I recently had the opportunity to attend the ASHA Annual Meeting in Scottsdale, and the mood was both reflective and forward-looking.  

Looking back. Current economic conditions were compared to 2000 and 2001 when tech spending dropped off a cliff following a run-up in tech purchases in preparation for “Y2K.” The tech industry today is undergoing a similar reckoning as the world reopens and pandemic restrictions are eased. Business and consumer spending have been redirected to other sectors. Predictions were made for a slowdown in 2023 that mirrors the 2000-2001 slowdown – rather than an outright recession – although interest rate sensitive sectors such as real estate will be impacted to a greater extent. 

What hasn’t changed. Higher expenses and competition for labor continue to be top of mind. On a positive note, occupancies have rebounded from the depths of the pandemic – improving revenues – and many operators have been able to push through rate increases. These positive tailwinds, however, have not been enough to offset the rise in labor, debt, and other expenses. Interestingly, it was noted that, while necessary, rate increases are unfortunate as the industry is vying to make housing for older adults more affordable.  

Looking ahead. Capital providers and developers are hitting the pause button on new projects due to high construction costs and erosion in operating margins. A positive note was that construction was an issue of concern before the pandemic, but the lower level of development in 2022 and 2023 is helpful for occupancy recovery. Also positive is that concessions are beginning to abate. Given the increase in the cost of capital, however, there may be greater investment opportunities on higher quality assets that have the ability to push through rent increases. If the Fed keeps rates at an elevated level, the buyer pool will shrink due to the lower availability of debt, and regulators are pushing banks to get loans paid down. 

On valuations, cap rate estimates are up roughly 75 basis points from a year earlier to around 6%. Almost all appraisal activity is for current assets – not acquisitions – and there is concern that a pick-up in distressed sales could impact valuations for well-performing assets.  

Value-based care drew great interest and excitement about senior housing’s ability to improve health, lower costs, and provide better care for older adults with the support of a trusted health care partner. Longer stays and value-based revenue, coupled with lower expenses, can improve NOI, and one case presented showed an increase of 5-15%. Attendees throughout the conference agreed that senior housing deserves a seat at the policymaking table to get the best results in value-based care. 

Other efforts on the affordability and margin front include engaging residents in volunteerism and ensuring that services are priced correctly, which also helps to reduce acuity creep. Labor availability should normalize due to higher wages and less competition from other sectors. Diversity efforts are expanding with training programs at the less experienced levels, while also casting a wider net for Board of Director openings. Sustainability also drew great interest as the industry continues to implement day-to-day improvements such as utilizing Energy Star technology and earning a WELL certification. 

Technology is being carefully adopted, but it needs to be interoperable from Day 1, seamlessly jibing with a community’s existing technology, and it needs to prove useful. For example: 

• Digital menus are cool but do our residents need or want them?  
• Can the technology provide day-to-day efficiencies to free up staff for resident interaction and care?  
• Can CRM improve our sales process? 
• Can technology help manage data in a value-based setting? 

On the opposite side of the table, age tech vendors want to know operators’ long-term IT strategies so that technology can best drive those plans forward.  

The senior housing industry has endured much in recent years, and the ASHA Annual Meeting showed that our sector continues to work hard and to persevere in improving housing and care on the behalf of older adults. 

2023 NIC Spring Conference Preview 

Forget trying to design the perfect healthcare partnership. Now’s the time to stop talking and start doing, according to Dr. Sachin Jain, CEO of SCAN Group and SCAN Health Plan, one of the nation’s largest and fastest growing not-for-profit Medicare Advantage plans.  

With a BA, MBA, and MD from Harvard University, Dr. Jain will offer his provocative take on Medicare trends as a keynote speaker at the 2023 NIC Spring Conference (March 1-3). The Friday session will include a panel of experts who will discuss how private pay senior housing operators can tap into Medicare payment models, including Medicare Advantage (MA) plans which are experiencing exponential growth. 

