Overall, average margins wallowed in negative territory, a byproduct of rising labor and costs that outstripped gains in census. The expiration of emergency pandemic funding casts a shadow over the sector, report authors said, although some states are doing better than others.

“There are divergent margin trajectories across states, with some states facing erosion while others pivot and respond proactively,” CLA authors wrote. “Concurrently, national bed availability diminishes but reductions vary by state. Notable wage rate, occupancy, revenue and expense disparities further underscore the diverse landscape.”

Operating margins continue to shrink. Operating margins nationally have decreased to a negative 0.6%, according to the report. When public health emergency funding isn’t factored in, operating margins declined to negative 3.6% last year.

By comparison, excluding the effects of PHE funding, the median operating margin of SNFs in 2021 decreased to minus 2.7%. The 2021 median operating margin, both including and excluding recognized PHE funding, decreased substantially from 2020 medians.

“Now that the PHE has sunsetted along with PHE-related funding, the question of SNF sustainability is being raised due to these large negative operating margins,” the authors said.

SNFs continue to see substantial increases in expenses. Nationally, over the past three years, patient per day expenses have risen by approximately 15%. At the state level, Illinois experienced  the highest per-patient-day expenses with three-year median change in expense PPD of 26%, compared with Colorado at the low end, at 7%.

Wage inflation also is a real challenge for SNFs across the country, the report stated.

“Total nursing average hourly wages increased 14.7% in 2022, compared to increasing 8.8% in 2021 and 7.4% in 2020,” the authors said. “Nursing contract labor hours as a percentage of total nursing hours increased to 10.2% in 2022, compared to 5.3% in 2021, and only 2.9% in 2020.”

The good news, according to the report, is that revenues experienced a strong uptick, mainly driven by occupancy increases. Over the past three years, the authors noted, per-patient-day revenues have risen by approximately 12% nationally. Even so, revenue growth has fallen short of matching expense growth; hence, the negative operating margins. 

“Over successive years, expenses have consistently outpaced revenues, intensifying margin pressure,” the authors wrote. “During times of economic instability, chief financial officers in many industries typically resort to raising prices and cutting fixed costs to safeguard margins. However, due to the SNF industry’s heavy reliance on government payers and its inherent fixed cost structure, implementing such strategies is not always possible.”

Not surprisingly, the SNF industry faced headwinds from persistent inflation and rising interest rates throughout the first half of this year.

“SNFs operate as capital-intensive enterprises, currently in an economic environment with the highest interest rate levels since 2001,” the authors wrote. “Ownership and management of SNFs require significant upfront investments for facility acquisition, ongoing expenditures for infrastructure, equipment and technology maintenance, and substantial allocations for recruiting and retaining qualified personnel.”

The past year has been challenging for the sector, and medians and operating performance for CCRCs stand to come under increased pressure in the coming months, Fitch said.

“Slower economic growth and persistent inflation, especially from higher wages for hospitality and nursing staffing, as well as higher costs for food and other supplies, are leading Fitch economists to call for a possible recession in either late 2023 or early 2024,” Margaret Johnson, Fitch senior director and US life plan community group head, said in a press release issued Monday in conjunction with the annual medians report.

Life plan communities on the whole have experienced a decline in liquidity, the report noted. Although those communities have been able to pass along higher costs to residents, Fitch cautioned that rental fee increases are not a long-term fix.

“This scenario, if it plays out, could exacerbate the already ‘deteriorating’ sector outlook Fitch has in place for [life plan communities],” Johnson said. “Should these inflationary pressures persist beyond the next two years, [life plan communities] may encounter resistance from residents to the substantial rate increases that may be required to offset the added cost pressure.”

CCRCs with a significant skilled nursing component have reduced their number of beds to help keep finances in the black, according to the agency. Fewer beds mean fewer staff members needed, and that’s one way the retirement communities have been able to offset the ongoing concern of wage inflation. 

