The Labor Department reported that there were 164,000 jobs created in the U.S. economy in April, below the consensus expectation of 193,000.  This followed a downwardly revised gain of 324,000 jobs in February (originally reported as 326,000) and an upwardly revised gain of 135,000 in March (originally reported as 103,000).  The two-month revision was a positive 30,000 new jobs.

The April increase in employment marked the 91^st consecutive month of positive job gains for the U.S. economy, the longest period of steady job growth on record by the BLS. Through the first three months of the year, job gains have averaged 208,000, stronger than the monthly pace of 182,000 in 2017.

The unemployment rate fell to 3.9% in April from 4.1% in March, its lowest level in 18 years. This is well below the rate of what is generally believed to be the “natural rate of unemployment” of 4.5% and continues to suggest that there will be growing upward pressure on wage rates.  The jobless rate is calculated from a different survey than the survey used to calculate the number of new jobs (the household versus the establishment survey, respectively).

Average hourly earnings for all employees on private nonfarm payrolls rose in April by four cents to $26.84. Over the past 12 months, average hourly earnings have increased by 67 cents, or 2.6%.

The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 1.3 million and accounted for 20.0% of the unemployed.  A broader measure of unemployment, which includes those who are working part time but would prefer full-time jobs and those that they have given up searching—the U-6 unemployment rate—fell to 7.8% in April from 8.0% in March and was down from 9.2% as recently as December 2016.  April’s rate was the lowest level in 17 years.

The labor force participation rate, which is a measure of the share of working age people who are employed or looking for work fell by 0.1 percentage point to 62.8% but was up from 62.4% in 2015.  Nevertheless, this remains quite low by historic standards, at least partially reflecting the effects of retiring baby boomers.

Health care added 24,000 jobs in April and 305,000 over the past year.

The April jobs report will provide further support for increases in interest rates through 2018 by the Federal Reserve. Already, the Fed increased the fed funds rate 25 basis points at its March 20/21^st FOMC meeting.  The Fed has raised rates by a quarter percentage point six times since late 2015, and most recently to a range between 1.50% and 1.75%, after keeping them near zero for seven years.  Hence, it is likely that there will be another 25-basis point increase announced by the Fed at its June FOMC meeting.

The Labor Department reported that there were 223,000 jobs created in the U.S. economy in May, well above the consensus expectation of 190,000.  This followed a downwardly revised gain of 159,000 jobs in April (originally reported as 164,000) and an upwardly revised gain of 155,000 in March (originally reported as 135,000).  The two-month revision was a positive 15,000 new jobs.  After revisions and thus far five months into the year, payrolls gains have averaged 207,000 per month, up from 182,000 per month last year.

The unemployment rate fell to 3.8% in May from 3.9% in April, its lowest level since April 2000. This is well below the rate of what is generally believed to be the “natural rate of unemployment” of 4.5% and continues to suggest that there will be growing upward pressure on wage rates.  The jobless rate is calculated from a different survey than the survey used to calculate the number of new jobs (the household versus the establishment survey, respectively).

A broader measure of unemployment, which includes those who are working part time but would prefer full-time jobs and those that they have given up searching—the U-6 unemployment rate—fell to 7.6% in May from 7.8% in April and was down from 9.2% as recently as December 2016.  May’s rate was the lowest level in 17 years.

In May, the number of unemployed persons declined by 772,000.  The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 1.2 million and accounted for 19.4% of the unemployed. Over the past 12 months, the number of long-term unemployed has declined by 476,000.

Average hourly earnings for all employees on private nonfarm payrolls rose in May by eight cents to $26.92. Over the past 12 months, average hourly earnings have increased by 71 cents, or 2.7%.  This is up from 2.6% in April and 2.5% on average in 2017.

The labor force participation rate, which is a measure of the share of working age people who are employed or looking for work fell by 0.1 percentage point to 62.7% but was up from 62.4% in 2015.  Nevertheless, this remains quite low by historic standards, at least partially reflecting the effects of retiring baby boomers.

Health care added 29,000 jobs in May, in line with monthly gains in the past year.

The May jobs report will provide further support for increases in interest rates through 2018 by the Federal Reserve. Already, the Fed increased the fed funds rate 25 basis points at its March 20/21^st FOMC meeting.  The Fed has raised rates by a quarter percentage point six times since late 2015, and most recently to a range between 1.50% and 1.75%, after keeping them near zero for seven years.  Hence, it is likely that there will be another 25-basis point increase announced by the Fed at its June 12th – 13th FOMC meeting.

