How a Skilled Nursing Shakeup is Creating Opportunities for Senior Living Providers

The skilled nursing sector is undergoing a shakeup, and senior living providers should be prepared to seize opportunities amid the fallout.

Nursing homes are embattled on every front. The federal government is pushing for sweeping reforms that include steeper financial penalties and staffing minimums — even as providers are facing severe worker shortages. And skilled nursing operators also are facing a possible $320 million cut to Medicare payments in 2023, while they are still struggling to regain census and recover financially from the last two years of Covid-19.

In addition, nursing homes are facing the expiration of Covid-era waivers that granted them operational flexibility and are still reeling from a huge cut to Medicare therapy reimbursements.

Almost 330 nursing homes have closed since the onset of the Covid pandemic, and another 400 could close in 2022, according to estimates released last week by the American Health Care Association/National Center for Assisted Living (AHCA/NCAL).

In this week’s exclusive, members-only SHN+ Update, I analyze the skilled nursing shakeup and offer key takeaways for senior living providers, including:

• Now is the time for creative approaches to higher-acuity assisted living
• New payment models dovetail with changes in senior living care delivery
• Concerted lobbying is needed to enable assisted living to serve wider market

Enhancing assisted living

Since the Covid-19 pandemic began, nearly 13,000 nursing home residents have been displaced by facility closures, according to AHCA/NCAL figures.

During Covid, shuttered nursing homes have had 77 beds, on average. If 400 nursing homes of this size close in 2022, that would displace nearly 31,000 residents.

So even if fewer than 400 nursing homes close this year, a huge number of people with serious conditions could be in need of new housing and care. Not to mention, there will be fewer nursing homes to meet future demand even as the population of older adults surges in the years ahead.

Assisted living providers already are contemplating how to serve an increasingly acute resident population, and now they could see their markets flooded with even more older adults who have complex care needs.

To seize this opportunity, senior living providers should consider creating and marketing specialized assisted living programs geared toward more robust care.

Consider the example of SALMON Health, a diversified senior housing and care provider in Massachusetts. Citing inflation and “chronic underfunding” from public sector payers, the organization has shrunk its skilled nursing portfolio from about 600 beds to about 300, including through the recent dispositions of two nursing facilities for about $27.2 million.

Those two facilities will remain open with new operators, but SALMON Chief Future Officer Andrew Salmon is not optimistic about the fate of standalone SNFs, saying he would be “very concerned about what my future looks like” if he were a standalone operator.

He believes more of these nursing homes will go under and be repurposed, particularly as behavioral health facilities.

Even as SALMON has trimmed its skilled nursing exposure, the company last week rolled out a new offering: Enhanced Care Neighborhoods.

“We heard from our residents and their families the need and desire for advanced care within a comfortable, homelike setting that didn’t feel overwhelmingly institutional as many nursing homes do,” CEO Matt Salmon said in an announcement of the offering.

Enhanced Care Neighborhoods feature private, residential apartments and services such as:

• 24/7 emergency response
• 2-person assist and lifts
• Limited medication administration
• Support with activities of daily living
• Wound care and injectable medication service via Salmon Home Care visiting nurses

In another example of the attractiveness of high-acuity assisted living, Hiawatha Suites in Minneapolis — a community that “caters to residents looking for a memory care and high-acuity assisted living facility in an urban environment” — recently sold for more than $200,000 per bed, according to Transwestern Real Estate Services.

Focus lobbying efforts

In Aug. 2020, I proposed that Covid-19 could be a watershed moment for enhanced assisted living, and I profiled providers with such an offering, including Wisconsin-based Heritage Senior Living and St. Ann’s Community in Rochester, New York.

At the time, I argued that enhanced assisted living would help drive move-ins, given that consumers would be more attuned to providers’ health care capabilities than in the pre-pandemic era, and more eager to avoid institutional nursing care. I believe these dynamics still are at play, and are now compounded by the headwinds and closures facing the nursing home sector.

But creating an enhanced assisted living offering is more feasible in some states than others, given limitations that are in place regarding what services can be delivered in assisted living communities. Wisconsin and New York are states with licensure designations allowing for a higher-acuity assisted living product. In other states, the allowable scope of care within assisted living is much narrower.

