SNFs ‘Hanging by a Thread’ Find Single-Occupancy Room Initiatives Pushing Them to Brink 

The high renovation costs associated with adopting new rules for room occupancy limits are forcing some operators to close their doors, as was recently the case with Northeast Health Group in Massachusetts.

Many of these vulnerable facilities, built in the 1960s and 1970s and designed for three to four residents per room, are already in financial hot water and simply cannot afford the upgrades to house fewer than two residents per room.

The states and the Biden administration have been pushing for room occupancy limits, but this shift to rooms with single or double occupancy further exacerbates access issues for potential residents and their families, as referral bottlenecks between hospitals and SNFs are already happening as a result of the staffing crisis.

Matt Salmon, CEO of Massachusetts-based SALMON Health and Retirement, said dedensification initiatives unfairly burden older buildings. And, in some cases operators are faced with taking away public space and functional space to meet state occupancy requirements.

“[Facilities] didn’t lose the beds, but someone lost space, whether it was workspace or resident space, dining space, recreation space, private [resident sitting room] space,” said Salmon.

In other words, it’s not just a financial impact. There’s a change in how residents experience life in a nursing home with less public space, and how staff go about their job.

Wider implications abound. Federal officials have hinted at single-occupancy room initiatives as part of calls for reform last February. Still, there’s little detail on what an occupancy limitation mandate would look like on a national level.

Salmon believes that a push at the national level for single rooms will “100%” lead to more closures and access issues in the future.

What’s more, operators expect single room initiatives to clash with occupancy gains, according to a survey conducted by Skilled Nursing News in partnership with NetHealth. Respondents gave this challenge to shift to a single-room a score of 7 out 10, with 10 representing the most difficult challenge.

“You can’t do it with the inventory that we have today, under the current reimbursement. But that’s what everybody wants,” said Salmon.

Financial impact of single room initiatives

Besides the renovation costs, there is revenue lost from reduced beds at a facility, and the shift can be quite disruptive unless operators are creative in seeking revenue from rebalancing their mix of assets.

There’s really no way for operators to minimize the financial impact of making the move from semi-private to private rooms, according to Dana Wollschlager, partner at Plante Moran Living Forward, other than to what she calls “rightsizing.”

“This is really a math problem,” she said. “When you go from 96 beds down to 70 or 60 beds, you are losing a tremendous amount of revenue. You can adjust your staffing, but there’s still fixed overhead. You have to make up for that lost revenue in something that’s accretive to the organization.”

For organizations that operate buildings or campuses with multiple care levels, rightsizing involves figuring out the right ratios and having the right skilled mix to solve the math problem, Wollschlager tells her SNF clients. Operators need to spread their fixed costs and overhead across assets that are balanced for returns on investment.

In the case of one of Plante Moran’s clients, this meant more independent living and assisted living beds and fewer skilled nursing beds. For every skilled nursing bed lost, the client would need to add at least eight senior housing units, which includes independent living, assisted living and memory care, the consulting firm estimated.

“I think that this is going to continue to increase,” Wollschlager said of the replacement beds. “People need to focus on how to drive creative revenue to offset the loss of downsizing their skilled nursing. And that’s expensive … you’re going to end up having to build or reposition.”

About 46,140 SNF beds have been lost since 2008, according to NIC MAP Vision data presented by Plante Moran during a LeadingAge Illinois conference this month.

SNF operators that do not have campuses with multiple levels of care are under pressure to be to be “very, very disciplined,” said Wollschlager. That means adjusting staffing based on census and looking at their PPD along with seeking out new revenue options to offset expenses.

Moreover, it would benefit operators to conduct a market study to figure out what other options are available to backfill revenue and better understand how overcrowded the market might be with a particular service.

State-specific occupancy initiative fallout

SALMON made the decision to sell one of its nursing homes after learning the organization would lose about 10 beds to de-densification efforts in Massachusetts. The team felt they couldn’t operate at the level needed with that loss, Salmon said.

The operator currently manages eight locations across the state, including skilled nursing services along with independent living and assisted living. SALMON also operates home health and hospice ancillaries.

The Massachusetts Department of Health in April 2021 announced SNFs in the state would not be able to have more than two residents per room – one operator, Northeast Health Group Inc., said last month it would need to shutter four facilities this summer as a result of the mandate.

“It’s a matter of keeping the business viable or not. When you’re hanging on by a thread, any little thing adds more pressure to you financially, just pushes you closer and closer to the edge,” said Salmon. “I think there are a lot of nursing homes in Massachusetts that are there.”

