In 2023, Medicare Advantage (MA) enrollment surpassed traditional fee-for-service Medicare enrollment for the first time in the program’s history, with more than 30 million seniors—51% of the Medicare population—now enrolled in a private plan. While MA plans can boast lower 30-day hospital readmission rates and fewer avoidable hospitalizations for their members, the increasing penetration of MA plans is a trend that senior housing and care providers should monitor closely.
Medicare Advantage plans routinely contract with health care providers—including assisted living and nursing care operators—for services. These plans control which care providers are in their networks as well as the characteristics of their contracts.
MA Plan Consolidation and Rate Cut Implications for Care Providers
When a single MA plan has considerable penetration in a given market, their contractual offerings to a post-acute care provider may not cover the costs of basic custodial care, let alone the more intense care provided within a skilled nursing setting. For post-acute care providers, this can present a lose-lose situation. While their costs may not be covered due to contractual payment limitations, not accepting a contract offer could result in inadequate service volume, leading to lower occupancy and further financial strain.
Simultaneous to MA enrollment reaching its highest level, the number of MA plans available to eligible seniors fell for the first time ever, with fewer plans available to choose from in 2024 than in 2023. With smaller plans exiting the market, larger MA organizations further consolidate, resulting in more limited competition and diminished negotiating power for providers.
An additional challenge facing the marketplace is a proposed 2025 rate reduction in the Medicare Advantage base payment rate which, if finalized, would mark the second consecutive year with a lower benchmark rate. The response from MA insurers will likely be increased premiums and a reduction to enrollee benefits and provider reimbursement.
One-fifth of Medicare beneficiaries discharged from a hospital receive post-acute skilled nursing care. In the Medicare Advantage plans, skilled nursing providers are much more likely to encounter prior authorization requirements for necessary drugs and treatments. These authorizations often lead to delays in care and in some cases are denied for reimbursement. Post-acute providers have long decried the burdensome prior authorization process and high denial rates experienced with Medicare Advantage plans.
Navigating the MA Landscape by Care Providers
There are moves that providers can make to better navigate this MA landscape. First, ongoing advocacy related to prior authorization and the high rate of denials is needed. A number of groups continue to push federal officials to further scrutinize these denial patterns. Second, there are a number of providers who have entered value-based care arrangements themselves. Some have formed their own Medicare Advantage plans as owners while others have joined a network with others to share in risk. This puts the provider in a greater position of upside risk for delivering positive outcomes for their residents. Last, it is imperative that provider organizations are sophisticated in demonstrating their value through prevention and wellness efforts that result in cost savings and better outcomes for their residents.
With the CMS goal to have all Medicare-eligible individuals enrolled in a value-based care relationship by 2030, it is anticipated that these MA trends will only increase in the next several years. Providers need to stay on top of these trends, understand their local markets, and explore where they can participate in value-based care arrangements to better position for success and viability long-term.
How to reimagine senior housing in partnership with higher education.
What does it mean to bring an explorer’s mindset to the redesign of senior housing?
Anne Doyle, CEO of Spark Living and Learning, shares exciting new ideas here on how to develop a learning culture to attract the next generation of residents. Partnerships with local colleges or universities can provide unexpected benefits such as employee sourcing, expense management, educational enrichment, and engagement with the wider community.
NIC Co-Founder and Strategic Advisor Bob Kramer interviewed Doyle at the 2023 NIC Fall Conference. What follows is an edited version of their conversation. The discussion offers relevant context and detail on how to leverage the benefits of higher education to create an aspirational community—one where people want to live.
View Anne Doyle’s NIC Talks presentation on multigenerational living here:
Kramer: You had a revelation on a recent vacation. Can you tell us about it?
Doyle: This past summer I had the opportunity to kayak in the Artic on the west coast of Greenland. Being in a remote place surrounded by massive glaciers and huge icebergs thousands of years old made me think about the senior living industry and the short time we have on this earth in comparison to our natural world. It put into sharp focus the importance for us to make the most of our time here and not think that those later years as ones to just slide through.
Kramer: It sounds like you realized the importance of intentionality in thinking about our later years.
Doyle: Absolutely. Before I went kayaking in the Artic, I thought all icebergs were the same. But I saw that they’re all different, with a variety of shapes and hues. Most people think those who are older are similar. But we know people at 55, 65, 75, or 85 are incredibly different and each of us is different.
Kramer: How does that relate to senior living?
Doyle: This applies to the individuality of people in their later years and how to develop choices for older adults. I’m excited about opportunities to create intergenerational communities. How do we take this incredible opportunity considering the diversity of people, backgrounds, and interests to help them make the most of their lives?
Kramer: People might be familiar with your work at Lasell Village and think that being located on a college campus is the only way to partner with higher education. What would you say to them?
