Skilled Nursing Woes, Disruption Create Senior Living Opportunities

The federal government is temporarily increasing Medicaid funding by 10 percentage points, and states could use some of these dollars to support nursing facility conversions to assisted living.

That’s according to a May 13 letter from the Centers for Medicare & Medicaid Services (CMS). The letter included a list of acceptable uses for the increased funding under the American Resue Plan, which is meant to boost home- and community-based services (HCBS).

Whether states will allocate any of this money for assisted living conversions is an open question, but the federal government is clearly pushing to remake the senior housing and care system to de-emphasize nursing homes. And this is only one of several disruptions facing the skilled nursing sector.


In fact, skilled nursing may be in the early stages of a profound reinvention, which could open up opportunities for private-pay senior living providers to serve the middle market and expand their role in population health efforts.

Middle-market, diversification opportunities

Skilled nursing facilities were hit particularly hard by Covid-19, with occupancy in the sector hitting a low of 70.7% in January 2021. That’s compared with average Q1 2021 occupancy of 78.8% in senior housing, according to NIC MAP Vision data.


And the low census is only one major challenge confronting SNFs, which include:

  • Looming Medicare cuts as CMS moves to adjust the patient-driven payment model (PDPM)
  • Labor-related pressures, with work stoppages possible in some states over wage issues
  • Federal Covid-19 relief is drying up, and lenders and landlords will also start expecting deferred payments

All this means that opportunities will emerge to acquire SNFs, Laca Wong-Hammond, managing director and head of M&A at the senior housing finance firm Lument, recently told Skilled Nursing News.

It’s true that the nursing homes up for sale might not be stellar product, but older buildings could appeal to certain senior living investors and operators as targets for conversion, particularly for product to meet the growing middle-market demand.

Such a strategy could be even more attractive if states make Medicaid funding available to help subsidize these projects. However, for this opportunity to materialize, providers and other industry advocates need to be speaking up now about the role of assisted living communities as an HCBS setting, to garner a share of the growing pot of money.

Just this week, the American Seniors Housing Association (ASHA) sent a letter to Congressional leaders, in part pressing for assisted living to be included in the 10-point Medicaid increase.

Out of 1.4 million older adults dually eligible for Medicare and Medicaid, 10% reside in assisted living communities, and hundreds of thousands of people are on waiting lists, the letter pointed out.

But, there is significant variation in Medicaid eligibility and reimbursement for assisted living from state to state, despite the fact that the annual cost of assisted living is about half that of nursing homes.

“The consequence of this variation can be unmet need in traditional private housing or unnecessary institutionalization in a skilled nursing facility when an individual could otherwise be served in the community,” the ASHA letter states.

Another complication is that certain states rely heavily on managed care organizations (MCOs) to administer Medicaid benefits. Some MCOs have been cutting assisted living Medicaid rates, perhaps not appreciating how high-quality AL care can prevent higher-cost nursing care in other settings.

“They have been a little slow to leverage assisted living as an alternative,” ATI Advisory CEO Anne Tumlinson told SHN in March.

It’s true that nursing home conversions can be difficult, and middle-market senior living providers often emphasize that they prefer to develop their communities from the ground up, to ensure that the building design supports the efficient operations needed for their target price points. This is the model of Vermilion Development, which develops and operates Silver Birch communities in a Medicaid framework.

Still, the massive need for middle-market senior living demands creative thinking and new approaches, and turning a nursing home into a Medicaid-focused assisted living community is not a novel proposition, particularly with additional government incentives in place. For example, Tekoe Care Center in Washington state converted from a nursing facility to an assisted living community under the state’s Enhanced Adult Residential Care program.

Several senior living providers — including large operators such as Five Star Senior Living (Nasdaq: FVE) — also believe that the pandemic showed how important it is to diversify revenue streams, so that the financial viability of their organization is not tied so closely to occupancy.

Companies seeking diversification could explore acquirising nursing homes — perhaps smaller ones with a more residential design — and transform them into uses such as adult day centers or sites for respite care, which are other possible conversions that could qualify for Medicaid funding, per CMS’ recent letter.

Population health plays

The pressures on skilled nursing will not only propel sales of struggling nursing homes, but are leading to a more profound reconsideration of the entire skilled nursing model of care.

It’s a point recently made by Formation Capital Executive Chairman Arnie Whitman, who has made major investments in skilled nursing through the years.

He believes that “there’s a lot of wood to chop” to transform skilled nursing. But now could be the right time for senior living providers to think creatively about how to drive and benefit from the transformation.

For instance, providers in the Program for All-Inclusive Care for the Elderly (PACE) could also see payment rate increases and greater flexibility to serve more older adults under the recent Medicaid changes.

A senior living provider could consider partnering with a PACE provider to acquire a nursing home and transform it into a PACE center, increasing clinical care and socialization options for their resident population. Along these lines, senior living provider Eskaton formed a JV to create a PACE center in Sacramento with InnovAge (Nasdaq: INNV) and Adventist Health.

Or, senior living providers might consider how they could work with groups such as Cano Health, perhaps to convert nursing homes into clinics dedicated to providing more coordinated services to older adults, working with payers such as Medicare Advantage or managed Medicaid plans. It seems to me that these efforts could qualify for more Medicaid funding, under this category described in the CMS letter:

“Promoting provider collaborations by requiring the formation of and participation in regional/local provider networks. Building Medicaid housing partnerships. Building social determinants of health (SDOH) network partnerships.”

Despite all the changes coming to skilled nursing, there will still be a need for communal settings providing long-term care for older adults with significant health conditions. In other words, some skilled nursing operators will adapt and survive, and senior living providers should consider how to align with these strong organizations.

“The nursing home universe is probably contracting a little bit with Covid, because not everybody is going to make it through once the government incentive payments dry up. It will make it easier to partner, because the more well-run and the more clinically-minded skilled nursing facilities will remain,” Dr. Joseph Mayer, president of whole-health management company onehome, told SNN.

Partnership could be important because these remaining SNF companies likely will provide services that dovetail with senior living needs, such as SNF-at-home programs that could bring higher levels of care to senior living residents. Such programs could be especially critical if acuity rises in senior living, as the SNF sector shrinks and some older adults find homes in assisted living.

Furthermore, health systems and payers are increasingly aware of how home care, senior living and skilled nursing all play a part in population health efforts, and they will target their referrals to providers that can coordinate and manage these older adult patients and beneficiaries most effectively.

The health systems and insurers may even acquire senior living and care companies to create provider networks — such moves have already been made, with Brookdale’s HCA tie-up and Lifesprk’s acquisition of Tealwood Senior Living among the most recent examples.

The Tealwood acquisition includes just three SNFs, but those interested in the future of the skilled nursing model — and how it might be more closely integrated with senior living — should keep an eye on how Lifesprk moves forward. Lifesprk Founder and CEO Joel Theisen believes that SNFs could become “geriatric centers of excellence” if they are “retooled, redesigned and get under the umbrella of value-based payment.”

Those are big goals to achieve, and not every senior living provider has the resources or appetite to take part in the reinvention of SNFs. But, all senior living providers should recognize that skilled nursing is in upheaval, and consider how the transformation of SNFs could change the market for senior housing and health care in the post-pandemic era.