As a teaser for the upcoming Spring Conference audience, NIC Chief Economist Beth Mace recently talked to Dr. Jain about the future of MA plans and the partnership opportunities for senior housing providers.   

Mace: Can you tell us about a few trends you see in Medicare and how those may impact operators of senior housing? 

Jain: There is more scrutiny of the Medicare Advantage (MA) program and that is a good thing. More than 50% of Medicare beneficiaries receive their healthcare services through MA plans. So, I think it’s worth pausing to look at the program and identify some of the opportunities. The areas for improvement fit into three categories. First is risk adjustment, which is a controversial topic. We want to get risk adjustment right because we want to create incentives for healthcare organizations to want to take care of sicker MA beneficiaries, but we don’t want to go so far as to create an arbitrage situation wherein plans are selectively enrolling certain populations because the cost of their medical care is less than what the government will pay for them. We do see evidence of that behavior. 

The second major trend is the growth of specialized plans for particular populations. Operators are familiar with Institutional Special Needs Plans (I-SNPs). These plans focus on home, and institution-bound older adults. But there are opportunities to look at specialized plans for other groups, such as those with dementia. For example, SCAN recently launched a product for LGBTQ+ seniors called Affirm. Twenty years ago, it would have been unimaginable to have a specialized plan for that population. But with the consumerization of healthcare, there will be more need for specialized products and programs for patients of a particular kind.  

The third trend, more broadly, is the increasing clinical push of MA programs around care in the home. We must be careful and thoughtful about this. A lot of home healthcare is well delivered, and a lot is not well delivered. Senior housing operators need to answer the question around which types individuals are best managed in their buildings. There is an opportunity for operators to clearly articulate the value they deliver to patients and their families. One of greatest challenges is acknowledging the difference between what we say we do and what we do in practice. Every healthcare organization should have a struggle between the words in their mission statements and what they’re actually doing in practice.  Too often we don’t leave space for that self-skepticism. You cannot improve until you acknowledge you’re not perfect.  

Mace: As one of the nation’s largest not-for-profit Medicare Advantage plans, SCAN’s mission is to keep seniors healthy and independent. Can you tell us about your organization and its mission? Why was SCAN established and when? And how large is it today?   

Jain: SCAN was founded in 1977 by a group of racially and gender diverse community activists in Long Beach, California, who believed the future of aging should be oriented around aging in place. They created a coalition of community-based organizations and called themselves the Senior Care Action Network (SCAN). The primary work of the network in the 1980s and ‘90s, was to operate a social HMO, a major CMS demonstration project focused on integrating the social determinants of health to improve healthcare outcomes. SCAN operated the longest running and most successful of all the social HMO demonstration projects. When CMS phased out the project, we turned our sights into operating as a Medicare Advantage plan. And we have been an MA plan for more than 20 years. Over that time, we have grown to serve more than 285,000 Medicare beneficiaries in four states: California, Nevada, Texas and Arizona. We also operate four diversified care delivery divisions: Welcome Health, focused on home-based geriatric care; Homebase Medical for home-based chronic disease management and palliative care; Healthcare in Action, focused on homeless medical care; and myPlace Health, a PACE program in collaboration with Commonwealth Care Alliance. The unifying theme among our divisions is all the different ways to keep seniors healthy and independent.  

Mace: SCAN has a specific focus on “reinventing aging.”  What does that mean? 

Jain: From a clinical strategy perspective one of the most important things that health organizations that serve older adults can do is to take a look at what I call the inflection points in their lives. One point is turning 65 and becoming Medicare and Social Security eligible. Another inflection point is the diagnosis of a chronic disease or the significant progression of a chronic disease, such as diabetes. The third point is a new diagnosis of cancer. And the fourth is the first fall or fracture from a fall. The goal is to look at each inflection point and do more for people at the point of inflection as they transition from curative care and eventually to hospice care. Every organization should be thinking about how to wrap services around the patient and family to prevent or delay those inflection points, or to support people through those points. That’s how we think about our work at SCAN.  

