As the seniors housing and care industry’s leading data provider, NIC tracks occupancy, asking rents, demand, supply and construction data for independent living, assisted living, memory care, skilled nursing and continuing care retirement communities (CCRCs)/life plan communities (LPCs). The following narrative describes CCRC/LPC occupancy and supply and demand trends in the combined primary and secondary markets, which represent the aggregate of the data collected from 99 of the largest core-based statistical areas (CBSAs).

Supply & Demand Fundamentals

CCRC/LPC occupancy was flat in 2017

A review of the current fourth quarter 2017 data for the combined primary and secondary metropolitan markets tracked by NIC MAP® shows that CCRC/LPC occupancy was flat in 2017, fluctuating only as much as 20 basis points during the four quarters. Current all occupancy is 91.1% and stabilized occupancy is 10 basis points higher (91.2%).

Despite relatively wide variations in inventory growth and absorption reported in the first and third quarters of 2017, on a net basis, absorption exceeded inventory growth by about 800 units, allowing occupancy to remain relatively stable.

CCRC/LPC construction is concentrated in a few markets

Compared to other types of seniors housing, CCRC/LPC construction activity is generally subdued, with about 2.6% of existing inventory currently under construction (9,347 units). Rental CCRC/LPC construction is 3.8% of existing inventory compared to 1.9% entrance fee CCRCs/LPCs.

The map below illustrates where CCRC/LPC inventory growth has been strongest as indicated by the size of the circles. In addition to absolute growth, the color of each circle represents the percentage of CCRC/LPC inventory in relation to total inventory.

As of the fourth quarter of 2017, the largest number of CCRC/LPC units under construction were located in Philadelphia (785), Kansas City (706), Los Angeles (633), Dallas (587) and New York City (566). The greatest percentage of CCRC/LPC units under construction as a share of inventory were reported for Knoxville (44%), Memphis (23%), Riverside, (18%), and Hartford (13%). Half of the primary and secondary markets (51 out of 99) had no CCRC/LPC units under construction.

Occupancy by Profit Status

Not-for-profit CCRCs/LPCs occupancy spread still hovering around 5%

The fourth quarter of 2017 saw an uptick of 10 basis points in occupancy for not-for-profit CCRCs/LPCs (currently 92.4%), while for-profit occupancy remained unchanged since the prior quarter (87.4%).

The occupancy spread for not-for-profit and for-profit CCRCs/LPCs in the combined primary and secondary markets has hovered around 5% since the third quarter of 2015.

Occupancy by Market Cohort

Primary and secondary market occupancy rates continue to trend upward

As of the fourth quarter of 2017, CCRC/LPC occupancy was up 10 basis points to 91.6% for the secondary markets and 90.8% for the primary markets, respectively.

CCRC/LPC occupancy in the primary and secondary markets has been tracking relatively closely since the first quarter of 2015, with the narrowest spreads observed in the first quarter of 2015 and 2016, and the second quarter of 2017.

CCRC/LPC Supply & Demand by Payment Type

Entrance fee CCRCs/LPCs continue to outperform rental CCRCs/LPCs in terms of occupancy but rentals are trending upward

While entrance fee CCRCs/LPCs occupancy has been flat for the past nine quarters, rental CCRC/LPC occupancy has trended upward 60-basis points since reaching its cyclical low in the third quarter of 2016.

As of the fourth quarter of 2017, entrance fee CCRC/LPC occupancy was 92.0% and rental CCRC/LPC occupancy was 89.4%.

The spread between entrance fee and rental CCRC/LPC occupancy in the combined primary and secondary markets accelerated between early 2015 and mid-2016 and has since narrowed, albeit slightly. The occupancy gap is currently 2.6 percentage points, down 20 basis points from the prior quarter and equal to the first quarter of 2017.

CCRC/LPC Rental annual inventory growth and absorption is positive for the first time in five quarters

As of the fourth quarter of 2017, both entrance fee and rental CCRC/LPC inventory growth and absorption is positive, however entrance fee communities have trended lower since the first quarter of 2017.

Although entrance fee CCRCs/LPCs reported an uptick in annual inventory growth beginning in the third quarter of 2016, rental CCRCs/LPCs trended downward, reporting negative figures following two quarters of peak or near-peak annual inventory growth. A net figure, negative growth may be a result of units being taken off line, or may reflect units being combined into larger residences or shifted to other community types.