NIC MAP^® Data Service clients attended a webinar in mid-April on the key seniors housing data trends during the first quarter of 2018. Key takeaways included the following.

Takeaway #1:  Seniors housing occupancy fell to 88.3%

The all occupancy rate for seniors housing, which includes properties still in lease up was 88.3% in the first quarter, down 90 basis points from 89.2% in the first quarter of 2016 and down 50 basis points from the fourth quarter.  This was the lowest occupancy rate in six years.   Notably, assisted living occupancy fell to a record low rate of 85.7% in the first quarter.

The quarterly decline in the overall occupancy rate stemmed from a marked slowdown in first quarter absorption as well as less inventory growth.  Winter weather typically causes a slowdown in both inventory growth and demand in the first quarter. This year, a particularly harsh flu season may have also slowed leasing activity as many properties lost marketing days due to flu-related property-level quarantines.

Takeaway #2:  Annual inventory growth outpaced annual absorption for both assisted living and independent living

Assisted living inventory growth has been ramping up for a longer period than independent living in the Primary Markets.   In mid-2012, the occupancy rate of independent living was the same as for assisted living at 88.8%.  Since that time, there has been a clear divergence in occupancy performance reflecting the differences in supply growth and demand for the two property types. For majority independent living properties, inventory growth exceeded absorption by 70 basis points in the first quarter—1.9% versus 1.2%.  The occupancy rate for majority independent living properties was 90.3% in the fourth quarter.  Annual inventory growth for majority assisted living properties was 4.7%, up a bit from the fourth quarter.  Annual absorption slipped back to a pace of 3.2%.

Key Takeaway #3:  Seniors Housing Occupancy: Twenty-two markets down, seven up year over year

The following slide shows a comparison of occupancy rates among the Primary Markets. The blue dot shows the current occupancy rate, and the orange dot shows the year-ago occupancy rate. The top of the blue bar shows the all-time highest occupancy rate by market, and the bottom of the blue line shows the all-time low.

Fifteen markets had occupancy rates higher than the Primary Market average. Starting on the left is the market with the highest first-quarter occupancy rate: San Jose, at 95.1%.  After San Jose, the highest occupancy levels are in Baltimore, Portland, Sacramento, Pittsburgh and Seattle, all markets with occupancy rates above 91%.  At the other end of the spectrum are San Antonio, with an occupancy of 78.3%, followed by Houston, Atlanta Dallas, Las Vegas and Kansas City, all with occupancy rates below 85.0%.

Twenty-two of the thirty-one markets had occupancy rates lower than year-earlier levels, while seven markets had higher occupancy rates than one year ago and two were unchanged (Sacramento and Philadelphia).   The most significant deterioration occurred in Detroit (down 360 basis points to 87.3%), St. Louis (down 3 full percentage points from 91.1% to 88.1%), Phoenix, Houston and Washington DC.  The most improvement occurred in Portland Oregon where occupancy increased by 1.7 percentage points to 93.0%, while Riverside was up 1.0 percentage points to 86.3%.

Key Takeaway #4:  Same-store rent growth decelerated

Same-store asking rent growth for seniors housing decelerated in the first quarter, with year-over-year growth of 2.3%.  This was down from 3.7% in the fourth quarter of 2016 when it reached a cyclical peak and the smallest increase since early 2014.  Asking rent growth for assisted living was 2.9% for the first quarter, up 20 basis points from the fourth quarter. For independent living, rent growth slipped back to 2.0%, half the 4.1% pace it achieved in the third quarter of 2016 when rent growth reached its highest pace since NIC began collecting this data.

According to the U.S. Bureau of Labor Statistics, average hourly earnings were up 5.0% for assisted living employees as of Q4 2017.  Together, these lines show the pressure operators may be having as expense growth has been pressured higher, while rent growth has been easing.  For many operators, labor expenses amount to 60% of their expenses.

Key Takeaway #5:  Closed Seniors Housing & Care Dollar Volume: $2.3Bn for 1Q18

Seniors housing and care transactions volume totaled $2.3 billion in the first quarter based on preliminary estimates. That includes $1.5 billion for seniors housing and $800 million in nursing care transactions. The total volume was down 17% from the previous quarter’s $2.8 billion and down 50% from the first quarter of 2017 when volume came in at $4.7 billion.

The first quarter of the year is usually one of the weakest quarters in volume, due to the usual rush to close deals at the end of the year, leaving the pipeline a bit empty flowing into the first quarter.  There were some other dynamics at play as well toward the end of last year with tax reform but the first quarter of 2018 was relatively quiet overall, even with these preliminary figures.