Doyle: Lasell Village is a great example of a way to bring people together. Lasell Village is a fully integrated continuing care senior living community on the campus of Lasell University in Newton, Massachusetts, outside of Boston. About 300 people live there across all levels of care. When residents move in, they agree contractually to have 450 hours a year of education. This model may not work in most places, but there are opportunities to tailor communities to different campuses.
Kramer: Why is this the right time?
Doyle: Higher education faces a declining birthrate and reduced customer base, while our industry faces an exploding customer base. There is an opportunity to match the puzzle pieces. Universities have a big interest in serving more people, and they have high fixed costs. Universities can benefit from a relationship with senior living.
Kramer: What are the benefits for residents? Does a community affiliated with a college or university appeal to a wide swath of people?
Doyle: There are clear benefits to individuals. Some are seeking purpose, or new educational opportunities. Maybe they’re interested in learning a new language, or in a different field of study. Maybe they want to retool their skills while they continue to work. If we have the benefit of a long life, those extra 20-30 years could give us the ability to have an extra career or pursue a new interest.
Kramer: What are some of the different models that combine senior living and higher education?
Doyle: There are fully integrated communities like Lasell Village where the community is embedded on the campus as well as communities that are associated with a college or university. The model could include all different types of housing. It could be a co-housing model with families. It could be an affiliation with a secondary school, cultural organization, or performing arts center. We have to think intentionally about how to partner with assets in the wider community.
Kramer: What are the multi-generational opportunities that might make this model attractive to the college or university?
Doyle: When thinking about young people, they need work and senior housing offers work opportunities in hospitality, clinical sciences, marketing, and other areas. There is also the opportunity to develop intergenerational friendships when people are naturally together, say volunteering at a day care center on campus, in class together, or at the art studio. Friends can be made anywhere. Those relationships help address not only a concern in senior housing but also among those caring for young people. The perspective of older adults when a young person is stressed out can help mitigate mental health challenges and colleges don’t have enough mental health practitioners. Friendships across the life space can really make a difference.
Kramer: What is the value proposition for older adults, investors, operators, the university and for the college age students themselves?
Doyle: There are a lot of stakeholders in this puzzle, and I would add another, the workforce itself. As I mentioned, students need to work. The smart senior housing organization will develop a strong relationship with the university or college so students can work at the community or continue their education through capstone projects. Student workers surrounded by a professional support group and mentors are likely to have longevity with that senior living organization. Retention benefits the business, the students, and the older adults who see and get to know the student worker over a longer period of time.
A second benefit is expense management. Senior housing and higher education have a similar infrastructure. We have workforce expenses, property, dining services and amenities. We can get creative about how to leverage each other’s resources. For example, we could buy IT services from each other and reduce our costs. Finding a way to pool our backend services really makes a lot of sense.
The third benefit is that a college or university campus just naturally provides engagement every day. Communities serving older adults are constantly trying to up their game in terms of engagement and education. A university campus offers ever changing lectures, classes, and events.
Kramer: What questions should senior living leadership be asking about their own goals that might inform new partnerships?
Doyle: Start by asking: How do you want to live when you are 75, 85, 95 or 105? If we really honestly answer that for ourselves, then we realize all the things we want to do. Our group who went to Greenland was in their 60s and 70s. It was cold. The wind ripped our tent in half. But we found it totally exciting. We need to design our communities for what we are interested in and not what we think other people are interested in. Maybe you’ve never had an opportunity to learn a musical instrument, and you’d like a place that has a relationship with a music conservatory. If we are intentional about what we want to do and who we want to do it with, there are so many possibilities. We’ll get a lot more creative and build better communities.
Kramer: What’s the value add of the university community compared to a traditional senior living community?
Doyle: The value add is having a pool of customers who want to move into your community. We know that we’re not that excited about moving to communities where our parents have lived. If we continue to replicate that model, we will have occupancies that continue to reflect that. Be honest about what interests us and our friends, and build for choice. The value comes from prospective residents who say this is a place I want to live and live for a longer time.
Kramer: One of the issues in our industry is whether we are an avoidance setting or an aspirational setting. An avoidance setting is one in which I want to do everything I can, so I don’t end up being forced to move there. An aspirational setting is a place to explore new things, and a university is a great setting for that. I like to say lifelong learning is learning for a long life. How do you view the connections between universities and senior housing?
Doyle: I absolutely see the connections between higher education and senior living as aspirational. People choose to move in because they want to be in a community of curious people, and in a diverse community—people with different professional, racial, cultural, and geographical backgrounds.
People often move to senior living close to where they’ve been living. But in my experience, a university or college connection creates a buzz around the opportunity for change. It’s like new college students who are open to all the possibilities on campus. I’d like to frame our communities as ones of possibility not of restrictions. We have that within our means.
Kramer: How do these partnerships challenge the prevailing paradigm about getting old and aging?
Doyle: I have a 91-year-old friend who says a healthy attitude leads to a healthy mind and body. This is from someone with many health issues. We can create communities that are about opportunities and not restrictions. We can support each other in a shared culture that believes we can do the things we want to do even with cognitive and physical decline.
