We know that Medicaid is the safety net funding source to cover skilled nursing care and room and board when no other payment options exist. The typical daily rate, about $250 per day for nursing care, reimburses providers for room and board, skilled nursing care, personal hygiene supplies, meals, and medications.

What if those services could be delivered appropriately in a lower-cost setting, such as assisted living? Would it not make sense for care costs to be as low as possible for the Center for Medicare & Medicaid Services (CMS) and Medicaid?

Medicaid does not cover room and board costs for assisted living. The exception to this is the Medicaid assisted living waiver program. Many states offer Medicaid waiver programs that help defray the costs of assisted living. Medicaid’s home- and community-based waivers are programs that help Medicaid beneficiaries receive long-term care services and support in assisted living communities or other settings.

As of 2024, 46 states and Washington D.C. offer some level of assistance in the form of waivers for individuals in assisted living or other forms of non-nursing care. Among each of the states, however, wide variation exists in terms of the waiver structure, reimbursement level, and general effectiveness. One aspect that is common across states is that the waivers almost always have enrollment caps in place and because of these caps, waiting lists are unfortunately commonplace.

At the same time, skilled nursing communities are experiencing rising expenses nationally, with labor costs significantly impacting the industry. From 2019 to 2022 alone, skilled nursing care communities’ direct care nursing expenses increased by almost 25%.

(Source: CliftonLarsonAllen, SNF Cost Comparison and Industry Trends Report, 2024)

A 2023 KFF survey revealed that no states were looking to freeze or reduce Medicaid rates, but that some states – Pennsylvania, Texas, Illinois, Missouri, and North Carolina – were examining Medicaid rate methodologies and potentially rebasing rates in response to unsustainable economic trends.

(Source: CliftonLarsonAllen, SNF Cost Comparison and Industry Trends Report, 2024)

Additionally, Medicaid beneficiaries account for more than 60% of skilled nursing patient days. With care costs rising and a deep penetration of Medicaid beneficiaries residing in skilled nursing settings, assisted living waiver programs could be seen as a bulwark against rising care costs in skilled nursing.

Assisted living communities have experienced an increase in resident acuity over the last decade and have demonstrated that they are increasingly equipped to deliver high-quality and effective healthcare to their residents. But still, not every Medicaid beneficiary will be appropriate to take advantage of these state-by-state assisted living waivers. For the Medicaid beneficiary who needs only moderate care services, having access to assisted living waivers can be a game-changer. In a paper published in June 2024, “We Need to Rethink Nursing Homes,” authors Farber and Shah estimate that roughly 20% of nursing home residents actually need access to affordable housing.

While many Medicaid beneficiaries in nursing homes are there because their income limitations and physical needs require it, there are indeed those who are simply there because they cannot afford private pay assisted living and are unable to live on their own in the greater community. For the Assisted Living Waivers to be successful, there needs to be alignment between operators’ expenses and the state-based reimbursement levels. Assisted living operators need to be appropriately compensated for the room and board costs that are incurred to bring forth optimal alignment.

For CMS, expansion of the Assisted Living Medicaid waivers may contribute to reduced Medicaid spending and a more efficient use of Medicaid dollars. For skilled nursing operators, this may translate into fewer residents whose care needs do not warrant full-time residency in a skilled nursing setting.  For the beneficiary, this could mean living in a more appropriate care setting for their care needs.

This article is the fifth in a series showcasing parent/child dynamics across the senior housing and care industry. My conversation with Susan Barlow and her son, James Klobe, offers insights into why this is becoming a common trend.

Tell us about your background.

Susan Barlow: My background is in the institutional investment world where I started out working as a consultant advising large pension funds on their real estate programs. I went from doing that to raising capital for new entrants after I learned there were a lot of groups who wanted to raise capital but didn’t know how to navigate the process. For a long time, I had my own business where I raised capital for new entrants, or emerging managers as we call them now.

I met my partner Kathy Sweeney through a mutual connection at the California Public Employees’ Retirement System. She sensed we’d be a match considering my skills at raising capital, and Kathy’s need to raise funds for senior housing. After appearing on a CREW (Commercial Real Estate Women) panel together, Kathy and I shared a cab back to the airport. From that car ride, Blue Moon Capital Partners was born.

I didn’t know anything about senior housing, but I knew that given the demographics it would be important for pension funds to get involved with this sector. Public pension funds are great long-term partners because their cost of capital is less and they are generally kinder, gentler, and not trying to take the last dollar off the table.