In Massachusetts, Gov. Charlie Baker earlier in the pandemic granted assisted living nurses the ability to provide more sophisticated care. Legislation now is being considered that would permanently expand assisted living nurses’ scope of practice. The Massachusetts Assisted Living Association is advocating for that bill, while the nursing home lobbying group — the Massachusetts Senior Care Association — is pushing back.

As industry associations such as Argentum rally to educate lawmakers and push for greater support for providers, I think there should be a concerted effort to make enhanced assisted living viable across the country.

Doing so will enable more providers to serve older adults with complex needs, and could bring other business benefits. Enhanced assisted living has extended length of stay for Heritage and St. Ann’s, leaders with those organizations told me.

And I think policymakers should respond well to the notion that more residential senior living is filling the breach left by institutional nursing homes, given the push to expand home- and community-based care. I understand why nursing home groups would seek to guard their market share, but given the duress in this part of the continuum, new approaches to care appear necessary and inevitable.

I imagine some senior living leaders might balk at the idea of creating a more medicalized model, viewing the product as a lifestyle-driven offering. But assisted living was conceived in part as an alternative to nursing home care; to continue to serve that purpose, providers must adapt to the acuity creep that has occurred over the past decades. Already, the senior living sector is becoming more diversified, with some providers going big on active adult and other lifestyle-driven offerings, and other organizations embracing more sophisticated medical care.

Finally, enabling nurses and other clinicians to practice at the top of their license could help attract more skilled workers to senior living. That’s because senior living communities are unappealing job options if “a nurse isn’t allowed to be a nurse,” as Brian Doherty, president and CEO of the Massachusetts Assisted Living Association, told me in 2020.

Payment as a sticking point

Senior living providers do face one major barrier in being an alternative to SNFs and serving displaced nursing home residents. Senior living communities operate almost entirely on a private-pay basis, while Medicaid and Medicare are the primary payment sources for nursing homes.

But consider what Bickford Senior Living Executive Vice President Alan Fairbanks said on a recent SHN podcast episode:

“We better begin to think differently as an industry in trying to protect and hold on to this private-pay assisted living world, because it might not be in place very much longer. We need to disrupt ourselves, we need to be open to that disruption and not try to hold on to the sins of the past.”

Fairbanks proposes that assisted living operators need to expand their service lines by forging partnerships with other types of providers across the continuum; Bickford is doing so, including by launching a home care business through a partnership with an organization called HCAN.

He also pointed out the unsustainable level of health care spending across the U.S. economy — an issue that the federal government has tried to address through a push toward managed care. Even as nursing homes face a potential $320 million Medicare cut next year, CMS put forward an 8.5% increase in rates for Medicare Advantage (MA) plans. Contrast SNF providers and industry advocates who are warning of mass facility closures, versus insurers such as Anthem that are happy about an MA rate increase that actually was higher than anticipated.

Fairbanks and other senior living leaders are contemplating how to succeed in this managed care environment by keeping resident populations healthier for longer periods of time, driving down health care spending and making senior living communities valuable to payers.

There is a market for private-pay enhanced assisted living, as providers such as Heritage have demonstrated. But I think even greater potential will be unleashed as enhanced assisted living models are paired with new payment frameworks, including through the growth of Medicare Advantage plans that are tailored to the needs of senior living residents and provide a payment stream for some enhanced AL services.

Expansion of Medicaid waivers is another route toward senior living providers being able to serve the displaced nursing home population, particularly those long-stay residents who have chronic but not necessarily medically complicated conditions.

Again, concerted lobbying may be required to achieve the goal of Medicaid expansion — this is already underway to some extent. Northbridge Cos. and partner HallKeen succeeded in getting a Medicaid waiver pilot project off the ground in Washington, D.C., supporting the development of a middle-market assisted living community.

In other words, the shakeup of skilled nursing — which the government views as too costly and the public views as too institutional — could be one of the shocks that the health care system is going through in its steady shift toward a managed care future. And senior living providers have opportunities to seize amid the disruption, if they are quick enough to adjust.