Health Care Leaders Share Their Thoughts On the Future of Skilled Nursing

Despite the arduous operating challenges facing skilled nursing providers in 2022 — workforce shortages, inflation, occupancy and looming federal regulations just to name a few — the future of the sector may not be as dark and stormy as one might anticipate.

The obstacles nursing home operators have already and will continue to face over the next few years may also present opportunities to create meaningful change, at a time when many outside the industry are urging the sector to do so.

That’s at least according to 10 skilled nursing experts — ranging from operators to consultants to professors. The panel was asked to offer their “pithy” takes on a series of questions surrounding the future of the industry at the LTC 100 conference held at The Ritz-Carlton Amelia Island in Florida.

Skilled Nursing News highlighted four of the most thought-provoking topics from the wide-ranging discussion.

On whether the sector will see substantial financial distress in the next six to 12 months

As the industry continues to see notable ownership turnover throughout the sector, nearly all of the panelists indicated that they believed upwards of 10% of SNFs would put themselves up for sale or close in the coming six to 12 months.

This is perhaps where “the rubber is going to meet the road” for a lot of providers, according to Renee Pruzansky, CEO at ChoiceCare Management.

Pruzansky expects there to be more sales than closures as the price-per-bed rates continue to remain high and deals will continue to be made.

“I think that there’ll be some that realize they bit off more than they can chew, or they’re not meeting what they’re supposed to … but they don’t necessarily have the experience it takes to make all the pivots that you have to survive — it’s just my opinion,” she said.

ATI Advisory Managing Director Fred Bentley took a slightly more optimistic approach, highlighting the fact that roughly 10% of the industry made plans to sell or close during the first part of the pandemic — and operating conditions have improved since then.

He did however caution that a lot could change depending on what the Centers for Medicare & Medicaid Services decides on the timing of when to impose the proposed cuts to Medicare funding for nursing homes.

“So I think we’re in a better spot now, I think a lot of this does depend on what happens with the Medicare fee for service rates, right? Do we see the parity adjustment spread out over a few years or do we take a hit? I think even with taking that hit, I just don’t foresee that big of a change. I mean, it’s gonna be a challenging period and certainly state by state,” Bentley said during the panel.

Both Health Dimensions Group CEO Erin Shvetzoff Hennessy and Harvard University professor David Grabowski expressed concern over the future of rural facilities and those that serve as “safety nets.”

“I really think our safety net providers are at greatest risk … those are the ones we can’t lose. Everyone says, ‘Well, we’re over bedded. Let’s have closures.’ Closures are not random. We can’t say, ‘Well let’s get rid of the one stars in those markets we’re over bedded in.’ I just really worry that we’re going to lose some safety net facilities,’” Grabowski said.

Cory Rutledge, managing principal with CliftonLarsonAllen’s health care group, pointed to a report released back in March by the professional services firm that found as many as 40% of nursing home residents could be “at risk” to be displaced as the sector’s median operating margin was projected to be -4.8% for 2022. 

While also agreeing that there would be more ownership changes than closures, Rutledge also agreed that rural providers would be the most likely to shut their doors. He estimated anywhere between 10 to 15% of operators would change hands.

On the viability of SNF bed prices continuing to stay red hot

At a time when industry price-per-bed valuations have forced some investors in the space, at times, to sit on the sidelines, executives like Pruzansky believe it’s important to think of the market with more context and less generalities.

“I know everyone thinks everybody out there who is buying is crazy. But I’ve been buying and I don’t think I’m crazy, yet,” she said on the panel. “There’s an equation … So a bad price might sound crazy, but when you look at all the variables, and you know you have the experience that it takes to weather the storm and make a pivot … to at least sustain them and then be profitable in the future, then sometimes you take that challenge.”

Brian Fuller, CEO of Integrated Care Solutions, believes prices will likely hold steady, particularly in certificate of need (CON) states where there is inherent value to the licenses.

“Those bed prices don’t go down, even in times of distress. So I think that prices, particularly in CON states, are going to hold steady and there is no significant downward risk,” Fuller said during the panel.

On whether real estate investment trusts (REITs) are pulling back as buyers

Real estate investment trusts (REITs) owned about 12% of all skilled nursing assets as of 2021, according to data published in JAMA Health.

But recent evidence has shown that REITs in the health care space are continuing to diversify their portfolios — and are increasingly doing so by paring down their SNF exposure.

In Q1 alone, Welltower (NYSE: WELL) divested seven more SNF assets, bringing its sector exit to $525 million in the past year.

Sabra Health Care REIT (Nasdaq: SBRA) announced earlier this month the company’s moves to change up its portfolio would leave its SNF assets at an “all-time low.”

Rutledge said during the panel that REITs are an “investment vehicle” and they are expected to go where there is the greatest return on investment.

“If they find that there’s another sector of health care or other sector of real estate that makes that easier for them, that’s where they’re going to put their capital,” he added.

As the Biden administration and CMS are pushing for greater transparency around nursing home ownership, that’s brought increased scrutiny around REIT and private equity ownership in particular. 

It’s the latest “demon” for the industry, the one who is “getting the blame,” according to Steven Littlehale, chief innovation officer at Zimmet Healthcare Services Group.

Without outside capital, Littlehale said, the industry may have a hard time innovating.

“If we don’t have outside folks investing in our industry, if we don’t have inexperienced operators coming into our space and trying to figure it out, we just perpetuate what we’ve been doing in this industry for the last 20 years,” he said.

On workforce challenges and out of the box solutions

As many skilled nursing operators focus their efforts on being quality referral partners and work to build back building census lost over the course of the pandemic, Pruzansky urged her colleagues to also spend just as much energy — if not more — on staffing.

“So just make sure the stakeholders that you’re always looking at for revenue, staffing is revenue. I mean, you cannot bring in the revenue without that,” she said on the panel.

Pruzansky also noted the importance of having a variety of voices, including those on the frontlines, with a seat at the table when it comes to thinking about outside the box ways to recruit and retain staff.

Since the beginning of the pandemic, ChoiceCare Management has offered its employees the chance to go home with a cooked dinner for themselves and their families at the end of each workday.

She also offers her employees who meet certain criteria the chance to be part owners in the facility where they work — giving them the chance to share in the profits.

As a result of some of these creative efforts, Pruzansky has not had to use agency at any of her buildings.

“They’re showing up to work because this is mine, this is my company. They love telling their neighbors and friends,” she said.