Skilled nursing operators are presently eyeing a $320 million proposed decrease to Medicare funding at a time when a historic labor crisis and federal policies and rhetoric have a chance to make a mark on the industry for years to come.
In just the last few months, the Biden administration unveiled its nursing home reform package, MedPAC recommended a 5% Medicare rate cut and a report from the National Academies of Sciences, Engineering and Medicine (NASEM) found that the way the nursing home sector is regulated and financed is both ineffective and inefficient.
Not to mention a significant bump to Medicare Advantage rates this year.
From a revenue and occupancy perspective, Marc Zimmet, president and CEO of Zimmet Healthcare Services Group, remains bullish on the skilled nursing industry.
It’s the regulatory perspective that gives him pause.
“From an occupancy perspective I think things are going to get much better … I think from a regulatory perspective, the things that are being talked about cannot happen to the extent that it would cause that much disruption to the industry,” he said during a virtual conversation hosted by BMO Capital Markets on Monday.
Zimmet stressed the need for states to pursue “targeted reimbursement” rather than blanket policy, as he doesn’t think the skilled nursing industry is one that can be looked at in a vacuum.
“With the MedPAC report and the CMS rule that came out … you cannot look at Medicare Part A in a vacuum, and that is my disgust, really, with the rule that came out,” he said.
Even if the Medicare rate does not amount to a significant impact to most skilled nursing facilities, the combination of the rise of Medicare Advantage and some of the other challenges imposed combine to cripple SNF operators.
“What we have is CMS implementing a bunch of policies, giving the states essentially free rein to do whatever they want,” he added. “CMS puts in things like ACOs and bundled payments and skilled nursing is left out of that.”
When it comes to the NASEM report, while Zimmet said he fully agreed that the economic model needs to be improved for nursing homes, the recommendations on how to do so were “wishful thinking.”
Despite low occupancy rates and uncertainty around federal funding, the skilled nursing market caught fire last year – with buyers willing to pay near stabilized rates despite current operational challenges.
While this has been considered perplexing for some, keeping some of the most active health care real estate investors on the sidelines, it rang a familiar bell for Zimmet.
“I remember back in the late 90s, one of my clients in New York paid $30,000 a bed for a facility in Queens and everybody said he was crazy. People have always overpaid. There’s no such thing as overpaying to a point because facilities are worth different amounts to different operators,” he said.
Recent operational challenges have forced many facilities across the country to close, with over 400 more facilities estimated to close in 2022.
It’s one thing for a facility in northern New Jersey, where there’s plenty of room to pick up the slack to close, according to Zimmet, whereas in states like West Virginia or Mississippi it may be harder to find care close in proximity if a facility closes.
“Some facilities simply won’t be allowed to fail but in the larger, more sophisticated markets, there will absolutely be some correction and there already is,” Zimmet said.
Companies featured in this article:
BMO Capital Markets, Medicare Payment Advisory Commission, MedPAC, Zimmet Healthcare Services Group
