The skilled care delivery and payments system is going through a significant transitional period and it is increasingly difficult to be financially successful without meeting quality standards.

“Financial success is being tied to quality,” said Marc Zimmet, president and CEO of Zimmet Healthcare Services Group, a New Jersey-based consulting firm. “A much more complex system has emerged with so many players, payors and vested interests, but meeting increasingly stringent value targets often results in counterproductive strategies that may improve one revenue source but hurt another. It’s all connected, or said another way, it’s our “Theory of Reimbursementivity.”

Zimmet’s firm advises skilled nursing facilities and other stakeholders on all aspects of what he calls the reimbursement-compliance ecosystem. His firm works with more than 3,000 providers and related stakeholders nationwide.

Based on his broad experience, Zimmet noted the difficulty for a skilled facility to be financially successful today without meeting the quality standards demanded by payors and provider partners. “Rewarding quality is the right thing to do,” he added, cautioning that quality measures can vary. “The issue is that everyone measures quality and rewards quality differently.” The process includes understanding the nuances of bundled payments and the new patient driven payment model (PDPM). “Many operators struggle to manage all these moving parts, and the result is lost reimbursement,” said Zimmet. “Things [] fall through the cracks; we try to make sure that doesn’t happen.”

Another important factor is the growth of Medicare Advantage plans. About 65% of new Medicare recipients are opting for Advantage plans, which push down episodic treatment revenue from fee-for-service Medicare.

Some skilled operators may benefit by joining an institutional special needs plan, or I-SNP, according to Zimmet. The goal of the I-SNP is to treat residents in place. A skilled nursing facility may be able to share in the savings generated by not sending residents to the hospital.

But Zimmet warned, “An I-SNP may be a balancing act for the facility. It has to consider how all the pieces fit together, including the dynamics of contracted services, such as physical therapy, the impact of capitated payments, and the new Patient Driven Payment Model (PDPM). It’s all connected.” An operator that brings down costs in one area may be raising them in another. Also, facilities in states with higher Medicaid rates may be better positioned to benefit from an I-SNP.

Another challenge: In a complex environment, operators can run afoul of regulations, particularly regarding Medicare coverage rules which can be impacted by whether or not the resident is enrolled in the I-SNP or traditional fee-for-service. “Compliance is a big issue that often gets overlooked—facilities must have consistent policies,” he advised.

See an extended interview with Zimmet, including his thoughts on positioning a facility and his outlook for the sector, in the December issue of the NIC Insider newsletter.

As the leading data provider for the seniors housing and care industry, the NIC MAP Data Service® tracks occupancy, asking rents, demand, inventory and construction data for independent living, assisted living, memory care, skilled nursing and continuing care retirement communities (CCRCs), also referred to as life plan communities, for more than 15,000 properties across 140 metropolitan areas. NIC MAP® currently tracks 1,196 nonprofit and for-profit entrance fee and rental CCRCs in these 140 combined markets (1,125 in the 99 combined Primary and Secondary Markets).

CCRCs offer multiple care segments (at a minimum independent living and nursing care) typically by a single provider on one campus. This analysis breaks the care segment types apart from the CCRC community type that NIC includes under the main category of Seniors Housing. Care segment type refers to each part or section of a property that provides a specific level of service, i.e., independent living, assisted living, memory care or nursing care.

Expanding on a recent NIC blog post that detailed 3Q 2019 CCRC market fundamentals data and trends in the 99 combined Primary and Secondary markets, which represent the aggregate of the data collected from 99 of the nation’s largest core-based statistical areas (CBSAs), the following analysis examines current inventory, occupancy, year-over-year same store asking rent growth—and average occupancy growth, average annual same store asking rent growth, and average change in inventory for the past three years—by care segments within CCRCs (CCRC segments) compared to non-CCRC segments in freestanding or combined communities to focus a lens on the relative performance of care segments within CCRCs.

Key Findings:

CCRCs reported higher occupancy and rent growth than non-CCRCs, which had significantly higher levels of inventory growth. Higher inventory growth at non-CCRCs, lower turnover at CCRCs, CCRC customer characteristics (e.g., “planners who are attracted to lifestyle-enriched amenities and services with the security of knowing future healthcare needs will be met) and the relative performance of the majority unit mix may explain potential reasons for these stronger rates of occupancy in CCRCs.

