It’s becoming harder than ever to operate standalone skilled nursing facilities amid inadequate government funding, and innovative business models that deal with challenges, especially those related to staffing, have and will be borne from necessity.
“Innovative models are going to present themselves in some way to stop this train,” said Dan Hermann, president and CEO of Ziegler, a specialized investment bank. “The dual eligible folks are going to break the back of all the states, so this train is coming, but it’s going to happen organically.”
His biggest advice to nonprofits: don’t wait too long to explore alternatives or buyer options.
Short of this, he and other experts foresee more closures and pared-down SNF operations with the more vulnerable nonprofit nursing homes leaning towards a model that favors a continuum of care, with nursing on campus.
The reimbursement rates place an extra burden on staffing at nursing homes, these experts note, exacerbating leadership fatigue, turnover, and lender pressure. And the continuing care retirement communities (CCRCs) model alleviates some of these pressures.
While the ability to attract and retain talent has improved in the last six to nine months for SNFs, the complexity of skilled nursing, the financial pressure as well as poor reimbursement in a number of states, has forced the hand of many nonprofits to seek affiliation or potentially close, said Hermann.
In terms of payer mix, some operators may try to add more private pay to make up for sub-par government reimbursement.
“The reimbursement pressure is just flat out profound and I don’t see it changing,” Hermann said. Freestanding, for-profit nursing homes are often 70% or more Medicaid, he said, calling them “de facto long-term care insurance.”
Meanwhile, assisted living and memory care are largely private pay, and this would be one way to take pressure off the costly nursing home model, said Hermann. As an aside, he noted that Medicaid supported assisted living is being tested in states like Illinois.
Hermann spoke at a webinar on Thursday, hosted by the Green House Project, along with Mimi Rossi, senior vice president and head of senior living research for Ziegler, and Matt Trimble, president and CEO of St. Elizabeth Community in Rhode Island.
Significant decade ahead
The skilled nursing space will need all the innovation it can muster to survive the current challenges because demographics show a significant decade ahead for the sector, Rossi said. Specifically, between 2023 and 2033, there will be an increase in individuals aged 75 and older by 11.7 million, with the youngest baby boomers turning 75 by 2039, according to Ziegler data.
And many of them are aging alone, increasing the need for SNFs and other long-term care services for older adults. A recent survey of 7,300 baby boomers found that 22% have no children, and 37% have no grandchildren, with middle- and high-income boomers less likely to live with or near their children. Moreover, roughly 35% of American divorcees in 2021 were aged 55 or older, Rossi added, more than twice the rate of other age groups.
On top of that, this demographic has a greater number of chronic health conditions than previous generations – 48 states are projected to have double-digit percentage increases in the number of those age 65 or older with Alzheimer’s disease or dementia between 2020 and 2025, she said.
“What we know about this population is that they are likely to age alone. So we call them the solo agers … there’s not a lot of family around to be able to help out and provide care,” said Rossi. “Needless to say, there will be a need and demand for care and goods and services related to this population.”
Right now, older Americans are bringing in private nursing home care into their independent living or assisted living unit for as long as they can before going into a nursing home.
Innovation amid growth challenges
Innovative models, of course, apply to the workforce as well, panelists said. Operators are making progress in this area, with a little less than half of long-term care operators reporting that their staffing agency use was less compared to a year ago, according to a June 2023 Ziegler CFO Hotline survey.
There are still significant wage increases to support retention, but the rate of increases is slowing, Rossi said. Wages are pressuring profit margins, and the rate of wage increases are stabilizing, but not decreasing.
“What this means is that staffing challenges, and the reality of the workforce now is impacting conversations related to growth, and how we’re going to provide goods and services later, again, over the next 10 years,” she said.
About 7,200 skilled nursing units closed between 2017 and 2022, Rossi said, and the number of nursing homes now sits at 14,933, with 11,000 being for-profit facilities, 900 being government-run properties and about 3,000 being nonprofit.
Over 20 years ago, there were about 16,000 nursing homes, Hermann said. Nearly 600 nursing homes have closed during the pandemic, while 48% of nonprofit facilities downsized or are in the process of downsizing their nursing footprint.
“Occupancy is continuing to rise, but the denominator has shrunk,” said Rossi. “We’ve had a lot of closures during the pandemic. Those are related to organizations that were heavy nursing and challenging payer mix.”
Meanwhile, Rossi sees a lot of growth in the for-profit space.
Exploring alternatives
An example of a nonprofit SNF provider making amends now to factor in the possibility of transitioning to a new long-term care model in the future is St. Elizabeth Community.
The provider eventually made the hard decision to sell one of its skilled nursing facilities, St. Elizabeth Manor, to a for-profit operator in April 2021 as a way to have capital ready to springboard into some other strategic initiatives, said Trimble. Covid and workforce issues put a halt to launching any sort of initiatives as of yet.
The property was made up of 70% Medicaid, and the gap between cost of care and reimbursement was exceeding $100 a day, said Trimble.
He wasn’t surprised to hear that staffing levels reduced significantly when the building was sold to a for-profit company. It’s impossible, he said, to maintain certain staffing levels when more than half of residents are on Medicaid and the gap in cost of care is that significant.
“We were drawing on our endowment to support both skilled nursing facilities at a rate that was not sustainable,” he said.
The nonprofit had already built four 12-bed Green House homes prior to the sale, adding 48 beds to the remaining nursing home.
The team has made a conscious effort to shift its payer mix to include more private pay in its Green House homes to half private and half Medicaid, a more sustainable mix than the typical nursing home breakdown of Medicare and Medicaid. Today, that mix is 58% private pay and 42% Medicaid.
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