Senior housing is not an island unto itself. . . Skilled nursing is heavily dependent on the Federal Medicaid and Medicare programs. Much of the senior independent living inventory is targeted at low income seniors and dependent on various government funding sources for both development capital and on-going economic viability. Assisted living, at first glance, seems rather immune to the uncertainties of government policy except that government policy has a huge impact on the general economic health of the country.
1. The Fiscal Cliff- I am writing this on Sunday afternoon and it appears there is virtually no chance that we will not drive full speed off the fiscal cliff. Going off the cliff gives the president the tax increases on the wealthy he wants, with the bonus of being able to blame the Republicans for the increased taxes that will hit every wage earner. A group of Republicans have made a “no new taxes” pledge and are sticking to it. The Republicans will largely get the blame, but at this point there is little they can do to change that. One big win for Republicans is that there will be some real cuts in government spending. Finally, they will get to blame the president and the Democrats for failing to solve the problem. The irony of this whole thing is that in the medium to long-term the country may be better off for falling off the cliff because it is clear we are heading toward a much more dangerous precipice. My prediction is that, after the first of the year, we will see a few things fixed, but not many. Physician payment reductions are so massive that this will have to be fixed. We will see a partial fix of the payroll taxes. There is fear of a new recession, but I am skeptical. There were still lots of big screen TV’s flowing out of Best Buy and Costco for Christmas and we still seem to have plenty of money to buy expensive coffee from Starbucks. All of that being said, 2013 will be a year in which people are more careful how they spend their money. Those assisted living communities and skilled nursing facilities that provide an exceptional experience will continue to do well. The average communities will continue to be occupancy challenged in part because, as people guard their money, they will put more effort into finding creative solutions to age in place. The increased payroll taxes will likely cause real hardships for employees at the lower end of the pay scale. And we haven’t even brought up Obamacare.
2. The Media - Senior housing has a huge media problem. I just did a Google news search for assisted living. The first page included twelve items: three stories about a man being beaten in an assisted living community and two stories about a shooting in an assisted living community. Try nursing home and it will be every bit as bad. In truth most communities do a great job of caring for our nation’s seniors, but when bad things happen they make for great copy and end up on the front page or as a top story. We as an industry, and perhaps more importantly as individual communities, need put serious effort into telling our stories to the local and national media. Bad news can last for a long time. Back in July, 2012, the Washington Post published a story titled “A man depicts the often grim atmosphere in assisted living facilities”. It was a grossly unfair characterization of assisted living and I see references to that story continue to percolate today (which is why I did not link to it).
3. Government Regulations - Politicians and government regulators pay attention to the media and react to negative stories with additional regulation, under the belief that the more highly regulated something is the better or safer it will be. The skilled nursing regulatory environment is proof that this is a false premise. It has been said that nuclear energy is the only industry with more regulations than skilled nursing and it may well be true. The on-going and ever increasing regulations have created lots of government jobs, and made caring for seniors much more expensive, but I question how much it has actually benefited seniors. There are still a small but persistent number of operators who don’t care about their residents and who do a terrible job. Even when some are shut down, others will emerge. Aggressive enforcement of reasonable regulations against bad operators would serve the industry and seniors better, but don’t count on it happening. We will likely see additional regulation mostly because it is what government does, but I do not see any major shifts either positive or negative. Steve Moran On Thursday I will offer my thoughts on occupancy and development for 2013. What do you think 2013 will look like?
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