Key Takeaways from the Fourth Quarter 2017

• As of the end of 2017, CCRC/LPC community occupancy remained high at 91.1%, just 10 basis points below its most recent peak reached in the second quarter.
• Not-for-profit CCRCs/LPCs lead for-profits in occupancy, and the occupancy gap has been hovering around 5 percentage points for 10 quarters.
• Primary and secondary market CCRC/LPC occupancies continue to track closely and both were trending upward as of the fourth quarter.
• Entrance fee CCRCs/LPCs continue to outperform rental CCRCS/LPCs in terms of occupancy, and rental occupancies were trending upward as of the fourth quarter.
• Compared to other types of seniors housing, CCRC/LPC construction activity is generally subdued, with about 2.6% of existing inventory under construction.
• About half of the top 99 CBSAs that NIC tracks had no CCRC/LPC units under construction, while more than a third of the construction was located in five markets: Philadelphia, Kansas City, Los Angeles, Dallas and New York.
• As of the fourth quarter of 2017, both entrance fee and rental CCRC/LPC inventory growth and absorption was positive.

Medicaid Reimbursement Rates Draw Attention

At around $200 per day, Medicaid is the lowest priced payor source for skilled nursing properties. The American Health Care Association (AHCA), a trade association representing skilled nursing providers, has been calling on policy makers to address Medicaid reimbursement rates for years. Until recently, this concern did not draw significant attention from outside the industry. Within the last month, however, the issue of funding levels from public sources for long-term nursing home stays has entered the spotlight.

Let’s break it down: Medicaid as a payor source for skilled nursing providers

According to the 4Q2017 NIC Skilled Nursing Report, Medicaid reimburses skilled nursing properties at an average national rate of $206, less than half the rate paid by Medicare and Managed Medicare, $503 and $433, respectively. For private payors, the reimbursement rate was $257 at the end of the fourth quarter 2017. The Medicaid rate stems from an increase of $4 from year-end 2016.  In December 2016, the year-over-year increase was $3 and in 2015, the year-over-year increase was $1.

Revenue Per Patient Day (RPPD) only tells a part of the story, though. Even as the year-over-year growth rate for Medicaid RPPD increases (albeit slowly), the margin of increase ($1-$4) may not offset declines in patient day mix for the higher Medicare and managed Medicare payor sources payor sources.

To better understand how RPPD and patient day mix impact skilled nursing properties, NIC has recently introduced a new metric to the Skilled Nursing Report: Revenue Mix. Indeed, as the charts below indicate, Medicaid revenue, as a share of overall revenues, is on the rise. As Medicaid becomes increasingly more important to overall skilled nursing revenues, more attention may be drawn to Medicaid RPPD. Indeed, the New York Times, citing NIC data, recently published an article highlighting the gulf between Medicare and Medicaid RPPD.

Another addition to the Skilled Nursing Report is the inclusion of urban and rural trends. As a recent Skilled Nursing News article pointed out, urban and rural providers have different challenges and opportunities, and those differences are evident in Medicaid mix, RPPD, and revenue mix. For example, Medicaid RPPD is lowest for rural properties, averaging only $193 as of the fourth quarter, compared to $209 for providers in urban areas.

The big question: Is it enough?

According to AHCA’s research, the rate paid by Medicaid for long-term care of nursing home residents may be inadequate. In some states, AHCA contends, the rate is actually less than the cost of care, leaving providers to leverage the other payor sources (Medicare, managed Medicare, and Private) to offset losses. AHCA is not alone in this sentiment. On March 13, a group of concerned citizens in Missouri lobbied in the state capital to advocate for proposed legislation that would reform Medicaid to “bridge the gap” between the cost of care and the state’s Medicaid reimbursement rate, according to the Missourian. And in Washington state, a bill narrowly failed that would create a payroll tax to offset the cost of long-term care for seniors to help low-income nursing home residents avoid spending down all of their assets before qualifying for Medicaid. The New York Times reported that the failed legislation is indicative of a national trend, stating, “legislators are increasingly worried about the growing number of older residents, many of whom don’t even have enough money saved for a comfortable retirement, let alone nursing home bills that can sometimes top $100,000 per year.”

Now what?

Because Medicaid is a program funded and regulated by both the states and the federal government, reform impacting the daily reimbursement rate could occur at either the state or federal level. Federal Medicaid reform could impact the available budget for states’ Medicaid programs, which could have an impact on the Medicaid reimbursement rate. Furthermore, the current administration has stated its desire to grant states more flexibility to use Medicaid dollars to provide care in lower-cost settings through home-and-community based services. The attempt in Washington state to make more funds available for long-term care would be an example of how state reforms could impact the skilled nursing industry. Keep an eye on the NIC Skilled Nursing Data Report, released quarterly, as we track these national trends in Medicaid reimbursement.

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Focused on the themes of collaboration, innovation, and how to navigate current market realities, the 2018 NIC Spring Investment Forum drew nearly 1,800 attendees to the Omni Dallas Hotel last week.

