Top Skilled Nursing Trends for 2023

Economic uncertainty, staffing shortages, looming federal regulations, a new COVID variant and major changes to the Minimum Data Set (MDS) are just a few of the challenges facing the skilled nursing sector at the dawn of 2023.

But a new year is also a time for optimism. Favorable Medicaid policies, the growth of strong regional operators and opportunities to innovate are just some reasons to look forward to the next 12 months.

While the Skilled Nursing News team expects the trends and predictions below to play out, the year is sure to bring unforeseen storylines. But one thing is certain: Successful providers will be those that can keep delivering consistent, high-quality care despite economic and operational headwinds, while being nimble in evolving their businesses.

A painful snap-back to ‘normalcy’

The end of the COVID-19 public health emergency has been long anticipated, giving skilled nursing providers ample time to prepare. Still, the end of the PHE and the resumption of more normalized operating conditions will lead to pain.

Expect this pain to set in during the second half of 2023, after COVID rears its head again to start the year. The “tripledemic” of COVID-19, flu and RSV already is slowing down move-ins to senior living and long-term care communities, according to recent National Investment Center for Seniors Housing & Care (NIC) data. And with “far too few” nursing home residents fully boosted, infection rates and deaths have been climbing to a disturbing degree.

This situation will make it difficult for the federal government to allow the PHE to expire as scheduled in mid-January; HHS Secretary Becerra said that the COVID situation during the fall and winter will determine whether the PHE is renewed yet again.

But the administration has faced political pressure to end the PHE, and CMS in 2022 laid out a roadmap for ending the public health emergency, urging providers to prepare “as soon as possible.” So, the writing appears to be on the wall that the PHE will end as winter passes and infection rates wane.

When this happens, skilled nursing operators will lose various flexibilities that have supported operations since 2020. Some of these flexibilities — notably the temporary nurse aide (TNA) program — already have lapsed at the federal level, forcing operators to adapt. And other waivers, such as those governing telehealth use, will be extended beyond the PHE.

Still, many nursing homes remain in a highly vulnerable position, dealing with staffing shortages, rising acuity and depressed census — and they could be reeling from the hard winter just as the PHE ends.

On top of this, the end of the PHE will send a signal to lenders and investors that have been extending breaks on certain contract terms and return expectations. The result will be operator transitions and property sales.

As CareTrust’s outgoing Chief Investment Officer Mark Lamb put it recently: “I think the end of the public health emergency … will be the end of the line for a lot of operators.”

The pain of 2023 will be unfortunate but necessary in order to reset the industry and enable healthier growth supported by the coming demographic wave.

Medicaid bonanzas start the skilled nursing gold rush

The White House’s reform agenda set a tough tone at the federal level for nursing homes in 2022, but state-level policy was more supportive — particularly with regard to Medicaid reimbursements.

With cash from a temporary FMAP increase, several states allocated more dollars for nursing homes. Beyond this, some states enacted Medicaid rate increases.

Sabra’s leadership emphasized this positive trend in states across its portfolio, with FMAP-related increases to the average Medicaid per-diem rate as high as 15% in North Carolina and 12% in Texas and Kentucky. Medicaid base rate increases ran as high as 19% in Washington and 17% in Oregon.

Recent headlines have heralded more good news out of states such as Ohio, with legislators voting in favor of a $350 million allocation for nursing homes.

In announcing Medicaid boosts, state officials have cited inflation and staffing pressures as necessitating higher reimbursements — and some states, such as in Illinois and Florida, have directly tied additional funding dollars to higher wage rates for workers or other staffing-related measures.

In 2022, CMS explicitly encouraged states to allocate Medicaid dollars to support staffing needs. Furthermore, industry advocates are focusing on this issue in the new year, with AHCA CEO Mark Parkinson describing this effort as “a big priority for 2023.”

“What we hope that all 50 states do is to rebase their rates, to take a look at the actual current cost of taking care of people in the Medicaid setting – not relying upon numbers that in some cases are 10 years old and they’re just attaching an inflation number to it,” he told reporters at the annual AHCA/NCAL conference in Nashville.