Mace: How can senior housing operators partner with value-based care and Medicare Advantage plans? 

Jain: We have lived in the space of strategic possibility for a long time. I’ve been around the Medicare Advantage space for many years and there’s always this perfect partnership just within reach with building operators. Then we get stuck on economics, clinical models, organizational charts, and leadership questions. The answer is some version of the Nike saying, “Just Do It.” We need to do something and learn from it. We are not going to get the perfect partnerships on day one. But there is a clear strategic alignment between Medicare Advantage plans and what senior housing operators do. We are both trying to keep our members and residents healthy and independent to age in place. The question we struggle with is how to unlock shared value and achieve regulatory compliance. There are ways to do it. We have seen successful partnerships. But there is a disconnect between day-to-day building operations and the desire at the corporate level to adopt a more strategic approach. The goal is to close the gap between the high-level intent of the corporation and the ground game played at the individual building level.  

Mace: You also focus a lot of effort on social determinants of health. Why is this important, what does this mean, and how do you do this? 

Jain: The ‘social determinants of health,’ I believe, is a fancy term for poverty. What happens when you’re poor? You cannot get the food you need, pay rent, or keep the lights on. Our model supports patients through specialized programs for their needs in each area.   

Mace: Our operators have eyes 24/7 on residents and have the opportunity to shape people’s choices, influence activity levels and socialization, and yet not many senior living properties are doing that with Medicare Advantage plans. How does senior housing fit into the MA paradigm? 

Jain: Senior housing fits in from the perspective that it is the coordinator of the lives of building residents. Also, senior housing can play a role to coordinate access to MA benefits that residents may not know how to obtain.  

Mace: Recently, there has been criticism of Medicare Advantage plans. Is that criticism likely to slow the growth of movement by seniors to MA plans?   

Jain: I think people have spoken. The criticism is at a macro level. Older people are choosing MA plans because they provide distinctive value. I have a Forbes column that takes a critical look at the fee-for-service model. It is not a panacea. There are huge coverage gaps. Some major expenses are not covered. Categories of benefits are not covered, such as vision, dental and hearing. We have an opportunity to continue to fine-tune MA programs. We cannot ignore the fact that 50% of older adults are MA beneficiaries. Much of the federal regulatory system missed the boat on this. I wrote another Forbes article on the idea that government agencies should focus on innovations in the MA program.   

Mace: Should senior housing operators be cautious about working with Medicare Advantage plans? 

Jain: Caution is one word. Another word is experiment. Create a partnership of whatever variety. You don’t know what you don’t know until you get started. There is so much latent potential around MA plans and senior housing operators. We’re leaving a lot of opportunity to improve healthcare on the table.  

Mace: Is there anything else you would like to add? 

Jain: We recently announced the creation of the HealthRight Group, the combination of SCAN and CareOregon. Nonprofit community-based health plans need scale to drive sustainability. When we receive regulatory approval, SCAN and CareOregon will come together under the HealthRight Group umbrella. I’d like to emphasize that senior housing operators have the opportunity to partner with community-based health plans. One of our goals is to create partnerships with operators to improve care for Medicare and Medicaid eligible beneficiaries. 

Note: Dr. Jain will be the keynote speaker at the 2023 NIC Spring Conference main stage session, “The Trends and Opportunities in Medicare All Types of Operators Should Be Tracking” on Friday, March 3, 8:30-9:30am.

3Q 2022 NIC Lending Trends Report

NIC Analytics has released the 3Q 2022 NIC Lending Trends Report. The quarterly report, available for free to NIC’s constituents, currently tracks $85.1 billion in senior housing and nursing care loans. The report includes data over six years for construction loans, mini-perm/bridge loans, and permanent loans from 3Q 2016 through 3Q 2022.

