As financing companies in the skilled nursing space have taken note of a more stable flow of funding from state and federal entities at this point in the pandemic, many believe now is the time to set long-term goals and start planning for the future again.

Operators are breathing a sigh of relief too; borrowers are beginning to staff for full occupancy with the help of state and federal funds, while others are making capital improvements and finally taking the leap into expanded service lines, according to Brent Holman-Gomez, senior vice president for Cambridge Realty Capital.

Skilled Nursing News and Holman-Gomez discussed how increased Medicaid funding across multiple states is playing a crucial role in executive outlook on the industry.

To name a few, Illinois’s $700 million in facility staffing incentives, implemented this year, involve a data-driven staffing ratio program and wage incentive initiative – specifically the CNA tenure and promotion payments program to increase and maintain wages for certified nursing assistants.

Texas, Kentucky and North Carolina all have continued their Medicaid percentage increase at least through the end of the year at 12%, 12% and 15%, respectively.

Cambridge provides FHA-insured HUD loans, conventional financing and investments and acquisitions and is one of the leading specialized senior housing and health care debt and equity capital providers.

The Chicago, Ill.-based firm closed 500-plus senior housing transactions totaling more than $6.5 billion.

The interview has been edited for length and clarity.

We know that states increased their Medicaid rates by, in some cases, 15% in order to meet costs associated with the pandemic, and now inflationary costs. Are these transitioning to a more permanent increase?

What we’re seeing is that some of these increases are actually permanent, they are regular rate increases, just the regular update for the upcoming fiscal year. These temporary, or stimulus-oriented, stopgap measures are transitioning into regular payment structures that people can run their business and make decisions on.

What was the sector outlook like prior to this change in funding?

The states were funding things on a stop-gap basis. The federal government was doing the same thing with the [Paycheck Protection Program (PPP)] loans. What we saw many nursing homes do, particularly a year ago, was not accept new residents. They were keeping their occupancy artificially low because of the fact that they couldn’t attract workers to care for the people in the beds.

They’ve been taking money that would have been used for long-term planning and capital improvements to the buildings, and putting it into staffing, particularly wages.

And now?

In many states, with many of these programs, they’ve given a specific plan for how they’re going to compensate providers to pay their staff and to cover wages. That element has always been the largest expense component of nursing facilities; it’s been out of control for the last couple of years.

There’s now an ability to say, ‘I know that I’m going to get this. I know that there’s this layer of income that’s coming specifically for that purpose and can meet my needs and staffing. Now I can go back and look at backfilling these other departments and other elements of the dining program, make sure I’ve got enough medical supplies on hand.’

How does that translate to what you’re seeing at Cambridge?

Clients that have been in floating rate and variable rate mortgages, nobody could underwrite them, give them a permanent mortgage solution that might be less expensive because the income stream that they had was all temporary stimulus-oriented income.

Now that some of that income has become more regular, people are saying ‘I want to get out of this variable rate.’ We all know interest rates are going up and people want to get into a more permanent debt structure.

So operators are getting into more permanent financing right now?

Operators are now able to make decisions like, ‘I have control of my business now, I would like to get out of this landlord relationship that I have and own the building,’ which many times can be at a lower cost than paying the lease payment to rent the building.

With the regular income cash flow, they know how it’s going to work for years going forward. They can make those kinds of plans.

Any other noteworthy capital projects baked into more permanent financing?

Sometimes you have to renovate a room and get the special chairs for a dialysis procedure. We might fund those as part of an overall mortgage change that’s occurring.

Operators are taking the opportunity to expand service lines like dialysis?

Before the pandemic started, for some of these services like dialysis, instead of residents going out of the facility to get that level of care [operators were bringing] that care into the facility – it was gaining momentum but somewhat paused during the pandemic. There’s also been psychiatric evaluation and support.

There are all these ways that you can improve care, but you’ve got to have a sustainable, regular business income in order to be able to take advantage of those things.

Any other investments operators are looking into?

Programs where you can understand how somebody’s physicality is going to respond, if they have a particular need based on their genetic makeup that can inform health care decisions.

Do you have any parting advice for operators in terms of financing for the future?

It is still a good time to borrow money. The fact that you have a stable revenue stream means that you can now break out of the reactionary method of running your business that you’ve been in for the last couple of years and be able to look forward at what would actually allow you to provide, more residents with care and provide better care to meet your community needs.