As AHCA and other groups have repeatedly pointed out, any federal staffing minimum is essentially meaningless without the necessary reimbursement rates to support the needed wages.

In 2023, look for more states to enact permanent Medicaid rate increases and for growing momentum around federal action to ensure better rates, such as a Medicaid adequacy rule.

If states finally push Medicaid rates to sustainable levels, so that operators actually are being paid to cover the costs of care, investors are sure to take note. The capital will start to flow into markets that push rates, and as the demographic demand wave grows, a true skilled nursing gold rush could get underway — which would be good news not only for owners and operators but the aging population in need of higher-quality services delivered by a more stable workforce in more modern buildings.

The reign of regionals begins

As 2023 begins, one major operator — SavaSeniorCare — will exit the stage. Once among the largest skilled nursing operators in the nation, Sava’s portfolio has been divided up among regional operators in a lengthy process that now is coming to a conclusion.

The Sava story is not unique. The 147-property ProMedica portfolio, formerly HCR ManorCare, is in the process of being split up among regional players. Consulate has gone from being a major national player to a large regional. Brickyard Health, focused on the Indiana market, is a vestige of one-time giant Golden Living. And industry titan Genesis HealthCare has been divesting of communities, losing its “largest operator” status to Ensign (Nasdaq: ENSG) — a company that has succeeded by operating like an alliance of regional operators rather than a national behemoth.

At the same time, small operators — and nonprofits that serve a limited market area — are facing challenges, as they require more scale to weather market downturns, afford and attract labor, implement necessary technology, and work with large and powerful health care systems and payers. Rolling up into a regional entity is more appealing — even more necessary — than ever.

While regionals will continue to gain scale 2023, they begin the year already in control of how skilled nursing is delivered across the United States — and with the Sava and ProMedica portfolios breaking up, the “reign of regionals” era is underway.

The regional model makes sense for nursing homes, considering the differences in Medicaid policy from state to state, not to mention the market dynamics involved in creating referral streams with various health care entities, and the work involved in becoming a trusted employer in a tough labor environment.

But there are advantages in having a national platform as well, including hedging against region-specific climate change risks, as well as the greater efficiencies of scale and the policy clout that come with being a national player.

So while regionals reign, look for operators to seek innovative ways to scale up.

Trying to copy Ensign is one obvious play. Hospital system tie-ups could also create larger skilled nursing platforms. One example is the potential Sanford Health and Fairview integration, which would bring together major nonprofits the Evangelical Lutheran Good Samaritan Society and Ebenezer, making this affiliation an unfolding story to watch with particular interest in 2023.

Behavioral health buzz becomes a roar

As 2022 drew to a close, a bipartisan group of federal lawmakers proposed a bill to increase mental health care access for older adults, including those residing in skilled nursing facilities. Just a few days later, the omnibus spending bill from Congress called for a study on the costs of serious mental illness, with SNFs and long-term care facilities among the settings to be examined. Also in December 2022, CMS released a proposed rule calling for increased behavioral health access for Medicare Advantage plan members.

These are just recent examples of a nationwide push to expand behavioral health care, including for older adults in nursing homes. The need for such services is acute. About 4 out of 5 nursing homes residents have a behavioral health diagnosis, according to study findings from NORC at the University of Chicago, released at the 2022 NIC Spring Conference.

The scope of demand for behavioral health services will present opportunities for enterprising providers.

Already, some SNF providers have built up behavioral health as a growing line of business. National HealthCare Corporation has an expanding portfolio of psychiatric hospitals.

“We believe that our geriatric population will have better outcomes when we work with skilled nursing providers, hospitals and other post-acute providers to offer the appropriate level of care in our geriatric hospitals,” Shawna Nymeyer, NHC’s vice president of behavioral health, told SNN.

Catholic Care Center, iCare and American Health Partners (AHP) are just a few more examples of SNF providers operating in the behavioral health space.

Converting obsolete SNFs into behavioral health centers can be a smart strategy as well, Sabra Health Care REIT CEO Rick Matros recently told SNN. Length of stay in such facilities tends to be strong, and staffing requirements from a nursing perspective are not as intensive as for a SNF, he said.