Takeaways from the 3Q22 NIC Lending Trends Report

Against a backdrop of a sharp and quick rise in interest rates over the course of 2022, closed new permanent loan volumes fell to a time series low in the third quarter of 2022 for both senior housing and nursing care. Closed new permanent loans for senior housing fell by 21.6% to approximately $776.9M in the third quarter of 2022, while new permanent loans closed for nursing care decreased by 37.6% to $413.1M. For the sample of lenders tracked in the Lending Trends Report, new permanent loan volumes closed for nursing care were 47% less than that of senior housing.  

Similarly, new construction loan volume weakened for both senior housing and skilled nursing. Senior housing new construction loan closings fell by 61.6% in the third quarter of 2022 on a same-store quarter-over-quarter basis. This was the largest quarterly decline since 2017. Skilled nursing construction volumes, already weak, fell further in third quarter 2022 to its lowest level since the beginning of the pandemic in the first quarter of 2020. The quarter-over-quarter same-store growth for nursing care new construction loan closings was negative 91.4%. 

As a result of weak activity in both permanent, bridge and construction lending, total loan balances decreased for both senior housing and nursing care in third quarter 2022. On a same-store basis, the senior housing and nursing care loan balances fell by 1.6% and 3.0% in third quarter 2022, respectively. 

Also, total construction/mini-perm/bridge loan balances for senior housing declined in third quarter 2022, down 4.6% on a same-store quarter-over-quarter basis. This marked the first and largest decline in the time series after eight consecutive quarters of growth for senior housing, while nursing care loan balances had a double-digit decrease of 18.2% in third quarter 2022 on a same-store basis. This was also the largest decline in the time series. These trends reflect the notable slowdown in construction activity, according to NIC MAP Vision data. 

The number of delinquent loans edged higher in third quarter 2022 for both senior housing and nursing care. Notably, delinquencies as a share of total loans stood at 1.2% for senior housing and 1.3% for nursing care – up 0.2 and 0.4 percentage points from prior quarter, respectively. 

However, no foreclosures were reported for the sample in third quarter 2022 for both senior housing and nursing care.

Note: These data are not to be interpreted as a census of all senior housing and skilled nursing lending activity in the U.S., but rather reflect lending activity from participants included in the survey sample only.

The 4Q2022 NIC Lending Trends Report is scheduled be released in mid-May 2023.

Interested in participating? The NIC Lending Trends Report helps NIC Analytics to deliver on NIC’s mission to enable access and choice by further enhancing transparency of capital market trends in the senior housing and care sectors. We very much appreciate our data contributors. This report would not be possible without them.

If you would like to participate and contribute your data, please contact us at analytics@nic.org. As a courtesy for providing data, data contributors receive this report early before publication on the website. The information provided as part of the survey will be kept strictly confidential. Individual answers will be combined with the answers of all other respondents. Data acquired from this survey will only be reported in the aggregate, and therefore, the resulting aggregated data will not be attributed to you or your company upon distribution. 

The unemployment rate fell to 3.4% in January, its lowest level since 1969 and below December’s already low rate of 3.5%.  Separately, the U.S. Bureau of Labor Statistics also reported that nonfarm payrolls rose by a very large 517,000 in January 2023, nearly twice as much as in December (260,000) and more than the monthly average of 401,000 in 2022.  Market expectations had called for a gain of less than 200,000 jobs.  Revisions added 71,000 positions to total payrolls in the previous two months.  The monthly gain and revisions paint an image of a still strong labor market.  

Today’s labor report will add further impetus to the Fed’s policy conviction of nudging interest rates higher after already increasing rates aggressively last year and one month into 2023.  Indeed, at the FOMC meeting this past week, the Fed announced a 25-basis point increase in the Fed Funds rate to a range of 4.50% to 4.75%.  While this was a smaller increase than those in 2022, it nevertheless brought rates to their highest level since 2007.  Further, in its official statement, the Fed indicated that “ongoing increases” in rates would still be required.  Further, Federal Reserve Chair Jay Powell said he thought it would take “a couple of more rate hikes to get to that level we think is appropriately restrictive.” The Fed is hyper-focused on the rate of inflation and wants to be confident that inflation can be sustained at a 2% target range.  At this point, the Fed is not convinced that this is the case despite evidence that inflation is decelerating.  While goods inflation does indeed appear to be slowing, service inflation, largely driven by wages, continues to be worrisome.