“Slowing real estate price growth and higher mortgage rates are also an area of concern as most prospective [life plan community] residents need to sell a home to cover the initial entrance fee,” Johnson said.

The communities, she said, “could continue to struggle in the coming months as a possible recession looms.”

The survey included 152 large employers, covering more than 19 million workers in the United States, and was conducted June 1 to July 18. 

The companies cited mental health challenges as the “top area of significant prolonged impact resulting from the pandemic.”

“Our survey found that in 2024 and for the near future, employers will be acutely focused on addressing employees’ mental health needs while ensuring access and lowering cost barriers,” Business Group on Health President and CEO Ellen Kelsay said Tuesday in a statement.

Responding employers said they plan to increase access to mental health services by providing more options for support and lowering cost barriers to care.

“Companies will need to creatively and deftly navigate these and other challenges in the coming year, especially as they remain committed to providing high-quality health and well-being offerings while managing overall costs,” Kelsay said.

Pharmacy services

But participating employers also said that pharmacy costs concern them. According to the report, 92% of the companies said that they are “concerned” or “very concerned” about high-cost drugs in the pipeline, and 91% said they are concerned or very concerned about pharmacy cost trends overall.

“Those concerns appear to be well-founded, as employers experienced an increase in the median percentage of healthcare dollars spent on pharmacy, from 21% in 2021 to 24% in 2022,” the report noted. “Various pharmacy management strategies, such as implementing a transparent pharmacy benefit manager (PBM) and plan design changes to address costly medications and treatments, are planned by employers for 2024.”

Cancer concerns

Half of the employers participating in the survey cited cancer as a primary driver of healthcare costs, and 86% said that it is among their top three concerns related to employee healthcare. 

“Last year, cancer overtook musculoskeletal conditions as the top driver of large companies’ healthcare costs, for the first time,” according to the report.

Respondents indicated that they plan to address this concern by focusing on advanced screening measures and maintaining 100% coverage for recommended prevention and screening services.

“The year-over-year increase is primarily the result of timing related to operator restructurings, revenue from new investments completed in 2022 and 2023, partially offset by asset sales completed through that same time frame,” said Chief Financial Officer Robert O. Stephenson.

Some of the surprise strength came from skilled nursing provider LaVie Care Centers, which paid $16.9 million in rent ($2.5 million for April and full rent of $7.2 million for both May and June) in accordance with restructuring agreement terms disclosed in the first quarter. 

“Restructuring discussions, including the sale and release of additional facilities, are still ongoing, and the company anticipates the additional restructuring activity to be completed in the next several months,” the REIT noted. “The company expects LaVie will continue to pay $2.5 million per month until the additional restructuring activities are completed.”

To date, 13 facilities have been divested. Another 23 are in the process of being sold or released, most of them expected to be transferred in the fourth quarter of 2023, Chief Operating Officer Dan Booth said.

“The expectation is that their cash and their liquidity is going to go down until those transitions occur,” he added. “Like with any transition that involves a sale, they take a while and there is a lot of lead time running up to that. There are a lot of third parties that we have no control over. So, the expectation, at least for right now, is that in the third quarter, we will see that reduced rent amount.” 

Omega agreed to allow LaVie to short-pay rent by approximately 66% during the third quarter. But when the restructuring is completed, Pickett said, he expects “a significant increase in cash rents from the current agreed upon partial rent payments.”

Booth said that many of the facilities Omega and LaVie are in the process of transitioning are in Florida. 

Megan Krull, senior vice president of operations, told analysts that operators in the state were facing mixed conditions, given its continued “severe” staffing shortage and operators’ reliance on agency. But she also noted that Florida provided for up to a 5% rate increase starting Oct. 1.

“While much of the Florida rate is based on quality indicators, meaning that not all operators will see this large of an increase, it does represent somewhat of a trend in rate settings where more and more states are tying reimbursement increases to quality measures,” she said. “Assuming this is done in a thoughtful manner, this is something that we welcome, however, it should never fully replace increases tied to the inflationary environment.”