But he cautioned that SNF-to-behavioral health conversions make more sense in some states than others, as Medicaid is the primary payer involved. And AHP CEO Michael Bailey warned that regulations sometimes hamper the ability to provide both the physical and psychological care that the geri-psych population needs. The problem is exacerbated by the fact that acute-care hospitals and BH hospitals are regulated by different entities at the state level, and the regulators “may not get along.”

Despite these challenges, the rising need for geriatric behavioral health care, the increased focus from federal policymakers on this need, and the allocation of more dollars to pay for these services creates a clear trend. In 2023, skilled nursing operators will have to reckon with behavioral health as never before.

Dysfunctional relationship between hospitals, SNFs improves

Hospital systems are facing financial woes, with 2022 set to be their worst financial year since the onset of COVID-19. One reason is their inability to discharge patients to post-acute care facilities, largely due to staffing shortfalls in those settings.

As Axios reported in Nov. 2022:

“Providence Health in Spokane, Wash., for example, is on track to spend nearly $18 million this year on nursing care for patients who no longer need to be hospitalized at its two facilities. A handful of patients have been on the premises for more than 100 days, Susan Stacey, Providence chief executive for inland northwest Washington state told Axios.”

This situation is unsustainable, and 2023 will bring action to address these bottlenecks and strengthen post-acute referral streams.

“These may include bed leasing models and at-risk payment models that compensate providers for outcomes and accessibility, as well as collaboration and on-site support for more complex patients, featuring clinical, social, and operational support,” Health Dimensions Group (HDG) noted in the company’s 2023 trends report.

While such steps would be welcome, the situation highlights that more fundamental innovations in cross-continuum care collaboration are needed. A more integrated approach would fully leverage home health, private-duty home care and private-pay assisted living to alleviate discharge snarls.

Unfortunately, even in managed care frameworks where such integration is theoretically possible, SNFs sometimes are cut out of the equation. Payers are eager to route patients into home health, where costs are lower.

A recent proposal from CMS addresses this issue, as the agency seeks to ensure that Medicare Advantage plans cannot inappropriately deny post-acute care in SNFs.

Even when hospitals are able to discharge patients to post-acute facilities, they are too often not helpful partners in care. In the most recent example, skilled nursing providers have flagged that hospitals are not routinely offering the latest COVID-19 boosters to patients who are headed to SNFs.

The White House took note of this issue, and encouraged hospitals to offer boosters to patients prior to discharge, “especially if they are headed to a nursing home.”

The dysfunctional relationship between hospital systems and SNFs clearly has reached a breaking point. The good news for post-acute providers is that they have significant leverage, given hospitals’ dire finances. And, the moves from CMS and the White House are encouraging, in terms of recognizing the value that SNFs contribute that cannot be replicated in other settings.

So 2023 could be a breakthrough year in terms of resetting the relationship between post-acute providers and hospitals, with SNFs garnering greater support and collaboration, and building back referral streams that have waned in recent years.

For their part, post-acute facilities must push hard to expand and solidify their workforces. One potential strategy is a commitment to taking higher-acuity patients. Particularly if hospitals can provide training and support, SNFs could attract a more skilled workforce while more fully leveraging the capabilities of advanced practice registered nurses, licensed practical nurses and other clinicians. This should create a virtuous circle, as PDPM creates opportunities to boost reimbursements for higher acuity care, in turn giving providers more dollars to pay their more skilled staff.

Federal reforms gain sharper focus

In 2022, the Biden administration announced sweeping proposals for nursing home reform. In 2023, expect the focus to sharpen. More specifically, look for the federal minimum staffing standard to stall, while the push for greater ownership transparency gains momentum.

Any effort to implement a federal staffing standard is going to run up against tough realities on the ground. There is a “recognition” among federal officials that some sort of reimbursement increase would have to support any federal minimum, Sabra’s Matros believes. The nursing home sector has marshaled data to make this point, most recently through an updated report showing that $11.3 billion would be needed to meet a potential mandate.

