Skilled Nursing Keeps Feeling the Squeeze on Payment Rates

As investors have continued to debate the risks associated with skilled nursing operations, the latest quarterly data paints a mixed picture. Occupancy increased through the first two months of 2016, but the impact of tightening managed care rates continued to be felt by providers.

Occupancy reached 83.4% as of the end of March, having risen in January and February before leveling off, according to data released Tuesday by the National Investment Center for Seniors Housing & Care (NIC). That’s an increase from 82.8% occupancy as of December 2015.

“This report shows an increase in occupancy from the December 2015 low, which could be attributed to an increase in volume due to the flu season and other factors attributable to occupancy in the winter months, such as an increase in slips and falls and elective surgeries,” said NIC Senior Principal Bill Kauffman, in a prepared statement. “We will have to see how the next quarter plays out as occupancy seems to have leveled off in March 2016,” said Bill Kauffman, senior principal at NIC, in a prepared statement.

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Overall, occupancy is down 108 basis points from October 2011, pointing to ongoing length-of-stay (LOS) challenges for skilled nursing providers.

However, this LOS metric may be one that is too frequently misunderstood by investors and others, several CEOs recently emphasized on quarterly earnings calls. Even though LOS has gone down, that does not necessarily mean profits have taken a hit; rather, it may reflect the increasing prevalence of short-stay rehabilitation patients in these settings, which actually contribute positively to the bottom-line due to the higher Medicare reimbursements associated with these services versus traditional, Medicaid-reimbursed long-term care.

Yet, the picture is not entirely stable in terms of Medicare reimbursements coming into these settings. Medicare Advantage and similar managed Medicare payers have significantly grown their market share in recent years, and their rates decreased 1.2% quarter-over-quarter and 5.6% year-over-year, according to the NIC data.

The tighter managed care rates, coupled with pressure from these payers for providers to keep length-of-stay short for rehab patients, are among the headwinds that some pointed to as publicly traded skilled nursing companies have seen their share prices fall this year. But some leaders in the industry challenge this notion, as well, pointing to some evidence that Medicare Advantage is likely to grow much more slowly in the coming years than it has in the recent past.

Flat quarterly Medicaid rates and an increase in skilled mix and quality mix were among the other notable NIC findings.

Source: 1Q2016 NIC Skilled Nursing Data Report
Source: 1Q2016 NIC Skilled Nursing Data Report

NIC first released quarterly data specifically focused on the skilled nursing sector in early March, citing the need for more definitive information for investors. While investors have been interested in the skilled nursing opportunity, a lack of timely data has exacerbated their doubts and fears about risks associated with these operations, NIC leaders said at the time. These quarterly reports—similar to those that the organization releases for other sectors of senior housing and care—are meant to shed more light on the industry, which has seen some turbulence in recent months.

For instance, real estate investment trust HCP (NYSE: HCP) recently spun off its troubled skilled nursing assets into a separate REIT, and its peer Welltower is feeling some overhang from the struggling performance of its skilled nursing tenant Genesis HealthCare (NYSE: GEN). However, Welltower CEO Thomas DeRosa has spoken emphatically about investors misunderstanding skilled nursing, and other REITs such as National Health Investors (NYSE: NHI) say they are actively on the hunt for skilled nursing acquisitions.

Written by Tim Mullaney

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