• As of 3Q 2019 in the 99 Primary and Secondary Markets, the overall occupancy rate at CCRCs was 5.0 percentage points higher than at non-CCRCs (91.4% vs. 86.4%). And, between 3Q 2016 and 3Q 2019, care segment occupancy improved more for CCRCs than non-CCRCs.
• The current occupancy rate for both CCRCs and non-CCRCs was highest in the independent living care segment (92.7% and 88.4%); occupancy was lowest for CCRCs in the nursing care segment (88.7%)—and for non-CCRCs in the memory care segment (83.7%).
• The difference in current occupancy between CCRCs and non-CCRCs was the highest for the memory care segment (7.6 percentage points), followed by the assisted living care segment (6.1 percentage points), the independent living care segment (4.2 percentage points) and the nursing care segment (2.8 percentage points).
• For the three-year time period under study (3Q 2016 to 3Q 2019), CCRCs had higher rates of occupancy growth than non-CCRCs for each of the four care segments.
• The memory care segment at CCRCs reported the highest occupancy growth (2.3 percentage points). The least growth in occupancy was noted for the non-CCRC independent living and assisted living care segments (declining 3.0 and 2.6 percentage points, respectively).
• Inventory growth (reported as the change in the number of units from 3Q 2016 to 3Q 2019) was higher for non-CCRCs across all of the four care segments.
• Both CCRCs and non-CCRCs reported the largest (proportionate) inventory growth for the time period in the memory care segment.
• Only the nursing care segment reported negative inventory growth (CCRCs -2.3% and non-CCRCs -1.1%). Reasons for negative inventory growth may include some beds being taken offline, combined, or shifted to lower acuity care segments.
• From 3Q 2016 to 3Q 2019, the highest average year-over-year same store asking rent growth was noted for CCRCs in the independent living and assisted living care segments (3.4% and 3.3%), and the lowest for non-CCRCs in the independent living care segment 2.1% (which, incidentally, also had the largest negative average change in occupancy for the three-year period under study, -3.0 percentage points).

Current Unit Mix and Occupancy

In the third quarter of 2019, CCRC occupancy, which is inclusive of both entrance fee and rental payment types in both nonprofit and for-profit communities across the 99 Primary and Secondary Markets, was 91.4%–equal to the highest occupancy rate achieved since 4Q 2008. Non-CCRC occupancy averaged 86.4% in 3Q 2019 (5.0 percentage points lower than CCRC occupancy).

Conventional wisdom suggests that the wide discrepancy in occupancy rates may be due, in part, to the unique CCRC product offering, which tends to attract retirees who are “planners”—those who wish to make one move to a continuum of care—or perhaps because new CCRC residents are generally healthier than residents in other types of seniors housing, resulting in lower resident turnover in CCRCs.

However, another potential reason for the difference in occupancy rates may be a result of the relative influence of the majority inventory mix in CCRCs compared to non-CCRC communities (freestanding and combined). As shown in the chart, in aggregate, CCRCs are comprised of a majority of independent living care segment units (55.5%), followed by nursing care units (27.1%), assisted living units (13.8%), and memory care units (3.7%). Compared to CCRCs, non-CCRCs have lower proportions of independent living care segment units (14.2%), higher proportions of nursing care units (53.3%), assisted living units (24.2%) and memory care units (8.3%) than CCRCs.

Thus, the overall CCRC occupancy rate, compared to the overall non-CCRC occupancy rate, may be influenced positively by majority unit mix as the CCRC independent living care segment (which represents 55.5% of CCRC units) garnered the highest occupancy in the third quarter of 2019 (92.7%), as well as on average for the three-year period under study. The current nursing care segment occupancy rate in non-CCRCs, which represents 53.3% of non-CCRC units, was much lower at 86.0%.

CCRCs vs. Non-CCRCs in Detail

The table below compares each of the care segments—independent living, assisted living, memory care and nursing care—in the 99 Primary and Secondary Markets. The table shows the 3Q 2019 total open units, occupancy and year-over-year same store asking rent growth—and average change in occupancy, average year-over-year same store asking rent growth, and average change in inventory for CCRCs and non-CCRCs for the three-year time period (3Q 2016 to 3Q 2019).

The CCRC independent living care segment had the highest 3Q 2019 occupancy (92.7%), followed by assisted living (91.6%), memory care (91.2%), and nursing care (88.7%). Among non-CCRCs, the independent living care segment had the highest 3Q 2019 occupancy (88.4%), followed by nursing care (86.0%), assisted living (85.5%) and memory care (83.7%).