Ten years in, Blue Moon has 35 communities (independent, assisted, memory care) with nine different operators.

James Klobe: For years, my mother tried to suggest different opportunities within the senior care industry to me. They didn’t feel attractive at the time, so I just continued working in miscellaneous jobs—bartending, cooking in restaurant kitchens, and retail sales. Eventually, the bartending hours took their toll, and I began looking for a change.

My mom had heard about a community here in Brooklyn and saw that they had a really gorgeous space and offered great amenities. I perused the community’s website and immediately noticed their robust activities program. I applied online and interviewed for a kitchen job soon after. I was particularly interested in their activities programs, but incorrectly assumed I would need some sort of background in education to help on that end. It turns out they had an open position in the department, so I pivoted right then and there. I’ve enjoyed it for the last year and a half.

Do you talk about your work in the industry or try to keep your personal and professional lives separate?

James: I grew up hearing a lot of chatter about my mother’s profession that I didn’t really understand at the time. Now that I’m in the industry, we can really talk shop. It’s been great having her as a sounding board because she truly understands this world.

Susan: I’ve never said ‘I told you so’ but I knew the industry would be a great fit for James and I’m so happy it worked out. At first, James was strongly opposed to my suggestions that he should consider senior housing career opportunities. Watching him go from that sentiment to loving it has been fun for me. He brings so many incredible skills to his position and it’s gratifying to see that he’s getting so much out of it, too.

It’s also been valuable for me to get his perspective as someone on the frontline. As a capital provider, I don’t often get that insight, especially as our industry rapidly evolves.

Susan, where do you see this industry going in the future?

Susan: I think prior to this capital market disruption we were able to rely on the cheap debt that was available in the market. We don’t have that anymore, so we must focus on improving operations. There’s a huge opportunity to do that through technology, better operational practices, and generally engaging with the workforce to run a better business.

Again, having that lens into how the frontline worker views what’s happening and what needs to change is critical. The more that we can make their jobs easier—through less required reporting and tech advancements that allow them to spend more time with residents—the better. It’s also essential that we identify high quality team members and provide them with career paths.

James, what do you see for the future of the resident experience?

James: From my perspective being on the frontline five days a week, I would like to see an increase in wages. Compensation for nurses and aids is particularly disappointing. Their work is more than changing, showering, and feeding. More times than not, they’re comforting residents and creating a calm environment, which is challenging. There’s so much not in our job descriptions that we do.

For example, just the other day we brought a resident who was having a bad day down to a concert. Once the music started, she got up from her wheelchair to dance. It’s those type of moments that make it really special for me, but a lot of the time we’re short-staffed because of turnover. It can be difficult to give that kind of emotional attention when we’re too busy confronting the day-to-day challenges that come with resident care.

Susan: James and I have talked about this at length. Sometimes, as capital providers, we’re looking at a lot of spreadsheets and there are numbers on the pages and there’s discussion about the frontline worker almost as if they’re interchangeable with someone working in fast food, but then you think about the actual job you’re asking them to do. To think of them as if they’re interchangeable with other industries is something that needs to be addressed. We have a big ask of our people at the communities and I’m not sure we’re fulfilling our promise to them.

We need to rethink the model— is it lower cost of capital? Does the acquisition environment allow us to rethink how all these pieces come together? I’m sharing James’ experience around the Blue Moon table and people are shocked. Even my partner Kathy who’s been in this business for 30 years is getting a view into the business that she didn’t have before.

What advice do you have for the next generation?

Susan: My hope is that there are more Jameses and Jasons entering the industry to help us make it better. The compassion and perspective you both bring are unmatched. How we care for the frailest members of society says a lot about us. We need to do a better job.

James: I think it’s important to remember that this is a business of care, not a real estate venture.

What advice do you have for the previous generation?

James: For people in my mom’s position, it’s easy to be distracted by bottom lines and numbers on a piece of paper. But it’s a mistake to overlook the compassion that’s required in the day-to-day care of residents.

How can we get more young people involved in the industry?

Susan: I think we’re on the cusp of making some changes that make it more appealing. Focusing on operations and making community connections appeals to younger generations. We need to show young people that they can have a solid career that balances mission with being able to afford a good life for themselves.

Additionally, getting the word out to schools about industry opportunities and having good young people out there like Jason and James waving the flag is enormously helpful.

James: I hate to keep coming back to wages. It’s unfortunate to watch excellent employees who love the work leave because the job is not financially sound.