A few relatively notable transactions in the first quarter were:

• Invesque (Toronto-based group) bought 40 properties from Care Investment Trust including mostly seniors housing units but some skilled nursing beds to total over 3,300 units /beds for over $400 million, and
• Cascade/KKR JV bought 18 seniors housing properties from Welltower for a little over $300 million including over 1,400 units.

Each year the Centers for Medicare & Medicaid Services (CMS) announces adjustments to regulations and compensation for Medicare Advantage for the following year. Medicare Advantage (MA) providers then have a widow of time in which to submit to the federal government program designs for the following year’s MA plans in compliance with the announced adjustments.

MA plans are paid per plan enrollee, known as a “capitated rate,” by the federal government to provide medical coverage for Medicare beneficiaries in lieu of traditional Medicare coverage. MA plans may offer benefits in addition to what traditional Medicare covers, which is what attracts many consumers to this product.

This year’s annual announcement by CMS, referred to as a call letter, included a potentially big shift in policy relative to these additional benefits by expanding  the definition of “healthcare benefits.” Plans may now include coverage for services related to “daily maintenance,” which may include devices and services that keep frail people healthy but which may not be a direct medical cost, such as a fall prevention device. Previously, MA providers have had their hands tied when it came to such benefits because regulations prohibited the spending of Medicare dollars on these types of services.

In light of the growing body of research demonstrating that providing these services to the frail elderly can actually drive down medical costs, thereby saving Medicare money, it seems the policy direction is changing. As is always the case, CMS aims to produce policies that will bend the cost curve, and this new policy may help do that.

CMS has promised to deliver more guidance before the MA plans must turn in their program designs for 2019. But potential changes could have big implications for seniors housing providers. For example, some or all of the services provided in assisted living could meet CMS’s definition of allowable benefits for MA plans to cover. That could mean assisted living residents with MA plans that include these benefits might only have to pay for the room and board portion of their monthly rent, with MA covering some or all of the services. In other words, out-of-pocket costs to consumers could decrease considerably. As prices go down, demand for assisted living could go up.

Finding partners

Seniors housing providers may find it beneficial to partner with MA plans as a way to gain market share. Keep in mind that because MA plans operate like private insurance policies, they also have networks, often highly selective networks. If an assisted living provider can get into one of those networks to offer this newly approved line of services, they may be positioning themselves to inherit a piece of that MA plan’s population.

An even bolder step could be for assisted living providers to develop their own MA plans for their residents. In fact, even before this CMS announcement, panelists at the 2018 NIC Spring Investment Forum addressed the subject of partnering with MA plans or developing MA plans for residents. The policy shift by CMS underscores the viability of that business strategy, which may also improve the quality of life for seniors housing residents and their families by reducing out-of-pocket costs and improving care coordination.

Fallout for skilled nursing

On the skilled side, the implications of the proposed policy are mostly “more of the same.” By enabling MA plans to cover these new benefits, which resemble home care and assisted living services, CMS is once again pushing policies aimed to reduce the use of more expensive skilled nursing facilities.

For example, let’s say a frail senior who needs help with two activities of daily living enrolls in an MA plan that offers home care visits to help with bathing and medication adherence. The elder experiences an acute episode with a short hospital stay. In the past, she may have received some post-acute care in a skilled nursing property, but in the future, that may not be the case. The MA plan may be able to increase the number of services the home care provider delivers to the elder during the recovery period while also dispatching home health for post-acute care. If this approach is less expensive for the MA plan than a short skilled nursing stay, you can bet the MA plan will opt for the former whenever possible.

Of course, this scenario will never replace the skilled nursing stay outright—some people have acuity needs that require the level of care only available in a skilled nursing facility—but it could steal some market share from skilled nursing operators. However, skilled nursing operators could benefit from this new rule under a very broad interpretation. Imagine if some services provided to long-term nursing home residents could be covered by MA. Those residents could supplement their cost of care just as assisted living residents may be able to lower their out-of-pocket expenses. In this scenario, skilled nursing operators may benefit because their private pay residents, who pay on average $257 per day according to the NIC Skilled Nursing Data Report, maintain their assets longer, avoiding “spend-down.” Once long-term residents in nursing homes exhaust their assets while paying for skilled care, Medicaid takes over as the payor. Medicaid pays for two thirds of patient days in nursing homes, but at a rate much lower than the average private pay daily rate of only $206. If skilled nursing providers can keep their residents paying out-of-pocket at the $257 rate for longer by lowering the actual rate incurred by residents and recouping the remainder from MA—that may be a win. It’s worth noting that the Skilled Nursing Data Report also indicates that MA is much more prominent in urban areas, so rural providers may see little to no change if this scenario played out.

