Litigation, Staff Shortages and Access to Capital Pose the Greatest Threats to Nursing Homes

The skilled nursing industry is facing three major threats at this point in the pandemic: lawsuits tied to Covid cases, the continued staffing shortage and limited access to capital.

That’s according to Cecily Dumas and Scott Prince of Cleveland, Ohio-based law firm BakerHostetler and Jerry Seelig, founder and CEO of consulting firm Seelig+Cussigh HCO in Culver City, Calif.

Dumas and Prince, along with Seelig, penned an article in the American Bankruptcy Institute (ABI) Journal identifying challenges nursing homes face, and if the worst is truly behind the industry.

Advertisement

The authors caution the Biden administration, or agencies that will carry out future reforms, of skilled nursing’s significant challenges in these areas.

“We write not to eulogize the death of the nursing home industry, but rather to caution those who will do the industry’s restructuring about its significant litigation, staffing and access-to-capital challenges,” authors wrote. “When the COVID-19 pandemic becomes ‘endemic’ and the funding spigot is turned off, those living and working in nursing homes deserve far better treatment, so we must all do more than merely restructure.”

State and federal efforts have sought to give nursing homes litigation immunity – more than a dozen states have passed protective legislation of their own since September 2020, the article said, and the federal Public Readiness and Emergency Preparedness (PREP) Act offers “sweeping immunity” to operators.

Advertisement

Authors noted a significant ruling in the tide of Covid lawsuits against nursing homes: Garcia v. Welltower OpCo Grp. LLC. In this case, the court ruled in favor of senior living and post-acute care providers, finding the PREP Act provides protection if an operator can prove it employed countermeasures to prevent viral spread.

“Furthermore, the decision indicates that the countermeasures implemented by such facilities do not need to be flawless to be covered by the immunities conveyed in the PREP Act,” authors added.

While state legislative efforts help nursing homes in “some instances,” authors said the PREP Act far and away provides the strongest protection.

The industry’s “second threat” comes in the form of 420,000 leaving the industry since the pandemic began, according to data pulled from the U.S. Bureau of Labor Statistics.

The American Health Care Association and National Center for Assisted Living (AHCA/NCAL) in a September survey found “nearly every” nursing home was facing a staffing shortage, the article cited, and more than 70% of respondents lack qualified candidates.

Instead, many operators have turned to agency staff to stem the exodus of staff leaving the industry.

The Supreme Court’s decision to uphold the vaccine mandate among providers that receive Medicare and Medicaid funding didn’t help staffing woes among nursing homes, authors noted.

“With every health care setting and better-paying jobs demanding a vaccine, the Court’s decision overruling the more-than-100-employee workplace mandate may drive a nursing home or at-home aide to get a job stocking retail shelves instead,” authors said.

The third threat to nursing homes is tied to a rising cost of capital in a space where private investors own 70% of total property, according to the article.

“With less revenue and greater costs, the industry will suffer at a time that the Federal Reserve is set to start increasing the federal funds rate,” authors said.

State legislation in New York, New Jersey and Massachusetts that require nursing homes to spend no less than 70% of revenue on resident care further threatens already razor thin margins.

The sector’s median operating margin is projected to be -4.8% this year, continuing negative median operating margins since 2019. The article referenced a March report released by AHCA/NCAL and professional services firm CliftonLarsonAllen (CLA) for projections.

“Nursing home operators are stuck between rising costs and unchanging government reimbursement rates, yet a profound irony exists with cash flow down, merger and acquisition transactions up and lending returning to pre-Covid levels,” authors wrote. “Even with bad margins, high labor costs and a reduced census, investment firms, banks and equity funds continue to favor the industry.”

Companies featured in this article:

, , ,