At the end of the day, it’s an incredible, fulfilling industry to work in. I go home feeling like I’ve really accomplished something.

*Interviews edited for length.

Active adult rental properties are nearly 93% occupied on average, including newly opened properties still in lease-up, while properties open for at least five years are 95% occupied or higher. Longer life expectancy, increased solo aging, and changing lifestyle preferences are driving demand for these maintenance-free, lifestyle-focused communities.

Within the nearly 800 properties totaling more than 116,000 units tracked by NIC MAP Vision, fitness centers and pools are among the most common amenities, driven by increasing focus on wellness. Clubhouses, dog parks, libraries, and movie theaters round out the focus on fun and friendships that research shows are integral to wellness and longevity. In utilizing these often resort-style amenities, in-house Lifestyle Coordinators remain essential to implementing and enhancing communities’ resident-led activities.

Looking ahead, adults aged 65-74 are the fastest growing renter cohort in the U.S., with an additional 2.2 million adults aged 65 and older entering the rental market over the next decade. While roughly 30% of inventory tracked by NIC MAP Vision was delivered in the past four years, the penetration rate remains low at only 0.5% of households age 65 to 84, indicating room for further development in markets that attract these healthy and active older adults.

For more insights from the latest data on the Active Adult rental market, join experts from NIC, Greystar, Zonda Advisory, and Senior Housing Consulting for a complimentary webinar on September 4, 2024, at 2:00pm ET. Register now.

Key Takeaways:  

Data from the recently released 2Q 2024 NIC MAP Vision Actual Rates Report show that independent living: 

• Saw the most notable slowdown in the year-over-year growth for initial rates (move-in rates). 

• Reported the highest discounts. 

• Showed the greatest improvement in the pace of move-ins. 

• Achieved the largest differential between move-ins and move-outs. 

These factors help explain the relatively larger occupancy gains reported in the independent living segment compared to assisted living and memory care (31 NIC MAP Primary Markets) in the second quarter of 2024. 

In the second quarter of 2024, the year-over-year growth in initial rates slowed across all senior housing segments, with the independent living segment experiencing the most notable decline. 

 In June 2024, the year-over-year growth for initial rates (move-in rates) in independent living was negative 0.1%, down from 4.1% in March 2024 and 8% in June 2023. A similar decline was observed with the initial rates for the assisted living segment which grew by 1.8% year-over-year in June 2024, a sharp decline from 9.9% in the previous year.  

Meanwhile, the memory care segment recorded the highest year-over-year increase in initial rates among the three care segments, with a 5.1% growth in June 2024. However, this was still lower than the growth rate reported one year ago.   

Discounts between asking rates and initial rates for all care segments reached new highs in the second quarter of 2024, with independent living reporting the largest discounts. 

• For the independent living segment, discounts between asking rates and initial rates averaged about 16% in the second quarter of 2024. The June 2024 discount was $781, equivalent to 2.1 months of “free rent” on an annualized basis compared to the asking rate, which is up from $463 or 1.4 months in June 2023.  

• Discounts between asking rates and initial rates in the assisted living segment averaged 9.4% in the second quarter of 2024. The June 2024 discount reached a new high of $723, equivalent to 1.3 months of “free rent” on an annualized basis compared to the asking rate. 

• In the memory care segment, the average discount for asking rates compared with initial rates was 10.3% in the second quarter of 2024. The dollar discount ($884) in June 2024 was equivalent to 1.2 months of “free rent” on an annualized basis compared to the asking rate. 

Move-ins exceeded move-outs in the second quarter of 2024 across all care segments, with independent living properties reporting notable improvements. 

• In the independent living segment, the pace of move-ins accelerated in the second quarter of 2024. In June 2024, move-ins averaged 2.6% of Inventory, while the pace of move-outs averaged 1.6%. The resulting 1.0 percentage point difference between move-ins and move-outs was the largest since at least 2019. 

• For the assisted living segment, move-ins remained unchanged and averaged 3.1% of inventory in the second quarter of 2024 compared to 3.2% in the first quarter of 2024. 

• Move-ins for the memory care segment averaged 3.6% of inventory in the second quarter of 2024 compared to 3.7% in the first quarter of 2024. 

Additional key takeaways are available to NIC MAP Vision subscribers in the full report.   

About the Report   

The NIC MAP Vision Seniors Housing Actual Rates Report provides aggregate national data from approximately 300,000 units within more than 2,700 properties across the U.S. operated by 35 to 40 senior housing providers. The operators included in the current sample tend to be larger, professionally managed, and investment-grade operators as a requirement for participation is restricted to operators who manage 5 or more properties. Visit NIC MAP Vision’s website for more information.  

