PDPM Pushes Up Skilled Nursing Values in 2019

Skilled nursing values rebounded in 2019 to a near-record high of $93,000 per bed. That is still shy of the highest average value ever recorded ($99,200 per bed in 2016), when a number of high-quality, high-Medicare/private pay census transitional care facilities sold. But it was still a very strong year. Most in the industry never fathomed that average would ever approach $100,000 per bed, but it is true that excluding certain high-barrier-to-entry markets, traditional long-term care facilities with majority-Medicaid censuses should never really reach that value.

The 2019 average was 20% higher than the $77,500 per bed average in 2018, likely driven by a lot of optimism surrounding the implementation of the “revenue-neutral” Patient-Driven Payment Model (PDPM). Investors scaled up their portfolios to take advantage of what they saw as significant increased revenues for higher acuity, more medically complex Medicare patients. And there were more sales of those facilities in 2019, compared with 2018. With the preliminary results of PDPM already in, it looks like a lot of their bets have paid off. But CMS has the final word, so watch out for a possible rate revision in 2021.

Conversely, there were still many sales of struggling skilled nursing facilities. If labor scarcity and costs have affected seniors housing operations, they would theoretically affect the more operations-intensive skilled nursing facilities, whose employees also usually require more education and certification. Census woes and falling lengths of stay also affected the industry, especially those older facilities that have less clout among payors, relatively fixed or falling revenues from Medicaid, and higher capex requirements.

As the reimbursement and regulation environment gets more complicated, smaller owner/operators and mom-and-pops have been more prone to exit the industry altogether. Simply put, it is a seller’s market for the higher-end transitional care facilities and a buyer’s market for the traditional skilled nursing facilities. The bifurcation between the two markets grew even wider in 2019.

There are a lot of statistics that further explain this spike in SNF prices, such as cap rates, operating margins and stabilized/non-stabilized facility values, which you can see in the 25th Edition of The Senior Care Acquisition Report, to be published later this month. But if you can’t wait, we’ll also be covering the skilled nursing and seniors housing market in more depth on our webinar, “Senior Care M&A Results: The Data Behind the Deals,” this Thursday, February 13th at 1PM ET.

 

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