Life plan communities (LPC) are seeing significant credit risk linked to skilled nursing facility components.
And some of this risk is heightened by labor issues at SNFs.
That’s according to data published by Fitch Ratings in its latest Labor Dashboard for the sector, which found persistently high wage inflation among SNF workers – wages remain well above historical averages after peaking in early 2022.
Average hourly earnings growth this year through April for LPC workers was 5.7%, compared to 4.6% in SNFs. Earnings growth nearly doubled for just four months of 2023, when compared to a nine year time span from 2010 to 2019.
Assisted living wage growth, on the other hand, has decelerated to be more in line with the average growth between 2010 and 2019.
The news comes after LPCs – nearly half – announced plans to downsize their SNF component in a survey report conducted by CliftonLarsonAllen (CLA) and published in January of last year. LPCs, also known as continuing care retirement communities (CCRCs), said at the time that they would offer skilled nursing services within independent living units.
Richard Park, director at Fitch Ratings, said LPCs have adopted high fee increases to help alleviate wage pressures, but such supplements to maintain profit margins aren’t sustainable long term.
“LPCs and communities with a significant SNF component will have to execute on productivity enhancements, cost savings and manage skilled nursing admissions to successfully operate through the current reality of tight staffing conditions and higher unit labor costs,” he added.
A staffing shortage in the SNF industry is improving, according to the Fitch report, but is still a major challenge with 16% of nursing homes reporting a shortage of nurses and aides.
“The tight labor market continues to be in favor of workers in search of higher wages and better work environments,” said Park.
Meanwhile, health care and social assistance sector unemployment rates remain low at 2.4% as of May 2023, according to the Fitch report. Job opening rates are high, even as LPC and SNF payrolls remain 9% to 12% below pre-pandemic levels.
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