Inside 3 Disruptive Trends Reshaping Skilled Nursing Sector

The skilled nursing sector is in the midst of upheaval, and providers must create and execute on strategies that involve difficult choices and significant financial investments if they hope to thrive in the future.

“We are in a period of disruption,” Dana Wollschlager, partner and industry practice leader of senior living development and advisory services for Plante Moran Living Forward, said Tuesday at the LeadingAge Illinois conference near Chicago. “There has been the largest growth and expansion of senior housing … that we’ve seen in the last 15 years. And we’ve seen the greatest reduction of long-term care beds.”

And while this decline in nursing home beds began well before the pandemic, the largest year-over-year bed reductions happened in 2021, Plante Moran’s analysis shows.

The decline in beds reflects not only the growth of private pay senior living but home- and community-based services, and represents one major source of disruption. Labor market dynamics — which have led to the current, intense staffing crisis — are another major disruptive force. Regulatory and legal disruptions are a third major factor that providers must confront, with the Biden Administration pursuing a comprehensive slate of reforms that will affect the industry well into the future.

The good news is that providers such as Lutheran Life Communities are taking action, pursuing innovation and — if not yet armed with all answers — asking themselves difficult questions and committing to doing what it takes to evolve.

Bed reductions

To illustrate the conundrum that nursing home providers face related to demand, Wollschlager and Plante Moran Living Forward VP Sally Heffernan presented data, including an analysis of bed utilization trends for a particular, unidentified metro area.

According to the analysis, if 2022 bed utilization trends continue, bed excess of 104 beds in 2026 is expected. But experts also estimate that bed utilization could plausibly decrease by at least 25% as more residents are expected to choose home- and community-based services over a nursing home, which would result in a bed excess of between 234 to 284 beds. And, if bed utilization decreases to 1%, which is the case in certain states, such as Oregon and Arizona, there will be an excess of 620 beds in this particular metro.

The Plante Moran analysts also said that there has been a shift away from skilled nursing facilities (SNFs) within the life plan communities (LPCs) space.

Whereas 85% of new LPCs included SNFs and long term care (LTC) between 2007 and 2014, that number has shrunk to 37% in the last 7 years.

This means that the time is ripe for the organizations in the sector to reposition their senior living campuses and plan now for the next decade, Wollschlager said.

And while the residents of the future are changing, with a growing desire for in-home services or more updated assisted living facilities, operators need to evolve to fulfill these needs.

In transitioning, organizations must also consider other factors besides the reduced need for skilled nursing and a growing demand for and community-based services. They should plan ahead for inadequate reimbursement rates and other financial pressures that have remained in the industry while also preparing for increased acuity and shorter lengths of stay at facilities, refurbishing their properties and addressing higher technology needs in the midst, of course, of staffing shortages, especially for clinical workers.

In view of these anticipated developments, Wollschlager said that in repositioning their assets, operators will be better served to follow this ratio: For every nursing home bed, there should be a minimum of 8 senior housing units.

This can be difficult to achieve, of course, particularly for life plan community providers that have a large number of nursing home beds and little capacity to take on new debt for repositioning projects. And LPCs that wait too long to reposition may see an influx of new private-pay units in their market, hampering their ability to make the transition.

Dedicated nursing home providers, that do not have campuses with multiple care levels, are facing particularly daunting situations. For-profit chains are able to make a margin on their ancillary services businesses, but are struggling to turn a profit purely on their skilled nursing units, Wollschlager said. Meanwhile, single-site nonprofit providers are increasingly seeking affiliations, mergers or acquisitions — or selling and exiting the space.

“Scale matters, it just does,” Wollschlager said.

Operators encouraged by workforce initiatives

Lutheran Life Communities is one organization that is grappling with the utilization trends that the Plante Moran analysts explicated. The Arlington Heights, Illinois-based organization operates six communities, including the Lutheran Home, with more than 350 skilled nursing beds.

The organization did make the difficult decision to close a skilled nursing center in Crown Point, Indiana — but CEO Sloan Bentley is aware that the Lutheran Home is a “cornerstone” of the Arlington Heights community, and is striving to preserve its “wonderful heritage,” she told Skilled Nursing News in an interview at the LeadingAge IL event.

“I wish I had a great answer for you right now,” Bentley said, explaining the “quandary” of preserving SNF access and pursuing mission while knowing that the demand for skilled nursing is shifting, and will be very different in 20 years.

The decision to close the Crown Point facility was driven in large part by the lack of staff in that area, but Lutheran Life has made a concerted effort to address workforce pressures that is starting to bear fruit.

Called Grace in Action, Lutheran Life’s workforce program launched in October 2022 and is based on techniques adapted from the hospitality industry and used by hotel chain Ritz-Carlton, a Marriott International (Nasdaq: MAR) subsidiary, for improving recruitment, onboarding and engagement of team members. Bentley told SNN that internal data from last month shows the organization’s retention rates during a 30-day period have improved.

Meanwhile, team member opinions and engagement levels, tracked using pulse surveys as well as the annual surveys, also show positive attitudes of workers employed by Lutheran Life, she said.

“And then there’s this magic that happens when people come to you and say we’ve heard about your culture, and we want to come and work here,” Bentley said.

In adapting the program based on the high-end hotel business, Bentley said her organization focused on making it purpose driven according to the mission of Lutheran Life.

“So we started with the basic principles of how do we recruit, how do we select? And then, how do we onboard?” she said. For that her organization turned the hotel chain’s idea “upside down.”

“So how we recruit individuals is focusing on our mission or culture. And then the first two days of orientation is just talking about Grace in Action, who we are, what’s our mission? Where are the expectations as a team member?” she said. “And we have what we call our 14 commitments; I have a value card that we all carry everyday with us as part of our uniform. And we teach on those commitments. And that really is centering how to fulfill the mission. Because we want people to be engaged.”

In 2014, Lutheran Life also launched its My Rehab program, which has enabled the organization to provide more specialty care to more acute SNF patients, which additionally helps the sustainability of that business line. And this reflects a broader evolution with the skilled nursing sector, with other providers taking similar steps to expand their clinical capabilities in the face of shifting referral patterns and reimbursement frameworks.

On the legal front

Even as initiatives for retaining staff are leading to improvements for some operators, the reality remains that the labor shortage isn’t going away as the possibility of a federal staffing mandate looms.

Jason Lundy, attorney with Ice Miller’s Health Care Group, identified staffing mandates on the state and federal level and other legal challenges facing the nursing home industry as he shared ideas on how to meet regulatory requirements.

Lundy said that the proposed mandate’s failure to address the differences between urban to rural to metropolitan areas is a flaw.

“A couple of big, big question marks and big fears are if there’s a national staffing mandate, how does a facility in Chicago or New York City or Austin, Texas, fulfill the staffing requirements at the same level as a facility in Danville, Illinois, or Topeka, Kansas, with entirely different workforces?” he asked. “There’s going to be a national standard for everybody. A lot of people are very worried.”

Other regulations Lundy discussed included the Centers for Medicare & Medicaid Services’ (CMS) scrutiny on use of psychotropic drugs, particularly those correlated with schizophrenia diagnoses. His advice to avoid litigation is to correct any misdiagnoses right now.

“As they’re rolling this out, they’re going to give providers a chance to kind of self audit and do a self assessment,” Lundy said. “And if you find that you’ve got residents with an incorrect schizophrenia diagnosis, make the clinical steps to get a correct diagnosis, rearrange medications and unwind that mistake before the enforcement gets put on.”