The difference in 3Q 2019 occupancy between CCRCs and non-CCRCs was the highest for the memory care segment (7.6 percentage points), followed by the assisted living care segment (6.1 percentage points), the independent living care segment (4.2 percentage points) and the nursing care segment (2.8 percentage points). 

CCRC same store year-over-year asking rent growth in the third quarter of 2019 was 3.9% (down from the time series high of 4.6% reached in the first quarter of 2019). The highest year-over-year same store asking rent growth was reported for CCRCs in the independent living and assisted living care segments (3.4% and 3.1%). The lowest was noted for CCRCs in the memory care segment (1.8%), and non-CCRCs in the independent living and memory care segments (2.1%, respectively).

Higher Occupancy at CCRCs

For the three-year time period under study, CCRCs had positive improvement in occupancy rates for all four care segments, while non-CCRC care segments saw declines in occupancy.  The best improvement in occupancy was for the CCRC memory care segment (2.3 percentage points), and the largest occupancy declines were for the non-CCRC independent living and assisted living care segments (-3.0 and -2.6 percentage points).

• Among CCRCs, the memory care segment had the strongest occupancy improvement (a gain of 2.3 percentage points), followed by independent living (a gain of 0.7 percentage points), assisted living (a gain of 0.3 percentage points), and the nursing care segment (a gain of 0.1 percentage points).
• Among non-CCRCs, the independent living care segment had the greatest change in occupancy and this change was negative (a decline of 3.0 percentage points), followed by assisted living (a decline of 2.6 percentage points), memory care (a decline of 1.1 percentage points), and the nursing care segment (a decline of 0.3 percentage points).

Significantly Weaker Inventory Growth at CCRCs

For the three-year time period under study, non-CCRCs had significantly higher rates of inventory growth (change in inventory), overall, and by segment, than CCRCs. Between 3Q 2016 and 3Q 2019, inventory at CCRCs grew by 1.6% (5,892 units), while non-CCRC inventory growth grew by 5.6% (75,775 units). The highest rate of inventory growth was reported for both CCRCs and non-CCRCs in the memory care segment (12.4% and 24.9%); the lowest was reported for both CCRCs and non-CCRCs in the nursing care segment (-2.3% and -1.1%).

• Among CCRCs, the memory care segment had the highest inventory growth (12.4%–a gain of 1,507 units), followed by independent living (2.9%–a gain of 5,867 units), and assisted living (1.8%–a gain of 895 units). However, inventory declined in the nursing care segment by 2.3% (a reduction of 2,377 beds).
• Among non-CCRCs, the memory care segment had the highest inventory growth (24.9%–a gain of 24,752 units), followed by assisted living (12.1%–a gain of 38,904 units), and independent living (10.8%–a gain of 20,562 units). Inventory declined in the nursing care segment by 1.1% (a reduction of 8,443 beds).

Higher Annual, Same Store Asking Rent Growth at CCRCs

For the three-year time period under study, CCRCs had higher rates of average year-over-year asking rent growth overall, and by segment, than non-CCRCs. The highest was noted for CCRCs in the independent living and assisted living care segments (3.4% and 3.3%), and the lowest for non-CCRCs in the independent living care segment 2.1%.

• Among CCRCs, the independent living care segment had the highest average year-over-year same store asking rent growth for the three-year period (3.4%), followed by assisted living (3.3%), nursing care (3.0%), and the memory care segment (2.9%).
• Among non-CCRCs, the assisted living care segment had the highest average year-over-year same store asking rent growth over the three-year period (2.6%), followed by the memory care and nursing care segments (2.5%, respectively), and the independent living care segment (2.1%).

Look for future blog posts from NIC to delve deep into the performance of CCRCs. For further information on NIC, its reports, and data and analytics services available to providers, please visit the NIC website at www.nic.org.

A version of this analysis was originally posted to Ziegler’s Z-News newsletter on December 13, 2019.

• Medicaid revenue mix reached a time-series high
• Occupancy flat, continues to stabilize

NIC released its third quarter 2019 Skilled Nursing Data Report last week, which includes key monthly data points from January 2012 through September 2019.

Here are some key takeaways from the report:

1. Medicaid revenue mix reached a time-series high of 51.5% in the third quarter 2019, up 55 basis points from the second quarter of 2019 and up 25 basis points from a year ago. The quarterly revenue trend was driven by the urban areas, as it increased from the prior quarter and from the prior year, but the rural area Medicaid revenue mix was down slightly from the prior quarter and lower from the same period last year.  Although the lowest payor in terms of revenue per patient day (RPPD), Medicaid RPPD also hit a time-series high ending the third quarter 2019 at $214. It grew 0.7% quarter-over-quarter and 2.4% year-over-year. However, the yearly RPPD growth still trails nursing home wage growth by a wide margin.
   