Still, Massachusette’s room initiatives haven’t had a large impact yet on at least the nonprofit operators of nursing homes in the state.

LeadingAge Massachusetts President Elissa Sherman said in an email that the state’s room initiatives have not affected many of her members, all of which are nonprofit aging services providers.

This could come down to these members simply having newer inventory, Salmon said. It could also be that these nonprofit operators pay less in property taxes compared to private businesses, or the operator has an endowment that allows them to operate at a loss.

“Their economics aren’t exactly the same as a for-profit provider,” he said.

For nonprofit Georgia operator A.G Rhodes, the shift from semi-private to private rooms for one of its facilities came with a $37.5 million price tag, according to an article published by AARP. Community support was vital. The project also qualified for a $6.5 million federal tax credit for being in a low-income community.

About $7.5 million in donations and a $24 million loan covered the rest, but it was hard to secure, A.G. Rhodes CEO Deke Cateau told AARP.

In Massachusetts, the state did offer reimbursement rate add-ons and bed buybacks as operators lost beds, but it wasn’t significant enough to offset financial losses.

All in all, the state has seen 25 SNFs close since the beginning of the pandemic, according to the Massachusetts Senior Care Association.

And that’s because Massachusetts has a large inventory of older assets, Salmon said. The SALMON team was fortunate enough in being able to sell its oldest asset. Of its existing properties, only one has a four-bedroom unit.

The state has historically been one of the worst-funded states in the nation when it comes to the gap between the cost of providing care and what Medicaid reimburses, Salmon said.

“Any time you have a situation that hinders your ability to generate revenue, it’s going to make that situation worse, right? In Massachusetts, we’ve been saying for a long time that we’re on the brink of having a major disaster … closures and lack of access,” said Salmon. “There are a bunch of factors that contribute to that.”

There is a link between closures and de-densification initiatives, he said – it’s a “significant contributor” among a list of other factors, including staffing shortages and inflationary pressures.

“Is that bed de-densification the cause? No, but I think in a lot of instances it’s the straw that breaks the camel’s back,” said Salmon.

Another SALMON property, owned in partnership with Welltower (NYSE: WELL), is a prime example. The property struggled to make money in the decade it was owned by SALMON, and de-densification made matters worse, he said.

“It’s just not worth trying to push the rock up the hill, when you’re never going to get to the summit,” said Salmon.

Private room challenges currently secondary to staffing shortage

Associations including LeadingAge and the American Health Care Association/National Center for Assisted Living (AHCA/NCAL) aren’t yet seeing a link between closures and single room initiatives on a national scale. Any predominant links to closures are due to staffing shortages and underfunding, advocates said.

Even so, the association-led Care for Our Seniors Act calls for a study to determine potential conversion costs linked to an eventual push toward single rooms across the country.

LeadingAge officials in an email to Skilled Nursing News said they can see limiting room occupancy having an impact on access to care, mostly due to the situation unfolding in Massachusetts, but say the initiative needs to be fully explored through data.

“The reason we’re suggesting a study is because there needs to be a careful evaluation of the scope of the issue,” AHCA/NCAL said in a statement. “The study should then offer recommendations on how to fund this transformation. Nursing homes already operate on shoestring budgets and do not always have the resources to modernize their infrastructure.”

Meanwhile advocates in other states with more rural populations believe the closures are linked to the labor shortage.

“While facilities have to reduce the number of beds that can be occupied, the primary reason is the labor shortage,” said Rick Abrams, CEO of the Wisconsin Health Care Association. “A facility must not occupy a bed if they don’t feel confident they can care for that resident.”

Abrams doesn’t believe the transition from multiple beds to single-bedded rooms is going to cause access difficulties – if a provider can financially do this, he said, it’s going to move ahead with renovations to create a better quality of life for residents.

Wisconsin uses Medicaid methodology to incentivize operators to offer more private rooms – the state doesn’t charge the Medicaid recipient the difference.

And as for Salmon, what’s happening in Massachusetts now is a culmination of what operators have been talking about for years, a reflection of faltering quality and instability of services due to lack of proper reimbursement.

While operators in the state enjoyed a nice bump in Medicaid rates at $165 million tied to performance standards, it wasn’t enough to stabilize the industry. SNFs in the state needed north of $300 million, Salmon said.

“All of this is coming to a head at once, because of multiple factors driving these nursing homes under,” said Salmon.