Three experts chimed in about what the future holds for skilled nursing, and while headwinds persist, they were all positive on the sector.
I have been remiss in not talking about the excellent webinar you may have missed (link here) on June 13 about investing in the skilled nursing market. While the panelists all agreed that the operating environment will continue to be challenged for a while, they were all positive on what the new PDPM reimbursement system will do for most providers, and the sector as a whole.
While there has been some compression in skilled nursing cap rates, the historical average of 12% to 13% seems to be one that will be around for a while, despite the 10-year Treasury dropping by 100 basis points since last year. There will be portfolio deals with cap rates below 10%, and there are always those picture-perfect, high-occupancy, and high-cash flowing stand-alone facilities that also can command sub-10% cap rates.
One interesting comment that came out of the webinar was that with PDPM the potential patient pool should expand, despite therapy usage declining. What this means is that SNFs should be able to take care of patients who in the past they were prohibited from caring for, as barriers are broken down and they are properly compensated for what they do. As I have said many times, skilled nursing is not going away, it is just going to evolve.
Here is what is happening in Washington State.
1. This State’s leadership declared their campaign to reduce the number of nursing home beds. They have accomplished this goal by underfunding Medicaid until 19 homes (roughly 1,000 beds) have closed because they are going bankrupt.
2. This State’s rigorous regulatory environment with Washington State surveyors writing three times the national average of actual harm citations and nearly double the number of citations in total.
3. Increasingly severe underfunding of Medicaid, Washington State having the 47th (forty seventh) highest disparity in the nation between Medicaid reimbursement and the real cost of care causing 19 nursing home to close in the last two years.
4. Some the highest mandated care giver to resident staffing ratios in the nation.
5. National changes in Medicare utilization in nursing homes where Medicare advantage plans will eventually replace Medicare A short term rehab plans increasingly reducing short term rehab revenue in the future.
1. The disparity between the average Medicaid reimbursement and our real cost of care is alarming significant. As of July 1, 2019 the Medicaid average daily rate is $216. Our real cost of care is right at $290/day. That is a disparity of $74/day. For 100 Medicaid residents that is a $3,000,0000 annual loss on the difference between the average daily Medicaid rate and the real cost of providing the care. Gratefully our rate is higher.
2. Medicaid makes up about 70% of our resident base.
3. Labor expense makes up about 70% of total revenue.
4. The $15/hr. minimum wage requirement and mandated paid sick leave laws recently enacted has driven up labor costs significantly. Since 2017, our Certified Nursing Assistant labor cost is up 30%. RN/LPN labor cost is up 10%. All other classifications up 4-6%.
5. WA Medicaid is paying nursing homes effective July 1, 2019 on costs based on 2016 data. 2016 was well before the cost of the $15/hr. minimum wage and mandated paid sick leave had an impact. This severely understated the labor cost in the Medicaid reimbursement.
6. Governor Inslee did not put enough Medicaid nursing home funding in the 2018 budget to cover the increased costs of labor. Majority in the House and Senate followed along with their budgets.
7. There is currently a $130,000,000 annual deficit in funding nursing home Medicaid. I understand that leadership at the Department of Health and Human Services is aware of this deficit and communicated the underfunding concern to the Governor and leadership in the House and Senate. So far, all three have declined requests to rebase costs annually or include an inflation factor in the Medicaid budget.
8. King County provides more funding per homeless person than WA pays to care for a Medicaid resident. King County provides around $100,000 per year to help the homeless. Medicaid pays about $75,000 a year to care for nursing home Medicaid resident.
9. Our neighbor to the west, Idaho pays $45/day more for their Medicaid residents. That would equate to $1,700,000 more Medicaid funding for per year if Josephine Caring Community had an Idaho address.
10. Our neighbor to the south, Oregon pays $123/day more for their Medicaid residents. That would equate to $4,500,000 more Medicaid funding per year if Josephine Caring Community had an Oregon address. You are not reading that incorrectly. Oregon would pay $4.5MM more per year to Josephine Caring Community if we were in Oregon.
11. This State’s leadership has a declared campaign to reduce the number of nursing home beds. The attitude from the leadership in the House, Senate and Governor is very poor towards nursing home operators, offering no help with Medicaid reimbursement. Have you noticed that Governor Inslee has nothing in his press releases about senior care? Representative Cody is the Chair of the House Health and Wellness committee and a member of the House Ways and Means committee. She is leading healthcare policy and funding here in Washington State. Representative Cody stated there are plenty of “other options” for nursing home residents on Medicaid such as Group Homes, Home Healthcare and Assisted Living. She stated in the last vote on a bill to add some funding to nursing home Medicaid that “there is no access to care problem”. Then in committee said nursing home operators are just “whining” about the reimbursement. The bill did not pass with the vote going straight down party lines. Democrats “against” and Republicans “for”. With the House, Senate and Governor all being controlled by the democratic party, there is little chance Medicaid funding will change. Robyn Dale, president of Washington Healthcare Association with myself and another person from the same demographic have testified in support of several increases in funding before the House Ways and Means committee. I heard the last time we testified one of the members of the committee said to another committee member something to the effect of “Great, three more white guys in ties”.
Terry, sounds like a real problem in Washington. These politicians just do not understand what raising the minimum wage can do, and then are unwilling to make changes in reimbursement so providers can pay the new rate, if they can even find the employees. This problem is not going away any time soon.