For additional coverage of this earnings call, see the McKnight’s Business Daily.

It comes down to the defendant’s subjective intent in submitting a claim rather than what the law objectively states, McGuireWoods partner Michael Podberesky told the McKnight’s Business Daily.

Podberesky is a former Justice Department attorney in the Civil Fraud section. He led teams investigating and litigating complex FCA and kickback cases, primarily in the healthcare sector.

“This is a clear, unambiguous, unanimous win for the government and relators,” he said.

Providers can protect themselves from False Claims Act lawsuits by performing due diligence and consulting with counsel when making claims, Podberesky noted.

The cases fell under the FCA whistleblower provision — the oldest whistleblower regulation on the books, dating back to the Civil War — which rewards whistleblowers who confidentially disclose fraud that results in a financial loss to the federal government. 

“In the joined cases, the plaintiffs, whistleblowers suing on behalf of the government under the FCA’s qui tam provision, alleged that SuperValu and Safeway, which operate hundreds of retail drug pharmacies nationwide, violated the FCA by overcharging Medicare, Medicaid and the Federal Employee Health Benefits Program for prescription drugs,” SCOTUSblog reported.

To be liable under the FCA, a defendant knowingly must make a false claim to the government. That’s not making a simple mistake, such as recording the date incorrectly, according to Podberesky. The issue here is that the two pharmacies being sued objectively knew what was expected but chose to subjectively interpret the law in their own best interests by reporting medication prices as “usual and customary,” according to Justice Clarence Thomas, rather than reporting prices that were temporarily discounted.

Podberesky noted that the Supreme Court ruled solely on the False Claims Act accusations in the lawsuits. The cases have been remanded to the 7th Circuit for further proceedings consistent with the FCA scienter standard ruling.

Lowes’ remarks came in a webinar hosted by the Chicago-based skilled nursing and senior housing brokerage firm.

“There are a lot of big regulation changes happening right now and are going to be happening here in the near future,” Lowes said. “And there’s also a lot of macro and micro economic sort of factors that are going on. They’re sort of trickling down and impacting skilled nursing owners as well.”

A few headwinds are challenging skilled nursing now that the COVID-19 public health emergency has ended. For example, Provider Relief Funds are expected to wind down. Also, the Medicaid redetermination process has been reinstated after a hiatus during the PHE, which Lowes said could create gaps in payment.

Additional federal involvement in skilled nursing is coming down the pike. Lowes noted, for example, an expected skilled nursing industry staffing mandate from the Centers for Medicare & Medicare Services. If nursing homes are required to provide 4.3 hours of care per resident per day, as is being predicted, then they would need to hire an additional 12 staff members, he said.

“You just can’t send a rule out and expect people to comply when there’s absolutely no chance of it because of the workforce shortages,” Phil Fogg, board chairman of the American Health Care Association, said previously during a McKnight’s Long-Term Care News webinar covering skilled nursing trends.

“The era of easy money is over,” Lowes said, noting that the federal reserve has increased interest rates by 500 basis points via 10 rate hikes since March 2022. Those actions will make it more difficult for borrowers to refinance their debt, he said.

“We’re  kind of expecting a lot of those buildings to be foreclosed on and a lot of this debt to fall into default,” Lowes said. “It’s going to be interesting to see how that impacts investor sentiment.”

Even so, Lowes said that it is a good time to invest in nursing homes. The market pricing is bullish despite relatively low average industry occupancy, he noted.

“Lending in the skilled nursing market is still available and out there, unlike the senior housing market, which I think is still struggling from a lending standpoint. Lending for skilled nursing acquisitions is still available in fairly favorable terms,” Lowes said. “Buyers and banks are sort of still willing to underrate to what I would call sort of stabilized occupancy levels. …Most buyers and banks are actually forecasting a higher occupancy, forecasting a more stabilized margin, and they’re able to underrate those standards. That’s a lot of the reason we’re seeing all these transactions happening.”