2. The skilled nursing occupancy rate was flat from the second to third quarters of 2019 at 83.6%. Monthly occupancy continues to show stabilization and has averaged 83.6% since falling to its low point of 83.1% in June 2018. Year-over-year occupancy increased 21 basis points and is up 48 basis points from June 2018. The trend differed by geographic location as occupancy increased quarter-over-quarter in rural areas, remained flat in urban areas, and decreased in urban cluster areas.
3. Skilled mix hit a time-series low in the third quarter of 2019. The decrease was mostly driven by Medicare, although managed Medicare patient day mix decreased quarter-over-quarter as well. Historically, this is not uncommon as the data does usually show a decrease from the second to the third quarter. However, the fact that skilled mix has now hit a time-series low suggests that there is still general downward pressure on skilled admission and/or length of stay. Skilled mix decreased 50 basis points from the second quarter 2019 to end the third quarter 2019 at 24.4%. It also decreased from the prior year, falling 39 basis points. Skilled mix increased by 12 basis points in rural areas from the prior quarter to end the third quarter at 22.6%. The urban areas saw a 67 basis point decline quarter-over-quarter to end at 25.0%. On a year-over-year comparison, skilled mix in both urban and rural areas decreased.
   
4. Medicaid patient day mix hit a time-series high of 67.6% in the third quarter as it increased 56 basis points from the prior quarter. The fact that skilled mix decreased 50 basis and occupancy was relatively flat in the third quarter suggests that Medicaid demand is helping to stabilize occupancy. Medicaid patient mix increased 62 basis points year-over-year. The quarterly Medicaid patient day mix increase was driven by both urban and rural areas, which increased 70 basis points and 58 basis points, respectively, from the second quarter. Meanwhile, private patient day mix continues to decrease as it fell 5 basis points from the prior quarter to end the third quarter 2019 at 8.0%. It was down 23 basis points from a year ago.

To get more trends from the latest data, download the NIC Skilled Nursing Data Report here. 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 in order to provide data at localized levels in the future. Operators who are interested in participating can complete a participation form on nic.org. NIC maintains strict confidentiality of all data it receives.

When NIC founder and strategic advisor Bob Kramer returned from a recent trip to Milwaukee he was clearly inspired, energized, and as hopeful as ever for the future of seniors housing in America. He’d been invited to witness the October 8th unveiling of Direct Supply’s newly renovated and expanded Innovation & Technology Center (ITC) on the Milwaukee School of Engineering (MSOE) campus – and was blown away by what he’d seen there.  

The ITC is developing exciting new solutions with real-world, practical applications that can make a difference both in the care that seniors receive, and in the efficiency and effectiveness of the organizations that care for them. As Kramer posted on LinkedIn:  

“I just attended the Grand Opening of Direct Supply’s Innovation & Technology Center, where they’re addressing such questions as:  “What if a care environment could talk? If so, what is it telling us?” with some incredible tech, such as radar and artificial intelligence. This approach addresses privacy issues and doesn’t require wearables – and it could positively impact workflow patterns, enabling staff to be more efficient and effective in the face of workforce challenges.”  

Wisconsin Governor Tony Evers, who also attended the event, was excited about the impact the ITC will have on his state, as a national center for innovation: “Direct Supply is helping lead the way for innovation in Wisconsin. By connecting MSOE students directly with their industry leading expertise in the critical and growing field of senior care, Direct Supply is building a national hub for applied research, and helping train the next generation of Wisconsin innovators.” 

The $14 million renovation of the 55,000 square foot facility has yielded a powerhouse center for innovation that is likely to have a real impact on how we care for America’s seniors, and on solving many of the key challenges facing the sector today. The facility itself is a beautiful “old-meets-new” renovation of a historic building initially erected in 1851, as a school for teaching English to an incoming tide of German immigrants. It is not only an attractive workspace, however. The facility has been custom-designed to house over 200 engineers, working in partnerships with startups, universities, and “progressive care providers” to develop technology-based solutions for senior care. 