The busy three-day meeting provided a wide variety of networking opportunities, several NIC-hosted receptions, and 17 educational sessions.

In the media briefing on Wednesday, Brian Jurutka, President and CEO of NIC stated: “NIC has always evolved to meet the needs of the industry.  This conference represents our recognition that the collaboration and partnerships between traditional seniors housing operators and senior care enablers will ultimately provide value to residents.  We think that, in the future, instead of senior residents going to healthcare healthcare will come to the seniors.”

Jurutka opened the general session by introducing the Forum’s theme, “Unlocking Value in Senior Care Collaboration.” He noted three drivers of industry change: a change in the wants and needs of baby boomers relative to previous generations, changes in healthcare payment models and delivery pathways, and technology.

Jurutka opened the general session by introducing the Forum’s theme, “Unlocking New Value in Senior Care Collaboration.” He noted three drivers of industry change: a necessary shift in approach needed to care for the coming wave of baby boomers, changes in healthcare payments and delivery systems, and new technology.

“Seniors housing and care operators can create value through partnerships with senior care enablers, whether non-real estate based care providers or hospitals and health systems,” said Jurutka. He noted that quite a few of the educational sessions were devoted to evolving partnerships between healthcare enablers and seniors housing and care communities.

A panel of healthcare policy experts followed Jurutka. They offered their candid observations about the growth of Medicare Advantage plans, value-based purchasing for healthcare, and how senior living companies can position themselves for success.

The luncheon general session included a lively discussion on investment strategies. Panel moderator Kurt Read, RSF Partners, asked panelist Rick Matros of Sabra REIT and Arnold Whitman of Formation Capital about a number of timely topics: interest rates, care delivery, the dangers of over leverage, and the critical issue of labor shortages.

Educational sessions were held over the course of the three days. Here’s a recap of some of the sessions:

“Integration of Care Services: How to Partner with Places People Call Home.” Several providers offered their experiences of partnering with healthcare services. Tony D’Alonzo of Bayada Home Health Care noted that 25 percent of its clients are living in seniors housing. In another example, Brandywine Living uses healthcare coordination as a differentiator.

“Operators and Investors… So Who is Going to Take Care of All Those Boomers?” Panelists addressed the labor shortages facing the industry and the need to recruit and retain good staff. Some of the solutions included hiring older workers and using new technologies to increase efficiency.

“A Fireside Chat with Equity Players in Senior Care.” A diverse panel of senior care stakeholders discussed the outlook for real estate and non-real estate assets. Moderator Ben Firestone of Blueprint Healthcare noted the strength of market headwinds; but added that property performance always comes back to the operator. A rapid fire round of questions produced an outlook of rising property and non-real estate asset prices and continued shortages on the labor front.

“What Seniors Housing and Care Investors Need to Know about Healthcare and Why It’s Important.” Moderator Anne Tumlinson provided a backdrop of the intersection of healthcare and senior living. In short: all senior living residents are covered by Medicare and many are in the Medicaid program. These seniors account for a large amount of healthcare spending. Two senior living providers described their programs to offer care coordination and how the programs have increased census and made for happier residents.

“The Path to Healthcare Risk: Do You Have a Decent Map and Proper Footwear?” Panelists discussed taking on risk for healthcare. Several provided insights into how they insure their own residents. They agreed that the insurance route isn’t for everyone.

“Local Markets Performance in Seniors Housing and Care” took a deep dive into market metrics and how NIC MAP data tools can be used to determine which markets offer the best opportunities.

NIC Chief Economist and Director of Outreach, Beth Mace, provided an overview of macro-economic conditions. She addressed the factors that impact individual market performance: economic vitality, labor force availability, demographics, and new building supply. “There is an upward pressure on wages and a downward pressure on rents,” she noted.

Audience members were polled on the Forum’s mobile app during the session. In answer to one question, a majority of attendees agreed that labor pressures are the biggest challenge they face.

Highlighting the wide variations in local markets, Lana Peck, NIC senior principal, detailed data on San Francisco, Houston and Atlanta. She also demonstrated NIC MAP tools that can be used to define trade areas, including a new feature that segments markets by drive time.

The Labor Department reported that there were 313,000 jobs created in the U.S. economy in February.   This was above the consensus expectation of 205,000 jobs.  This marked the 89^th consecutive month of positive job gains for the U.S. economy.  Revisions added 54,000 jobs to the prior two months.

The labor force participation rate, which is a measure of the share of working age people who are employed or looking for work rose by 0.3 percentage point to 63% as strong job opportunities seemed to draw unengaged workers back into the labor force. Nevertheless, this remains quite low by historic standards, at least partially reflecting the effects of retiring baby boomers.