The company’s “locally driven strategy led to improvement in occupancies, skilled revenue, skilled days and managed care revenues,” CEO Barry Port said during an earnings call Thursday. “The record results they achieved this quarter are particularly impressive given the continued disruption in the labor markets.”

Port said he was especially pleased that the company saw sequential growth in overall occupancy for the ninth consecutive quarter, with same-store and transitioning operations increasing by 4.2% and 5.4%, respectively, over the same quarter in 2022. 

As of the end of the quarter, Ensign’s same-store occupancy reached 78.8%, “and we continue to get closer and closer to our pre-COVID occupancy levels, which was at 80.1% in March 2020,” Port said.

In a press release issued in conjunction with the earnings call, Chief Investment Officer and Executive Vice President Chad Keetch noted that Ensign “has increased its acquisition pace recently to take advantage of an attractive acquisition environment.”

The company added 19 operations in the first quarter. That’s 42 new operations, totaling 4,640 beds, over the past 12 months, Keetch said. In total, those additions bring Ensign’s portfolio to 290 healthcare operations, 26 of which also include senior living operations, across 13 states. 

And the company is preparing for even more growth this year, Keetch said. 

Port said that Ensign is seeing positive results from the recent acquisitions and, therefore, the company is increasing its annual 2023 earnings guidance to between $4.64 and $4.77 per diluted share, up from $4.60 to $4.74 per diluted share. 

“This new midpoint of our 2023 earnings guidance represents an increase of 13.8% over our 2022 results and is 29.4% higher than our 2021 results,” he said. 

Additionally, Ensign is raising annual revenue guidance to between $3.68 billion and $3.73 billion, up from its previous guidance of $3.55 billion to $3.62 billion. 

“We are excited about the upcoming year and are confident that our partners will continue to manage and innovate through all the lingering challenges on the labor front,” Port said.

According to Ensigns Executive Vice President and Chief Financial Officer Suzanne Snapper, the company’s liquidity remains strong, with approximately $327 million of cash on hand and $593.3 million of available capacity under its line of credit.

Since the start of the pandemic, according to the group, 100,000 RNs have left the nursing profession, and by 2027, almost 900,000 more RNs are expected to leave the workforce. Licensed practical/vocational nurses, who generally work in long-term care settings, have lost 33,811 of their peers since the beginning of the pandemic, according to the research.

The study analyzed a subset of the 2022 National Nursing Workforce Study and included 29,472 registered nurses and 24,061 LPNs/LVNs across 45 states. Reported trends represent population-based estimates.

“The data is clear: The future of nursing and of the US healthcare ecosystem is at an urgent crossroads,” Maryann Alexander, PhD, chief officer of nursing regulation at NCSBN, said in a statement. “The pandemic has stressed nurses to leave the workforce and has expedited an intent to leave in the near future, which will become a greater crisis and threaten patient populations if solutions are not enacted immediately.

Stress and burnout have driven an exodus of nurses during the COVID-19 pandemic, according to the study results. Sixty-two percent of the nurses sampled noted an increase in their workload during the pandemic. One fourth to one half of nurses reported feeling emotionally drained (50.8%), used up (56.4%), fatigued (49.7%), burned out (45.1%) or at the end of the rope (29.4%) “a few times a week” or “every day.” The effects of burnout were more pronounced among workers with 10 or fewer years of experience. 

Not only have RNs left in great numbers, Alexander said, but stress and burnout have “expedited an intent to leave in the near future, which will become a greater crisis and threaten patient populations if solutions are not enacted immediately.”

Some contributing factors existed before the pandemic, the researchers noted. They said, however, that current data “has identified unprecedented levels of stress and burnout among the key factors driving high rates of projected turnover.”

The projections are not impossible to change, according to the authors, who said that policymakers could influence the fate of the profession.

“There is an urgent opportunity today for healthcare systems, policymakers, regulators and academic leaders to coalesce and enact solutions that will spur positive systemic evolution to address these challenges and maximize patient protection in care into the future,” Alexander said.

