The Case For And Against a Nursing Home Industry Crisis

Whether it’s uttered during an interview, highlighted during an industry conference or referenced in a news release, I’ve heard and seen the word “crisis” quite often during my time reporting on the skilled nursing industry.

And it’s not surprising the word has been used so frequently. Covid-19 was a global crisis that hit the nursing home sector with particular ferocity, and its aftermath includes a staggering workforce shortage and historically high inflation. Public policy also compounds these intense challenges, as the industry’s largest trade groups routinely trumpet.

But this also isn’t the first, second or even third time the sector has had its back against the wall and has been forced to overcome a series of challenges.

Nursing home providers have resiliency and the industry has shown, time and time again, that it can get through the tough times. And veteran operators like Cantex’s Peter Longo bring that historical perspective and a quiet confidence to this moment, putting the current “crisis” in perspective, and even raising the possibility that the situation is not as dire as some would say.

A crisis on top of a crisis

The case for a nursing home industry crisis is compelling, and not hard to make.

Covid-19 has dealt a devastating blow to nursing home providers, precipitating the need for dedicated financial and operational assistance from both the state and federal level.

The pandemic has resulted in the death of more than 200,000 long-term care facility residents and staff — and that’s likely an undercount, according to a Kaiser Family Foundation analysis.

The industry has also contended with a workforce shortage and rising costs due to inflation — albeit the labor issue has caused nursing home leaders many sleepless nights long before March 2020.

The sector has lost 241,000 workers since the start of the pandemic — the worst among their health care peers — and has yet to fully recover.

It’s what has been previously referred to as a “crisis on top of a crisis.”

All of these factors, among others, have resulted in the American Health Care Association/National Center for Assisted Living (AHCA/NCAL) projecting 400 SNF closures in 2022.

“Coupled with the financial pressures due to ongoing COVID-related costs (PPE, testing, etc.) and inflation, providers are facing unprecedented economic challenges,” AHCA/NCAL said in an emailed statement to SNN.

AHCA/NCAL and fellow trade association LeadingAge have both called on policymakers to take action and put their money where their mouth is.

The Biden administration unveiled its plans earlier this year to take significant action through its proposed nursing home reforms, centering its focus on minimum staffing standards and nursing home ownership transparency, among many others.

Such efforts with a more punitive focus seem to be coming at exactly the wrong time, according to former CMS Administrator Seema Verma.

“We’re not sitting here trying to figure out who owns home health or who owns dialysis facilities or who owns providers. We’re kind of going through this exercise just in nursing homes because somehow we think that that’s going to increase quality of care,” Verma told SNN in an exclusive interview earlier this year.

“The first thing we all think about with federal solutions is funding. But that’s only part of the solution. Without staff, there is no care. We need more people,” LeadingAge President and CEO Katie Smith Sloan said in a statement. “Our nation and its policies must value and support health care workers with a range of immediate actions — in education and training, in immigration and addressing price gouging by staffing agencies.”

There’s certainly a case to be made about why nursing homes are now in a crisis — some have gone so far as to say it’s the worst the industry has ever seen.

Resisting the ‘crisis’ narrative

Cantex Continuing Care Network Principal and Managing Partner Peter Longo agrees the industry is facing significant turbulence, but he hesitates to use the word crisis.

“I think we try to avoid the idea at Cantex that’s easy in this industry, because there are so many stresses from many directions, to feel like you’re always in crisis,” Longo told SNN.

Part of that, according to Longo, is because the best care is delivered when things are smooth and consistent — as opposed to operating in crisis mode.

With his 30-plus years of experience in the industry, Longo can recall a few other inflection points that feel comparable — or even more stressed — than where the industry is at presently.

In the late 1990s, the Medicare Prospective Payment System (PPS) was introduced, resulting in much of the industry going into bankruptcy.

With roughly three years to prepare for the payment system change, Cantex took proactive steps and “did some radically different things,” he said.

One such step was bringing its pharmacy services in-house — which proved to be a critical piece of the puzzle to help them withstand the changing reimbursement system, according to Longo.

It was a time when being “lean and mean” was imperative to survive — which is not dissimilar to where the industry is currently.

“We need to go back to the fundamentals and think about how we survive in the leanest of times in terms of margin, and what we can do to keep quality levels high but be very efficient with our resources,” he said.

The industry has since had to navigate new payment systems — most recently the Patient-Driven Payment Model (PDPM) in 2019, but it remains to be seen how providers will fare long-term with the reimbursement structure in a non-Covid environment.

Prior to the pandemic, the skilled nursing industry determined generally that they would likely “come out just fine in terms of reimbursement overall.”