As the industry continues to put COVID in the rear-view mirror, Skilled Nursing is in a transition period, addressing new challenges. From staffing shortages and the looming new minimum staffing mandate to the increasing influence of Medicare Advantage plans, operators must find innovative ways to enhance efficiency, manage costs, and deliver better quality care to a population that expects and deserves it. Additional pressures include navigating a landscape shaped by evolving regulations and shifting reimbursement models. These headwinds also come at a time when the sector is making great strides in occupancy and facing growing demand from the aging demographic.  

Ongoing Workforce Headwinds 

Like many other industries, Skilled Nursing operators are challenged with staffing shortages which are a result of the increased care needs among higher-acuity residents, high employee turnover, and the increased competition for the existing labor pool. A logical first step in combating these labor shortages is offering competitive compensation and benefits. This is essential in attracting and retaining the higher quality staff needed to provide top-notch care that the market strives for.  

While important, compensation is not the primary corollary to success with recruitment and retention. Operators are also turning their focus to workforce development and training programs to quickly upskill both new hires and current employees. These initiatives can be in the form of continuing education programs, on-site training, or partnerships with local educational institutions. Having a staff that is better trained and more educated puts the operator in a better position to handle the increased regulatory pressures many are experiencing post-pandemic.  

Another key is improving the overall work experience, which is being done through employee recognition programs which celebrate accomplishments and promoting work-life balance to combat burnout.   

Managing Reimbursement Challenges 

As the industry shifts from Medicare Part A to Part C (Medicare Advantage), operators must adapt to lower reimbursement rates, stringent prior authorization processes, and tougher utilization management. To ensure healthy margins, operational efficiencies must become a key focus as cost reduction will help offset the lower reimbursement rates. Enhanced case management also comes to the forefront to ensure operators are being reimbursed for all services provided. As Medicare Advantage plans put a high emphasis on quality metrics and outcomes, skilled nursing operators must enhance their focus on data driven care that improves the overall quality, patient satisfaction and reduces rehospitalization rates. Hitting those metrics not only provides for better care for the resident, but also results in a higher reimbursement rate under the Medicare Advantage value-based payment models.  

Other initiatives include looking to the hospitals and health systems to find ways to create a more synergistic care continuum. Alternative models such as bundled and capitated payments, and diversifying the payer mix to hedge the reliance on the MA plans, can be viable strategies. 

As the population’s desire to stay at home is increasing, operators are increasingly offering telehealth services such as remote patient monitoring and teletherapy to meet that need. Using this, skilled nursing operators can offer follow-up care, chronic disease management and virtual therapy to current and past residents. Some skilled nursing operators are also repurposing parts of their buildings for specialty care, such as memory care units, ventilator units or offering behavioral health services. Expanding in these ways can offer higher reimbursement, bring in additional funding and meet specific needs within a community.   

Industry Tailwinds 

While the workforce and reimbursement pressures remain, there are positive signs for the skilled nursing sector. NIC MAP data for the second quarter of 2024 showed continued improvement in skilled nursing occupancy, coming in at 84.3%, an increase of 0.4 percentage points from the first quarter of the year and well above the pandemic low of 73.9%.  

There has also been progress in select states to improve Medicaid reimbursement rates, which is encouraging. Additionally, there has been increased acknowledgement of the labor shortages among federal and state officials, which has resulted in circumstances whereby states have provided meaningful funding to train, upskill and financially reward direct care staff serving older adults.  

Last, it is important to acknowledge the demographic tailwinds in play. There will continue to be great demand for skilled nursing services with many individuals who will not have a family caregiver to provide around-the-clock support or the ability to pay for private-pay senior housing.  

These compelling demand trends and improving market indicators continue to make investment in the skilled nursing space viable and attractive to buyers who have the scale and sophistication to operate effectively in the current environment. 

Proactive Planning for the Future 

In a look towards the future, operators are exploring the concept of a “Super SNF,” which is a new model of care that combines traditional skilled nursing services with advanced clinical capabilities traditionally provided by a hospital. The goal is to eliminate the need for high-acuity patients to be transferred to a hospital as they would be able to receive their complex care within the four walls of the skilled nursing property.   

Success in the post pandemic world requires innovation and the ability to adapt. With a focus on quality outcomes, strategic partnerships, and diversification, the future of skilled nursing can be one of growth, improved care, and greater financial sustainability.