Relief funds from the CARES Act stimulus package helped many health care operators, including senior living providers, ward off the threat of distress and bankruptcy in the second quarter of 2020.
That occurred against a backdrop of rising levels of financial distress within the health care sector as a whole, according to a new report from Chicago-based law firm Polsinelli. But concerns linger over whether relief will continue in future packages, and whether senior living will have access to those funds.
The Polsinelli report revealed that the Chapter 11 Distress Research Index was 68.50 for the second quarter of 2020 — an increase of 14 points sequentially, and 17 points from the previous year. The Q2 2020 Real Estate Research Distress Index was 32.50, a one-point decline sequentially but a six-point increase, year over year.
The Health Care Services Distress Research Index was 510.00 for quarter — a 276-point jump over the first quarter of 2020 and an 85-point increase compared to Q2 2019.
Typically, senior care and skilled nursing facilities account for 50% of the bankruptcy filings in the health care space, and hospitals account for another 20%, Polsinelli Shareholder Jeremy Johnson said. In the second quarter, however, there were not a significant number of bankruptcy filings among senior living or nursing home operators. Instead, filings were paced by major hospital and health care providers whose facilities were affected by coronavirus-related restrictions such as holds on elective surgeries. Many of these operators were already under significant financial pressure before the pandemic’s disruption.
“There weren’t a lot of [senior living] bankruptcy filings the past three months,” Johnson said.
But that could change.
Signs of distress are already emerging in senior living, notably among single site providers that were struggling pre-coronavirus, and saw financial metrics tank as a result of higher expenses stemming from safety equipment and labor costs.
As the outbreak persists across the country, larger operators nursing gossamer-thin margins may also be at risk. In May, Moody’s warned that senior living companies are facing bond defaults, with some of them describing how Covid-19 has worsened already-precarious financial positions.
Last week, a survey released by the National Center for Assisted Living (NCAL) revealed that 26% of assisted living provider respondents can sustain operations only for another six months under current conditions. While some senior living providers have been able to tap into the Payroll Protection Program (PPP) and other sources of government financial support, they have largely been bypassed while sectors like hospitals and skilled nursing have received allocations from relief funds.
Some promising news arrived last week, when the American Seniors Housing Association (ASHA) announced that the next coronavirus relief bill will include financial support for private-pay assisted living providers.
The Department of Health and Human Services (HHS) informed ASHA that providers will receive 2% of 2019 gross revenue, the benchmark that HHS has used to distribute funds to other types of health care organizations. Additionally, funds above that 2% benchmark will be announced at a later date.
Without relief, the pace of distress will accelerate. Providers that received advance Medicare payments now have to reimburse those allocations, putting further stress on margins and operations.
“The bills are coming due,” Johnson said.