Indeed, average hourly earnings for all employees on private nonfarm payrolls rose by $0.10 in January to $33.03.  This was a gain of 4.4% from year-earlier levels, but lower than in recent months.

Employment in health care rose by 58,000 in January and after averaging 47,000 jobs per month in 2022.   Employment in nursing care facilities grew by 4,500 jobs from last month and 35,600 from year-earlier levels and stood at 1,380,100 positions.  Jobs increased by 8,400 positions in CCRC and assisted living facilities and were up by 60,700 from year earlier levels to 930,700 jobs.

In the household survey conducted by the BLS, the jobless rate fell from 3.5% in December and stood at 3.4% in January. Both months’ unemployment rates were well below the 14.7% peak seen in April 2020.

The labor force participation rate stood at 62.4% in January, up from 62.3% in December but was below the February 2020 level of 63.3%.   

Among the major worker groups, the January unemployment rates were 3.1% for adult women, adult men (3.2%), teenagers (10.3%), Whites (3.1%), Hispanics (4.5%), Blacks (5.4%), and Asians (2.8%).

NIC MAP Vision released its latest Skilled Nursing Monthly Report on February 2, 2023. The report includes key monthly data points from January 2012 through November 2022.

Here are some key takeaways from the report:

Skilled nursing occupancy decreased slightly in November. It declined 12 basis points from October to end the month at 79.4%. There was positive momentum in occupancy throughout 2022 and it is up 593 basis points since the low (73.5%) point reached in January 2021. However, COVID-19 cases created additional challenges in 2021, which slowed some of the initial momentum, and occupancy has been flat from August to November 2022. The staffing crisis in the sector is still a significant burden on skilled nursing operators. As staffing, wage growth, and general inflation pressures persist, operations for many operators will be under pressure but the long-term demand for skilled nursing services is expected to grow over time.

Medicare revenue mix increased but the Medicare revenue per patient day decreased in November. Both are down from earlier in the year (January/February) when increased cases of COVID-19 resulted in additional need for utilizing the 3-Day rule waiver and per day reimbursement for COVD-19 positive patients. Medicare revenue mix ended November at 21.9% but is down from its pandemic high of 24.8% set in February 2022. Medicare RPPD is down 1.3% from its pandemic peak of $594 in June 2020. Meanwhile, Managed Medicare revenue mix was down 31 basis points to 10.2% in November. However, this is 194 basis points above the pandemic low of 8.3% set in May 2020.

Medicaid patient day mix increased for a fourth month in a row. It increased 7 basis points ending November at 64.7%. In addition, it has increased 269 basis points from the pandemic low of 62.0% set in February 2022. Meanwhile, Medicaid revenue mix also increased from the prior month, ending November at 50.8%. One element of the Medicaid revenue share of a property’s revenue is RPPD and that increased 0.55% from October. It up 0.9% since last year in November 2021. 

Managed Medicare revenue per patient day (RPPD) increased slightly in November but is down 1.1% from last year in November 2021. Skilled nursing property operating models can differ, and some may experience the decline in managed Medicare revenue per patient day poses a challenge as the reimbursement differential between Medicare fee-for-service and managed Medicare has increased during the past two years. However, some operators see opportunity to capture patient volume with the growth of managed care. Medicare fee-for-service RPPD ended November 2022 at $587 and managed Medicare ended at $472, representing a $115 differential. In November of 2020, the differential was $96.

To get more trends from the latest data, download the Skilled Nursing Monthly Report. There is no charge for this report. 

The report provides aggregate data at the national level from a sampling of skilled nursing operators with multiple properties in the United States. NIC continues to grow its database of participating operators to provide data at localized levels in the future. Operators who are interested in participating can complete a participation form on our website. NIC maintains strict confidentiality of all data it receives.