Even if such funds were available, providers would have to overcome the historically acute worker shortage in order to meet a new staffing minimum. As Matros points out, state-level staffing minimums already exist, and the best operators are budgeting to be well above those thresholds but can’t fill positions.

“Now the problem is that people can’t staff what they budget,” he told SNN.

The political landscape also will change in 2023, as the House of Representatives shifts to a narrow Republican majority. This will dilute Congressional support for Biden’s reform agenda.

So, any staffing standard that CMS floats is likely to remain just a proposal.

On the other hand, expect another major Biden priority — increasing transparency in nursing home ownership — to gain more support and lead to real measures in 2023.

When Biden blasted “Wall Street firms” for buying up nursing homes and then starving them of resources to increase profit margins, skilled nursing leaders protested. The White House’s definition of “private equity” was muddled, they pointed out, and missed the actual trends related to who has been investing in the space in recent years.

Former CMS Administrator Seema Verma was another vocal critic, calling the focus on private equity “a colossal waste of time,” and saying that “vilifying” private equity only hurts the industry by deterring investment.

Such objections have merit, but even from within the industry, there is support for greater transparency in ownership; expect that support to gain strength in 2023, driven by concern over the public perception that nursing homes are run by shadowy firms that value profits over care quality.

Recent dealmaking has not helped dispel the negative perception of nursing home owners. Take Welltower’s transition of 147 SNFs into a new JV with Integra Health. After this transaction was announced, journalists and analysts alike pointed out that Integra appears to be a recently formed company led by a 29-year-old CEO. Integra’s unnamed parent company is a more prolific and experienced investor in the space, according to Welltower leaders, but the identity of this parent company has not been publicly disclosed.

“We … believe WELL has not disclosed Integra’s parent entity at the request of that party, which is not unique,” Raymond James Analyst Jonathan Hughes noted.

Hughes expressed frustration over “misstatements and misrepresentations” in a Hindenburg Research report on the deal — but while it’s true that Hindenburg and other reports got key elements of the transaction wrong, the complexities and secrecy surrounding nursing home transactions seem designed to create confusion and mistaken assumptions.

The bad headlines that have followed the Integra deal will further stoke consumer demand for more transparency and accountability, and the bad press no doubt frustrates industry insiders who have to defend the integrity of the sector.

Per the White House’s reform agenda, CMS made more ownership data publicly available in 2022. In 2023, expect more action from CMS on this front, while lawmakers push for further disclosure requirements — and don’t be surprised if skilled nursing industry leaders get on board.

Labor pressures ease — but stage is set for years-long struggle

In 2022, staffing shortages in skilled nursing became “a full blown crisis,” in the words of Harvard’s David Grabowski.

As the year ended, the situation remained dire, with the industry about 200,000 jobs below pre-pandemic levels and more than 300,000 jobs below a pre-pandemic employment peak in 2011.

The next year should bring some relief. A mildly recessionary economy should increase the pool of job seekers. Workforce initiatives put in place in 2022, including state-level initiatives like that in Wisconsin, should start to bear more fruit. And many providers have taken steps to strengthen their internal labor pool and back away from costly agency workers.

But in the wake of the Great Resignation, “quiet quitting” and organized labor actions, it’s never been more obvious that the skilled nursing industry requires a comprehensive effort to build a more stable workforce.

Capital Funding Group Founder and President Jack Dwyer, for one, believes it is high time for industry stakeholders to stop bemoaning the sector’s intense labor challenges and take bold action. And he is making good on this himself, through Dwyer Workforce Development’s $590 million Regency acquisition, helping to scale up the “Dwyer Scholars” program.

The ultimate impact of the Scholars program remains to be seen, but as the COVID-related workforce crisis eases, more organizations need to follow DWD in taking big swings at addressing the sector’s labor issues, with significant money and resources backing their ambitions.

To paraphrase Winston Churchill, skilled nursing is at “the end of the beginning” — the end of the pandemic-related labor crisis must be the beginning of a larger, longer struggle that every provider must engage in, to build a stronger and more sustainable workforce.