When the average price per bed for skilled nursing facilities drops, the consistency in that drop is unparalleled.
Here is something to ponder. We know that after a nice five-year run-up, the average price paid per bed in the skilled nursing market dropped by 18% last year, according to our new statistics.
That was obviously a significant plunge, especially since the average had doubled in the previous five years. So, I decided to go back and see what happened in other years since 2000 when there was a drop.
It turns out there were four years when there was a price drop of any significance. These included 2003, 2008, 2011 and 2017. What is weird is that the decline in each of those four years was 18%. Each time. What I can’t figure out is whether that is pure coincidence, or if there is some reason for that same drop, every time over a nearly 20-year period.
On the flip side, the recovery the year following each of these price drops ranged from a 41% increase in the average price per bed, to an 18% increase. No kidding. Hmmm.
I can shed some light on this Steve. In 2008, we all know what happened to the economy. Nursing home bed prices dropped just like private home values and the the stock market. In 2011 the economy picked up so you would think the value of a nursing home bed would pick up as well and it did not. Nursing homes are largely funded by state and federal funds. Funding levels for nursing homes lag up to two years as budgets at the state and federal level are set for up to two years before disbursement. In 2011 nursing homes lost profitability because the cost of RN, LPN and NAC wages increased significantly, as well as other costs. (i know I am paying 20-35% more now than i did in 2011. I love a good recession to get labor costs in line). And the reimbursement budgets set at the state and federal level did not keep up with huge increases in labor and other costs in the rebounding market. So investors moved out of nursing homes and in to other markets like tech etc…. Now in 2017 the negative effects of the Obama administration Requirements of Participation began to kick in. The ROP requires huge costs of compliance coupled with significant increase in fines and penalties. This coupled with decreases in revenue-per-McrA-admission under “demonstration projects” ($630/day for 30 days vs. $630/day for 14 days per admit) and increase in HMO($440/day for 14 days per admit) admits has decreased profitability significantly for nursing homes. In Washington state the number of IJ citations written has risen 500% between 2014 and 2017. Many IJ citations come with a “stop placement” which prevents nursing homes from admitting the most profitable patients, short term rehab. Cost of a “stop placement” is between $250,000 and $1MM, depending on volume of short term rehab the facility was doing prior to the IJ citation. And WA state is writing IJ citations when there was no harm and no likelyhood of harm. They are writing IJ citations for the “potential” for harm, against federal guidelines but the feds remain silent on the issue.
And more and more patients go directly home with home health instead of stopping at a skilled nursing center for short term rehab. Nursing home bed prices will not rebound in 2018 as the full effect of ROP and lower reimbursement will be felt in skilled nursing facilities.
I am the CEO of a non profit 160 bed nursing home with a rehab census of the mid 20’s and 57 assisted living apartments with 250 children in childcare and early learning. We are planning to reduce our skilled nursing beds be 20% per year for the next 3 years. Then build independent living apartments and a larger ALF. There is no longer a profit margin for us in skilled nursing.
Terry, all great points, and yes, the SNF sector is under pressure from all corners. Average prices may not rebound, but the private SNF operators I have known are uncanny in their ability to deal with change and problems. I hope they do this time around.