivers in wanting to operate within a large network of campuses.

“Those kinds of relationships often lead to opportunities to consolidate or merge,” Smith Sloan said of partnering for resources.

Schema compares such consolidation to what the nation’s rural schools have experienced during the pandemic, pulling resources together and deciding it’s better to consolidate for the communities they serve.

“Consolidation and innovation take on a different form than it did 25-30 years ago, partly because of necessity, partly because of demographic change,” Schema said.

Good Sam continues to look for ways to augment its services, and being part of a large, integrated health system like Sanford brings technology to the rural bedside in a new way, he said.

“I’m not sure that the [SNF industry] makeup is going to dramatically change overnight. It’s gonna take time and certainly I believe that there’s a lot of [NFPs] that are 100% committed, they’re all-in, providing care to their communities,” added Schema.

Mark Parkinson, AHCA/NCAL’s president and CEO, also pointed to “legacy companies” that have become not-for-profit organizations like HCR ManorCare. ProMedica acquired the nursing home giant back in 2018 and rebranded as ProMedica Senior Care.

“I think you will see some of these larger companies becoming not-for-profit for various reasons, sometimes it’ll be hospital affiliations and other times it’ll just be because of some business advantages that not-for-profits have,” he said. “But the one-off not-for-profits, the people that decided, ‘we’re going to … create a single campus’ those folks are struggling.”

In terms of closures among not-for-profits, it’s really a function of chronic underfunding, Smith Sloan said.

The Eliza Bryant Village closure effective in June is a prime example of this, she said, with a $100 per day gap between what Medicaid pays and what cost of care is. About 95% of Eliza’s residents are on Medicaid.

The Cleveland facility started in 1896 and provides services for Black seniors, including affordable senior housing, home care, senior outreach, adult day services and transportation.

“That’s unsustainable,” said Smith Sloan of the facility’s Medicaid reimbursement. “You can only go to your donors so many times before that well dries up.”

Subsidizing care with assisted living or other private pay avenues isn’t feasible either, according to Eliza Bryant Village CEO Danny Williams, mostly due to community demographics.

“Cleveland was recently found to be the poorest big city in the country … and we’re in one of the poorest neighborhoods in the poorest big city of the country,” said Williams. “It was bad before but it got even worse during the pandemic.”

Chronic staffing shortages and price gouging from staffing agencies were too much for the standalone facility, he added; Eliza Bryant was losing more than $300,000 a month with these added costs.

Still, such facilities have fought to remain mission-driven stalwarts of the community when possible, serving the most vulnerable, according to Williams and Smith Sloan.

“The not-for-profit sector, they have an incredible staying power – they stand the test of time. Many of them are faith-based, but not all, certainly not all … that’s a really important part of the not-for-profit story that I think is somewhat unique,” Smith Sloan said.

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