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Is Skilled Nursing a Disaster or Something Else?

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By Steve Moran

I want to say I love the folks at NIC. I have spent a lot of time reading and thinking about the quarterly NIC skilled nursing occupancy report. The most recent of which was released during the NIC spring conference and it is somewhere between sobering and depressing. Here is what it says:

  • Occupancy was down again in the 4th quarter of 2017 to 81.9% For comparison, in 2016 it was 83.5%

  • Medicare Managed Care rates hit a new low of $433 per patient day.

  • Medicaid represents almost half of all revenues in skilled nursing (not to be confused with patients). This number is an increase and means less revenue per patient day.

  • The dollars received from Medicare are decreasing.

Pretty Depressing, Except . . .

What becomes hard to figure out is that organizations are still buying and in some cases even building new nursing homes. Yet there are big bankruptcies and shuffling of ownership often under distress. But still, there are people who want to own and operate skilled nursing.

It became this really big, “I don’t get it” thing floating around in my head.  

A Different Way to Look at It

According to NIC, the current average occupancy for senior living, in general, is 88.6% and for assisted living 86.5%. These numbers are not worth jumping up and down about, but they are not bad and many organizations are generating decent returns at these levels . . . I think!

So much for the averages, while I have not actually done the exercise on paper I have in my head, and I believe I could make a list of a couple of dozen or more organizations, not buildings that are operating well north of 90% occupancy with most achieving 95% and greater occupancy.

So it got me to thinking . . .

I wondered how many skilled nursing facilities are operating above 90%. I went back and asked NIC if they could give me that number. They didn’t have it off the top of their head but went and calculated it. It turns out that as of December 2017 just over one third (36.4%) of the properties they are tracking has an occupancy rate of 90% or higher.

Dissecting

First I want to note that 100% of this dissecting is Steve Moran and not NIC. So here is what I am thinking:

  • It means it is possible to make money, even a lot of money in skilled nursing.

  • It is complicated, because in some states, even at 100%, if it is all Medicaid, it might be tough to make a profit, particularly if there is any debt on the real estate.

  • So nursing homes that specialize in short-stay rehab can make a lot of money even at 80% occupancy or a bit less. Remember it is complicated.

So What?

I continue to believe nursing homes are never really going to come back. Except for short-stay rehab no one ever ever ever wants to go to a nursing home, just like no one ever wants to go to a hospital. No matter how nice they are and I have seen some really nice ones.

We have more alternatives than ever and alternatives will continue to evolve. Yet there will always be a need for some nursing home beds.

It is a tough business but it is still a good business. Good operators know it is still more about people than Regulations and Reimbursement. Bad operators -- and there are too many of them still -- are focused primarily on those two R’s.  

It is the way that Skilled Nursing and Senior Living are most alike. Caring about people results in high occupancy and a healthy bottom line.

What do you think?

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