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Skilled Nursing Market Outlook: A Mixed Bag

As we look to the beginning of the second quarter of 2017, the skilled nursing facility (SNF) market outlook presents both reasons for concern and reasons for optimism. In some respects, the situation is precarious, as supply concerns, operating challenges and reimbursement uncertainty all loom large. On the other hand, there are signs of hopefulness, as evidenced by the forward-thinking providers that are investing in ancillary services, intensifying their focus on quality care and harnessing the power of data and technology.

Forecasting an Active 2017

According to Lancaster Pollard’s third annual Seniors Housing and Care Survey, which polled approximately 250 leaders at seniors housing and care facilities across the U.S., respondents predict that the skilled nursing sector will experience the least amount of growth in 2017 when compared to the other elements of the continuum of care. Only 11% of respondents selected skilled nursing as the element they predict will experience the most growth, with affordable seniors housing being the most selected at 62%.

Out of the approximately 250 respondents, 58% indicated they own, develop or manage skilled nursing facilities. When examining the results for that 58%, the survey found that nearly half of the skilled nursing respondents indicated they are extremely likely to pursue a renovation project in 2017. Further, when the answers “extremely likely” and “somewhat likely” are combined, a total of 72% of skilled nursing respondents expect to pursue a renovation project in the coming 12 months.

Figure 1: Likelihood of Pursuing a Renovation Project in 2017

 

Similarly, a total of 74% of respondents indicated they are either extremely or somewhat likely to pursue a construction project in 2017.

Figure 2: Likelihood of Pursuing a Construction Project in 2017

 

These findings suggest that although the overall responses predict that skilled nursing would experience less growth than the other elements of the continuum of care, when examining just the skilled nursing responses, an active year is in the forecast.

The fact that a majority of the skilled nursing respondents plan to be active in renovating and constructing facilities makes sense when looking at the average price per bed over the past few years. As reported in the February edition of The SeniorCare Investor, the average price per bed has increased five years in a row, with consecutive record prices in the past four years. In 2016, there were 28 separate sales priced over $100,000 per bed, a new record number of facilities above that price threshold. Further, the median price in 2016 was $96,700 per bed, also a new record, and far surpassing the previous record of $69,300 per bed in 2013. Clearly, the fundamentals of the SNF market remain strong.1

Challenges Ahead

Despite the positive aspects of the SNF market forecast, challenges remain. As recently reported by the NIC in its Skilled Nursing Data Report, occupancy declined to 81.8% in the fourth quarter of 2016, a new record low in the five-year data series. Further, the report finds that the skilled mix (total number of Medicare and managed Medicare/other divided by total number of actual patient days) fell to 24.3% in the fourth quarter of 2016, a drop of 77 basis points year-over-year. In addition, the Medicaid patient day mix increased year-over-year from 64.9% to 66.2%. With the skilled mix declining and the Medicaid mix increasing, SNF operators are likely trading higher revenue Medicare and Managed Care residents in favor of more lower-revenue Medicaid residents. Add in reimbursement uncertainty as the health care reform debate rages on, and the terrain gets even more challenging.

Another SNF market trend that portends a challenging outlook is the recent drop in average revenue per patient day. As seen in Figure 3, the skilled nursing facility average revenue per patient day (left) dropped from $259 in early 2015 to $244 in late 2016. Further, the year-over-year growth (right) reached -2.0% in 2016, depicting a changing, somewhat troubling outlook.

Figure 3: SNF Average Revenue per Patient Day/YOY Growth

 

Providing Reasons for Optimism

When searching for reasons to be hopeful about the future of the skilled nursing industry, one need look no further than the forward-thinking providers and the good work they are doing. For example, Avamere Health Services, LLC, an Oregon-based company dedicated to the health and well-being of seniors, recently partnered with IBM on an innovative project. The six-month research study aims to utilize the IBM cognitive computing model to give Avamere insights into the physical and environmental conditions at its facilities.

“We’ve been preparing for the future by investing in our physical plant but also by investing in data,” said John Morgan, chief executive officer of the Avamere Family of Companies. “The research agreement with IBM is an example of this and is an effort to harness data to be more proactive and potentially intervene and resolve issues before they get worse.”

The project aims to monitor activity, such as movement and gait analysis, as well as daily activities, such as personal hygiene and sleeping patterns. That data can then be used to help patients and improve their lives before any problems get worse. 

Data is not the only tool providers are turning to as the market evolves. The skilled nursing industry is increasingly investing in a variety of ancillary services such as home health care, rehabilitation and hospice care. To remain competitive, providers are finding investing in ancillary services is a must, despite the ever-present pressure to cut costs.

“We definitely haven’t dropped any ancillary services, in fact, we’ve expanded them significantly,” said Morgan. “We’ve invested heavily in home health, hospice and rehab, and just recently we added a nurse practitioner group. All these services are meant to augment our clinical work and enhance care coordination. We’re always looking for ways to revamp our care management and increase efficiencies, often by adding and expanding ancillary services in an effort to be as adjunctive as possible.”

Investing in data and ancillary services are both attempts to provide high quality care in a more efficient manner, with “efficient” being the key word.

“It’s all about efficiency and using data to become more efficient in care management,” Morgan said. “The acuity level of patients today is higher than it was in the past, and post-acute providers need to respond by dealing with that proactively by investing in ancillary services, IT, and staffing, as well as the physical plant.”

Investing in such things as data and ancillary services can help mitigate some of the negative effects caused by the changes the industry is going through, such as reimbursement uncertainty and the narrowing of post-acute provider networks.

“The major change has been that the acute care hospitals and providers are narrowing the network of post-acute providers they are working with, as opposed to 20 SNFs, it’s now only a handful,” noted Morgan.

“The fact is hospitals and health systems want to see that number reduced so they can focus on the highest level of care they can. We’ve been doing that for several years and that has really given us a leg up as these changes unfold,” Morgan added.

The skilled nursing industry is changing, that much is clear. However, the bedrock remains the same—providing the highest quality of care possible.

As Michael Miller, chief financial officer at EmpRes Healthcare Group, believes—if you prioritize providing the best care possible for each person, good things will happen. “At EmpRes, we continue to focus on the fundamentals of providing the highest quality of care as needed by each individual in our care centers,” he said. “Focusing on this each and every day is the foundation for continued long-term success through all the changes in the industry.”

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1.  The SeniorCare Investor, Levin Associates, February 2017.

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