“We were all braced for another major reimbursement change and all of the reengineering that you have to do to be ready and survive comfortably with that, and then Covid hits and sort of layers on top of that and it’s hard to untangle the two in terms of the impacts on the industry,” Longo said.

The other example from history Longo pointed to was the dawning of the assisted living industry — a “cataclysmic” moment for skilled nursing.

Prior to that, nursing homes were taking care of many low acuity patients in skilled nursing because they had no place else to go.

“It literally peeled out a significant cohort of patients that would otherwise be in skilled nursing, and it was very stressful for skilled nursing to deal with the fall of occupancy as a result of people being diverted to assisted living,” Longo added.

Patients being diverted from skilled nursing facilities is also a common thread seen today, as both an overwhelming majority of Americans and the federal government wish to see more people cared for in the home whenever possible.

“It’s on us as an industry to say, ‘how do we provide the services that we provide so well in settings that are less intensive than the four walls of our skilled nursing facilities,’” Longo said. “And I think that’s why you’re hearing a lot of companies, and we’re one of them, that’s talking about taking our show on the road, if you will, to do skilled nursing at home.”

The role of the state and federal government

Looking at how state and federal policy both supports and undermines the nursing home sector helps explain why the industry seems to be in “crisis” mode so frequently; and experts such as Zimmet believe that this pattern will only be broken if providers and policymakers take new approaches.

When the federal government in the 1960s created the Medicare and Medicaid programs, it chose to make the sector a public-private partnership that relied on both government funding, but also private providers to offer the services.

The industry has relied heavily on both state and federal support over the years, in good times and bad, with the pandemic being the most recent example.

“They know that we play a vital role in the health care system and ultimately they do abide by us and they support us and ensure that, for the most part, we survive and are able to continue to serve the population that they need us to serve,” Longo said.

SNFs have benefited from multiple pounds of funding from the federal government, including money from the Provider Relief Fund (PRF).

While federal funding has largely dried up, many states have looked to increase Medicaid reimbursement, at least temporarily, through the Federal Medical Assistance Percentage (FMAP) match as part of the Families First Coronavirus Response Act.

Pennsylvania Governor Tom Wolf recently approved a Medicaid reimbursement increase of 17.5% for the state’s nursing homes for next year, translating to an increase of around $35 per resident per day.

The increase to the state’s budget also includes over $131 million in American Rescue Plan funding that will be used to help bridge the reimbursement funding gap that has formed for a state that hasn’t seen a Medicaid funding increase in nearly a decade.

Some states, like Illinois, Massachusetts and New York, have tied Medicaid funding to staffing measures.

Illinois House Bill 246 was passed by the legislature and signed by the governor earlier this year, providing a $700 million increase to nursing home funding in the state.

The Centers for Medicare & Medicaid Services (CMS) is seemingly trying to take a page from states like Illinois as it looks into how it can require nursing homes across the country to spend most of their Medicaid payments on direct patient care.

What’s proving to be a pain point is the current reimbursement system’s inability to keep up with rapid and ramped inflation.

“It’s no criticism, really, but the government needs to find a way to take advantage of technology and devise a reimbursement system that is more rapidly responsive to changing pricing and cost levels so that providers can remain continuously healthy without having to go through these troughs and peaks the way we do,” Longo said.

Zimmet echoed those sentiments, adding that a one-size-fits-all approach is not the way to go — and is likely how the nursing home industry got to this point in the first place.

“The single policy, treating all nursing homes the same … All that means is that the policy that filters down hits everybody unevenly. Now that has happened for years but now we’re getting into a crisis point,” Zimmet told SNN.

“I will say that it’s great that Pennsylvania got all that money, but why is the operator with only 5% Medicaid getting the same increase as the operator with 95% Medicaid,” he added.

Zimmet has long been a proponent of working on a state-by-state level and coming to the table when speaking with policymakers with solutions instead of asking for a certain amount of money.

“We’re at the point where the industry has got to face reality. We can’t go to the states, hat in hand, and just demand X number of dollars. We need to have intelligent conversations, rational conversations,” he said.

Despite what ultimately happens, the industry is far from out of this situation. Industry leaders don’t expect Covid or the workforce shortage to go away anytime soon, and it remains to be seen what other stressors could come the sector’s way.

It’s incumbent upon the nursing home industry to look inward, make the necessary changes and adjust to the times.

But that true public-private partnership is not possible without the government stepping in, by way of more than just financial resources, to recognize the importance of the industry to the health and welfare of the senior population and providing that helping hand.

If this does happen, it’s possible that the industry can escape the cycle of crises that has come to feel normal.