Leading up to the onset of the COVID-19 pandemic, skilled nursing facilities were going through their own challenges of falling census and shortening lengths of stay, low Medicaid reimbursement, aging physical plants, a labor squeeze and the possibility of a CMS correction after the implementation of PDPM. What some wouldn’t give to go back to those kinds of problems. However, values were near an all-time high, averaging $93,000 per bed in 2019 according to the 25th Edition of The Senior Care Acquisition Report, and falling slightly to an average of $92,800 per unit in the four quarters ended March 2020.
That high average was the result of investors acquiring facilities with higher-acuity and more medically complex patients, as well as high Medicare censuses, and paying up for them in order to capitalize on PDPM. Caring for these frailer residents that have a number of comorbidities was finally being recognized by CMS, and SNFs were getting compensated for it. Now, those residents are at the highest risk of being hospitalized and dying from the coronavirus. There are many facilities that have managed to keep the virus outside their walls (presumably), but there are far too many where COVID-19 has ravaged the patient populations there, including, we imagine, at a number of those facilities that stood to benefit the most from the PDPM change. However, someone has to care for these patients, and the media certainly won’t shed light on that fact, or the good work that SNFs and their staff do every day.
Cap rates for skilled nursing facilities also remained consistent leading up to the crisis, dropping 10 basis points from the 2019 average to 12.1% in the four quarters ended March 2020. SNF cap rates have been remarkably stable for many years, but with all the risks developing from COVID-19, along with the existing physical plant, labor (no, thousands of the newly unemployed won’t go rushing into the SNF industry, not to mention the need for qualified staff) and reimbursement issues, cap rates start to rise for the first time in years. We will be examining the skilling nursing market a lot more closely in the May issue of The SeniorCare Investor, so stay tuned and let us know your thoughts too.
