Jefferies: Doc Fix Delay a Godsend for Healthcare REITs, SNFs

The so-called “doc fix” bill passed by Congress on Monday represents a “win” for healthcare providers with meaningful exposure to medicare, especially real estate investment trusts (REITs) and skilled nursing facilities (SNFs), suggests a recent Jefferies LLC report.

The “doc fix” is a temporary solution to curb Medicare spending on physician services under the Sustainable Growth Rate method employed by the Centers for Medicare & Medicaid Services. 

Monday’s passing of the bill averts the 24% reduction in physician Medicare reimbursement that would have occurred on March 31, delaying the cuts for one more year. 


Of note is the fact that Medicare reimbursement rates are not being reduced for other healthcare service providers to pay for this bill, Jefferies analysts write in their report. Rather, Congress is proposing to fund this bill by raising sequestration cuts to a 4% rate in the first half of 2024.

For hospital operators, SNFs and Healthcare REITs, Jefferies says the doc fix bill is a “positive,” as it should give investors more confidence in the near-term earnings of these facilities that will not be impacted by a major reimbursement cut.

“Healthcare REITs with meaningful exposure to hospitals and SNF tenants stand to benefit the most in the form of less risk to tenant rent coverage ratios,” write Omotayo Okusanya and David Shamis of Jefferies. “That said, this Doc Fix bill only delays the issue of coming up with a permanent fix by a year.”


For SNF providers, Congress is proposing the implementation of a value based purchasing program starting in fiscal year 2019 that will pay providers an incentive fee based on certain performance standards geared towards measuring quality of care.

The program comes at a cost when looking at the bigger picture, Jefferies notes, as it will be paid for by a 2% reduction in SNF reimbursement rates starting in FY 2019.

Additionally, the program will only pay out 50% to 70% of this reimbursement cut, “effectively leading to a slight cut for overall SNF reimbursement.”

Taking into account all of these cuts imposed on the SNF industry under the program, Jefferies notes that SNFs with poor performance track records face “bigger cuts” as they fail to obtain the incentive payments for quality care.

Written by Jason Oliva

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