Advanced Care Staffing has placed workers at settings such as skilled nursing facilities in New York, New Jersey and Connecticut for more than 10 years, its website says.

Its “contracts warn employees that if they leave ACS’ employ before three years’ time, they will face ACS and its lawyers in an arbitration behind closed doors,” according to the DOL complaint filed in the District Court for the Eastern District of New York.  

“[T]he pay that ACS promises its employees may be converted into nothing more than a loan that employees must repay with interest and fees, leaving some employees with no compensation at all, much less the wages required by the [Fair Labor Standards Act],” the complaint alleges.

The Labor Department is seeking an injunction prohibiting the staffing agency and its CEO, Sam Klein, from reducing workers’ wages below federal minimums, whether by demanding that they enter into contracts requiring them to cover ACS’ future profits, attorneys’ fees or costs associated with arbitration, or by enforcing such contracts. In addition, the Labor Department is seeking back wages and liquidated damages for affected employees.

Not only did ACS force employees to sign the contract; the company made good on threats, the Labor Department alleges. The complaint described a case in which ACS reportedly pursued arbitration, demanding that a registered nurse, who resigned after raising repeated safety concerns, pay the company more than the nurse earned, to subsidize ACS’ future profits.

ACS’ contracts and arbitration demands “have a chilling effect on employees’ ability to exercise their rights, including the protection to be free from an unsafe or hazardous workplace, and to obtain the wages they are owed,” Labor Department officials said.“Federal law forbids employers from clawing back wages earned by employees, for employers’ own benefit,” Solicitor of Labor Seema Nanda said in a statement. “Employers cannot use workers as insurance policies to unconditionally guarantee future profit streams. Nor can employers use arbitration agreements to shield unlawful practices.”

All of the buildings were operated by former competitor ProMedica under agreement with real estate investment trust Welltower until late last year, but ProMedica surrendered its stake in those skilled nursing facilities as it struggled to recover from $105 million in losses in its senior care division.

Welltower exited its own substantial relationship with Genesis just three years ago. At one time, Genesis represented more than 17% of Welltower’s pro rata net operating income. But the operator struggled financially during the early pandemic and had reduced its facility presence nationwide since 2015. 

In March 2021, at the time of the Welltower divestiture, Genesis came under the control of ReGen Healthcare LLC, a private-equity-backed firm based in New York. It financed a turnaround with an initial $50 million in debt. ReGen is affiliated with Pinta Capital Partners, a private equity firm founded by Allure Group owner Joel Landau.

After the changes, Genesis was no longer a publicly traded firm.

But under ReGen and with the installment of new corporate leaders and the adoption of a local leadership approach, Genesis has begun to grow again.

“This transition marks the largest expansion of services provided by Genesis and its affiliates since the organization underwent a transformation into a market model approach in the delivery of patient care,” Chief Operating Officer Melissa Powell (pictured) told the McKnight’s Business Daily on Tuesday.

ProMedica exit paves way

Welltower announced in November that it would transition 147 skilled nursing facilities operated by ProMedica, also based in Toledo, into a joint venture between Welltower and Integra Health.

The deal for Genesis to take over 38 facilities brings the long-time operator back into the REIT’s good graces. Welltower already owns most of Genesis’ real estate, which it bought for $2.4 billion in 2011. The chain’s business relationships were outlined by the Philadelphia Inquirer Tuesday. The newspaper reported Genesis, once a mainstay in Pennsylvania and New Jersey, had dropped to just 15 facilities in Pennsylvania before this week’s announcement.

Welltower’s leaders have said the move was expected to strengthen the relationship between Genesis and Welltower. On Tuesday, Powell said Genesis was also looking to strengthen its relationships with building leaders and teams already on the ground.

“The national services team of Genesis looks forward to supporting and empowering facility leaders as they continue to focus on meeting the needs of local communities and achieving the best possible outcomes for patients and residents,” Powell said. “We already have a strong market presence in Pennsylvania and Colorado, and we are confident that these facilities will strengthen the services these markets provide.”