Why the Future of Standalone Skilled Nursing Facilities Could Be Dim

The nursing home industry remains largely fragmented, evidenced by the fact that just under one-third of the sector is currently made up of single site providers.

But that number is beginning to slowly decline — having fallen two percentage points over the course of the Covid-19 pandemic, according to NIC MAP Data, powered by NIC MAP Vision.

Even before the challenges that have been exacerbated by Covid, industry leaders across the country have been the least optimistic for standalone skilled nursing assets. Specifically, 36% of respondents to Lancaster Pollard’s 2019 Seniors Housing & Care Survey indicated the outlook was “poor.”

While single site SNFs may actually have a competitive advantage when it comes to occupancy and staffing, industry experts believe the large variation in operating performance among these organizations could result in sales and closures in the coming years.

Cory Rutledge, CliftonLarsonAllen (CLA) managing principal of industry, health care, said he anticipated that number would ultimately decline as the buyers of skilled nursing facilities are not entering the market to purchase one facility.

“They are largely privately held or investor-owned multi-sites looking to add to their portfolio. Even if single sites and multi-sites sell at the same rate, the overall percentage of single sites will decrease over time due to the vast majority of buyers being multi-site,” he wrote in emailed responses to Skilled Nursing News.

Rutledge expects in three to five years to see more regional providers with between 10 and 30 facilities that have geographic concentration.

A competitive advantage

When comparing the performance of single sites to multi-sites, data shows that standalone nursing homes may have a competitive advantage when it comes to occupancy and staffing.

For example, average nursing hours per day is higher for single sites (4.72) than multi sites (4.26), according to 2021 Medicare cost report data analyzed by CLA.

Agency staffing as a percentage of total nursing is also lower for single sites — 9.24% versus 10.51%. Occupancy is also “markedly higher” for standalone facilities (81.61%) compared to multi-site providers (71.57%).

On the flip side, occupancy for smaller operators tends to be more unpredictable, according to NIC Senior Data Analyst Omar Zahraoui.

“In general the smaller the property, the more volatile the occupancy due to the impact of just a few moving out … especially if they’re not part of a larger portfolio,” he said.

The greatest opportunity for single site operators is local community reputation and engagement, according to Rutledge.

“Skilled nursing has struggled with public perception nationally, but a single site facility that is an integral part of the community has the opportunity to drive both referrals and workforce if they can turn their reputation into a strategic advantage,” he told SNN.

Chelsey Gray, chief transformation officer at Revive Health Senior Care Management, has seen this firsthand as a small operator in Northern Nevada.

Gray and her husband, Zachary Gray, purchased their first nursing home together in 2019, and were single site providers until they acquired two more facilities earlier this year.

Being a small operator has allowed them to understand where there were opportunities for efficiencies across all positions, whether that be housekeeping to a licensed nurse — and what they needed to do their jobs.

Gray said their goal is to ultimately transform what people think about skilled nursing in the state of Nevada, and being small and living in the state where they operate has allowed them to develop relationships with state legislators.

“Zach and I are also licensed CNAs. I did that to get to know the industry better since they are the largest population of our staff … And we’ve done everything from wash dishes to clean rooms. Honestly, some of it was due to the lack of staff or a call-in, but other parts is we need to understand the departments and where their shortcomings might be and how to make them better,” Chelsey Gray told Skilled Nursing News.

Rutledge said one way providers have managed operating with a smaller number of staff overall has been by leveraging outsourced help, particularly with roles such as human resources, accounting, financial reporting, billing, and collections, among other things.

Looking to the future

In spite of some of the community and reputation-based advantages that exist with a standalone skilled nursing facility, the headwinds are, in many cases, stronger than that of a regional multi-site provider. Rutledge said.

The primary issue impacting transactions today is financial viability — especially when taking into consideration negative operating margins over the last 18 months and largely dried up Covid-related federal government support, Rutledge noted.

When it comes to the ability to generate cash, as measured by EBIDA margin, those numbers are slightly lower for single sites (11.36%) than multi-site operators (11.60%).

And that can vary greatly depending on the type of single-site provider. Standalone nursing homes fall into one of three categories: Privately held (33%), government-run (19%), or nonprofit (48%).

But there are scenarios in which there is a real possibility each of those types of facilities will end up in the hands of a multi-site provider, according to Rutledge.

For example, facilities that are privately run in many cases are owned by individuals who may be approaching retirement age and do not have a succession plan.

In the case of government run facilities, many cities and counties are visiting their budgets and determining whether they have the finances and skill to operate the nursing homes under their purview. Those that decide running a SNF is not a priority will either close or sell to a multi-site operator.

For standalone nonprofit operators, Rutledge likened it to the “haves” and the “have-nots.”

“Strong performers may have the resources needed to remain successful, but financially strapped nonprofits will likely either sell or cease operations. My advice to struggling nonprofits is to raise their hand and begin affiliation discussions before they are under financial duress. The number of options for a financially viable nonprofit are many, but those options quickly diminish in times of financial distress,” he said.