The unemployment rate remained unchanged for the fifth consecutive month at a 17-year low of 4.1% in February. This is below the rate of what the Federal Reserve believes is the “natural rate of unemployment” and suggests that there will be upward pressure on wage rates.   The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 1.4 million and accounted for 20.7% 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—was unchanged at 8.2% but was down from 9.2% as recently as December 2016.

Average hourly earnings for all employees on private nonfarm payrolls rose in February by four cents to $26.75. Over the past 12 months, average hourly earnings have increased by 68 cents, or 2.6%. This was less than the 2.9% increase seen in January, when markets became spooked about accelerating wage pressures.

Health care added 19,000 jobs in February. In the past twelve months, health care has added 290,000 jobs.

The February jobs report will provide further support for increases in interest rates through 2018 by the Federal Reserve, with the first 25 basis point increase likely happening at the March 20/21^st FOMC meeting.  The Fed has raised rates by a quarter percentage point five times since late 2015, and most recently to a range between 1.25% and 1.50% in December 2017, after keeping them near zero for seven years.  If the Fed raises rates next week, it will be the first overt action by Jerome Powell, the new Chair of the Federal Reserve.

– Urban vs. rural occupancy trends diverge

– Medicaid revenue mix nearly 50%

NIC has just released its fourth quarter 2017 Skilled Nursing Data Report, which now includes urban vs. rural trends, along with revenue mix by payor source. In addition to key monthly data on skilled nursing metrics, it includes time-series data from October 2011 through December 2017.

The current report is based on data collected monthly, but reported quarterly, from approximately 20 operators and 1,500 properties.  The data represents national, aggregate figures.  However, NIC plans to grow the data set, adding more operators and properties to produce state-level reports. NIC welcomes the participation of operators nationwide in this confidential data collection process. Participants will receive a free benchmark report every month for their contribution.

Here are some key takeaways from the report:

1. Occupancy continued to decrease in the fourth quarter of 2017 despite an early and severe flu season. Historically, there has been an uptick in occupancy in the fourth quarter if flu season was both early and relatively severe, as it was the case this year. Occupancy decreased 66 basis points from the third quarter of 2017 to end the fourth quarter at 81.9%. Compared to a year ago, occupancy declined 159 basis points from 83.5% in the fourth quarter of 2016.
2. Differences in occupancy trends in rural and urban settings were pronounced over the last 12 months, with rural occupancy rates declining more sharply than urban. This may reflect many differences including demographics, competition from home healthcare and telehealth, and reforms to the healthcare system. With the introduction of this new geographic perspective on NIC’s skilled nursing data, more research is needed to shed light on the drivers of occupancy in the rural and urban sectors.
3. Managed Medicare revenue per patient day (RPPD) pressures were again evident in the latest data as it reached a new low at $433. However, an analysis of urban vs. rural areas suggests that the pressures of managed Medicare are more prevalent in urban areas than rural areas, as the managed Medicare patient day mix currently stands at 7.3% in urban areas and only 2.7% in rural areas. In addition, managed Medicare patient day mix in rural areas has essentially been flat over the past 6.25 years ranging from 2.5% to 2.7%, whereas it grew from 5.8% to 7.3% in urban areas in the same period.
4. Medicaid revenue mix now represents essentially half of all revenue at skilled nursing properties at 49.3% as of the fourth quarter of 2017. That percentage is up 70 basis points from the prior year in the fourth quarter of 2016. Meanwhile, revenue mix has decreased for Medicare, the highest payor, to 22.8% which is down 98 basis points from the prior year. This trend presents a challenge to the traditional skilled nursing business model as Medicaid, the lowest payor, is growing in revenue mix as the highest payor, Medicare, is decreasing in revenue mix.
5. Private patient day mix is significantly higher in rural areas when compared to urban areas. Rural private patient day mix is now 15.6% as of the fourth quarter of 2017 compared to only 6.5% in urban areas. One possible explanation for the differences among geography types is that urban skilled nursing properties may face higher competition for market share, in part because of a greater supply of similar products such as home care and other seniors housing types.
6. A comparatively higher private patient day mix over the years and a significantly higher increase in private revenue per patient day, along with less exposure to the pressures of managed Medicare, are the main drivers of rural areas showing a slight increase in the overall weighted average revenue per patient day across payor types over the past 6.25 years. However, higher expense growth, especially wage rate growth over the years, needs to be factored in when assessing the overall profit of the business.

NIC released its latest Skilled Nursing Data Report on March 7, 2018.  You can download the latest report and future reports here.