Looking ahead 

Ultimately all of these scenarios are broad hypotheticals until CMS delivers more guidance. But it’s important to note that in 2020, even more MA plan benefit changes will kick in for chronically ill patients. The next two years and beyond will likely serve as the testing grounds for how these benefits may be offered and also will determine if MA plans can remain or become more profitable by offering these benefits. And you can bet there will be an abundance of new data to determine if consumers are actually healthier and happier as a result of any policy changes.

If these experiments result in wins for the MA plans and patients, we could see similar policy changes implemented for traditional Medicare, which covers most Medicare-eligible seniors. Such a policy shift would be far down the road, but isn’t unrealistic. Often MA serves as a sort of testing ground for new healthcare delivery policies, and successful tactics are sometimes translated across to traditional Medicare. There is no way to predict if that could happen, but if this policy is effective and CMS thinks it can save Medicare money by implementing something similar in traditional Medicare, it’s certainly a possibility.

Since its founding as a 501(c)(3) organization in 1991, NIC has consistently sought to deliver on its mission of enabling access and choice in seniors housing and care by attracting and educating private sector capital, especially institutional capital (primarily pension funds and endowments), about the demand for and investment opportunities in seniors housing and care. As healthcare transformation progresses, data and analytics is becoming critically important to provide insights to all stakeholders within the continuum of care including seniors housing and care.

Health Datapalooza is an annual event which prides itself on sitting at the nexus of ideas, evidence and execution. It is more than just a meeting, however. It is an event that convenes a diverse group of strategic thinkers and problem solvers who share a mission to deliberate on and consider new ways to use data to improve health and healthcare. And we’re happy to announce that NIC will be part of the discussion at Health Datapalooza, April 26- 27, in Washington, D.C.

NIC’s Datapalooza presentation will show how reliable data has created the needed transparency that allows capital to flow into the seniors housing and care sector. Essential to this effort has been the provision of data that delivers transparency of operational, financial and investment performance comparable to other commercial real estate sectors. The result of these and other initiatives is that the seniors housing and care property sector is now an established investment category that attracts significant capital from institutional investors.

In a new effort, NIC is focusing additional attention on the middle market or middle-income senior population. Our goal initially is to generate interest from investors, researchers, and policymakers regarding the size of this opportunity. The middle market is defined as the population of seniors who are too wealthy to qualify for government-supported housing and care (primarily Medicaid), but who often cannot afford today’s private pay housing and care options.

NIC’s middle-market study will include quantitative research that measures current and future demographic, socio-economic, health and care need characteristics of middle-income seniors. This data will help attract and educate private sector capital, thereby creating the investment case for middle-market seniors housing. The research will be based on data from the Health and Retirement Survey (HRS), and is being conducted by NORC at the University of Chicago.

This study is very important since the housing setting is emerging as the platform to manage and coordinate the delivery of health services and there is a growing recognition of the crucial role played by housing—including seniors housing—to health outcomes. The research is expected to be completed by year-end 2018, with results shared at a 2019 Policy Summit in Washington D.C., and an Investment Summit in New York City.

In addition, NIC’s Datapalooza presentation will highlight the need for useful, accurate, and consistent data for the skilled nursing sector. There is a significant need for capital in the sector which is undergoing tremendous change. The sector needs capital for continued real estate infrastructure improvements and operational enhancements and innovations, but institutional investment capital requires timely data. Many sources have plentiful data points, including government data sources, but the data is old, and with a sector changing so rapidly, many investors do not find much utility in such data. At the conference, NIC will highlight the monthly data it collects including the managed Medicare data which is vital to operational and investment decisions given the growth of Medicare Advantage.

Lastly, and consistent with data and collaboration, NIC will discuss the importance of quality metrics and its recently announced partnership with PointRight, a national data and analytics provider that has been delivering leading business intelligence and predictive analytics solutions to thousands of post-acute providers, hospitals and payers since 1995.  Through NIC’s partnership with PointRight, NIC MAP Data Service subscribers will have access to the following PointRight reports at both the metro and property levels:

• PointRight® Pro 30® Adjusted Rehospitalization Rate
• PointRight® Pro Long Stay™ Adjusted Hospitalization Rate
• CMS Overall 5-Star Rating
• CMS 5-Star Sub-Scores

For more information about 2018 Health Datapalooza, you can visit:  http://www.academyhealth.org/events/site/2018-health-datapalooza