Behind the project is Direct Supply, a major provider of equipment, furnishings, environmental products, and many other categories of products commonly found in seniors housing and care properties, including technological solutions. “Senior care is at a major inflection point,” said Tom Paprocki, managing director of the ITC. “Demographic shifts, generational preferences and systemic financial constraints are all converging, and they cry out for practical technologies and innovation that will transform care. The building is awesome, but it’s the work we’re doing here that matters. We’re here to shake things up in a major way.” 

The company initially launched the ITC in 2012 as a means to involve Milwaukee School of Engineering students and professors in research projects. Since that time, the ITC has grown, vetting and testing thousands of potential solutions to the problems in senior care, and yielding a growing list of proprietary solutions and software along the way. The program has the added benefit of producing a steady supply of new talent for the company, which has been expanding its e-commerce and technology solutions output in recent years.   

The seniors housing and care sector will be asked to do more with less in coming years, and the deployment of efficient, effective technologies is likely to play a major role in the solutions to a multitude of challenges. As millions of aging baby boomers begin to make their presence felt, the industry will have to meet their often industry-changing demands, all while dealing with staff shortages, changes in payment policies, the impact of healthcare reform, and the need for hundreds of thousands of new units to be built across the nation. To have this type of center that is focused on developing real-world solutions to these and other challenges facing senior care and senior living, increases the chances that the sector will find and deploy solutions that will improve access and care for America’s seniors.  

Enabling qualified staff to focus on the aspects of resident care that best make use of their time, rather than spending valuable time on tasks that tech can accomplish, is already a focus of research. Deploying technology that uses advanced sensor technology, coupled with artificial intelligence, to predict and help staff prevent falls, infections, or failures to medicate, for example, could make a real difference not only in the experience and wellness of residents, but in workflow patterns. Savings in staffing costs, which make up 60% or more of the operating costs of a typical seniors housing property, could contribute to lower overall costs for residents, a major issue highlighted in the landmark NIC-sponsored “Forgotten Middle” study released this year. 

Given the nature of the challenges facing the sector, and the significant impact that seniors housing and care will have on the national economy in coming decades, the ITC is likely to play a major role in the industry’s makeup as it adapts. As Kramer opined in his post, “We are truly fortunate to have an innovation center like this, totally devoted to issues around senior care and senior living.” 

The National Council of Real Estate Investment Fiduciaries (NCREIF) recently released investment return performance indicators for the primary commercial real estate sectors, including seniors housing. The results for seniors housing are summarized in this blog post. The performance measurements reflect the returns of 124 seniors housing properties, valued at $6.5 billion in the third quarter. As recently as the second quarter of 2018, the value of seniors housing properties reported into NCREIF was $1 billion less, at $5.4 billion with 110 properties reported. While limited in scope, the data reflects the return performance of investment managers who manage or own institutional real estate with a market value of at least $50 million held in a fiduciary setting.

Seniors Housing Capital Returns Outpace NPI.  The total investment return for institutional investors as measured by the 124 properties that reported data to NCREIF in the third quarter of 2019 was 2.29%, composed of a 1.30% income return and a 0.99% capital (appreciation) return. The positive appreciation return indicates that the seniors housing properties in the NCREIF data set continue to increase in value after deducting for capital expenditures. The total return for this quarter was slightly ahead of the average quarterly return over the past four quarters, which was 1.89%. The quarterly total seniors housing return compared favorably with the 1.18% rate for apartments and 1.41% rate for the total NPI. The quarterly appreciation return for seniors housing was particularly strong compared with the NPI and apartments and was 0.99%, compared with 0.30% and 0.13%, respectively. Note that these figures reflect unleveraged returns. 

The annual total return through the third quarter of 2019 was 7.80%, exceeding the NCREIF Property Index (NPI) result of 6.24% and the apartment return of 5.39%. However, at 13.64%, industrial total returns significantly outpaced seniors housing. Industrial continues to benefit from e-commerce which has increased demand for last-mile warehouse space. Despite the relatively strong showing for seniors housing, the total annual return has been trending down since mid-2014 when it peaked at 20.37%. This pattern can also be seen in the broader index and reflects where we are in the cycle.

Cap Rate Compression.  Based on NCREIF data, the value-weighted cap rate for seniors housing averaged 5.1% in the third quarter, near the mean for the year, but down from the average 5.4% rate seen in 2018 and 5.8% in 2017. Since 2017, cap rate compression has not been as significant for the overall NPI nor apartments. The risk premium is nearly one percentage point higher than for apartments (4.2% cap rate) and 78 basis points for the NPI (4.3% cap rate).

See NCREIF Real Estate Performance Report Quarterly Highlight.