Kramer: As senior living leadership thinks about their own goals and pursuing partnerships with universities and colleges, what advice would you give them? What questions should they be asking themselves?
Doyle: I led senior living on a campus, and we experienced tremendous success coming out of COVID with a large waitlist. Residents were engaged in education. Senior living leaders need to recognize that it often takes more intention to work with a university. The business objectives of the senior living community and the university must be 100% aligned. As I said before, the college may be suffering from reduced enrollment and the need to spread fixed costs over a smaller customer base. Schools want to diversify their revenue.
The college might be interested in selling or leasing land to a senior living provider. The provider could buy IT, fitness, dining, or educational services from the school rather than creating them in-house. The key questions are: What are your objectives? Are you aligned with the school’s objectives to develop an intentional partnership?
Kramer: What is the most surprising thing you’ve learned as director of Lasell Village and with your new firm?
Doyle: We too often segregate social services and healthcare. And education is never in the same conversation. Put those pieces together, and then we’re really talking about wellbeing.
Kramer: What is the key takeaway from your time leading Lasell Village?
Doyle: A key attribute of our success is that I had a role in the governance of the university. I had very good insights into the educational sector and the bottom line as well as the strength of the senior living community. I was constantly thinking of ways to benefit each party. It’s important to think about the alignment at the top. It can’t just happen naturally.
Kramer: You recently took a trip to Sweden. What new perspectives did you bring back?
Doyle: When I was 25, I studied in Sweden looking at alternative ways for older adults to live and receive services. I recently went back as a fellow at the University of Gothenburg. My ‘aha moment’ was that it’s universal to think about how to live a full life. We all want to be respected, live fully and not be restricted.
Kramer: Anything else you’d like to add?
Doyle: If we just focus on the capital markets and whether it makes sense to build a community near or on a campus, we are missing the opportunity to create intergenerational communities. But it takes an intentional connection between the leaders of both organizations. This period of slow development should not stop us from thinking boldly about what is possible to entice the next generation.
NIC MAP Vision Fourth Quarter 2023 Key Takeaways: Senior Housing Occupancy Rate Increases for Tenth Consecutive Quarter
The NIC Analytics team presented findings during a webinar with NIC MAP Vision clients on January 18, to review key senior housing data trends during the fourth quarter of 2023.
The NIC Analytics team presented findings during a webinar with NIC MAP Vision clients on January 18, to review key senior housing data trends during the fourth quarter of 2023.
NIC Analytics, along with the NIC MAP Vision team, implemented a new quarterly webinar format in which the second half features a deep dive on a special topic. In January’s webinar, Larry Graeve from Weitz Construction and Omar Zar, NIC Senior Principal in Research and Analytics, delved into senior housing construction trends. Their presentations were followed by a lively moderated discussion with Lisa McCracken, NIC’s Head of Research & Analytics. NIC hopes NIC MAP Vision clients enjoyed this new webinar format and welcome any comments or suggestions.
Key takeaways from the fourth quarter data included the following:
Takeaway #1: Primary Market Fundamentals on Track for Occupancy Recovery in Second Half of 2024
The occupancy rate for the 31 NIC MAP Primary Markets rose 0.8 percentage points to 85.1% in the fourth quarter. This marked the tenth consecutive quarter of occupancy gains.
Occupancy is 7.3 percentage points above its pandemic-related low of 77.8% recorded in mid-2021 and only 1.9 percentage points below its pre-pandemic level of 87.1% in the first quarter of 2020.
Robust demand coupled with moderate levels of new supply has driven occupancy gains, and at this current pace, senior housing occupancy rates are on track to recover to pre-pandemic levels in the second half of 2024.
Takeaway #2: Secondary Markets’ Occupancy Rate Has Recovered to Pre-pandemic Levels
For the 68 NIC MAP Secondary Markets, the occupancy rate in 2023 increased by 2.2 percentage points during the fourth quarter to 87.0%, which is 0.2 percentage points more than its pre-pandemic level.
When breaking out occupancy by property type, the more needs-driven majority assisted living properties have led this recovery, with occupancy 1.2 percentage points above its pre-pandemic level, while the more choice-based majority independent living properties have only 0.9 percentage points left to recover.
Takeaway #3: Occupied Units Continue Climbing to Record Highs
The total number of occupied senior housing units for the 31 Primary Markets set another high in the fourth quarter, rising to 598,995 units. This was 29,905 units higher than the pre-pandemic first quarter of 2020 level.
This trend of record high occupied units is similar for the 68 Secondary Markets as well and shows that today more older adults than even before are residents in senior housing properties, which speaks to the tremendous need for housing and care.
Inventory growth for the 31 Primary Markets totaled 9,552 units in 2023, down from 11,078 units in 2022.
Overall, inventory growth has generally trended down from its high point of 21,314 units in 2018 as supply chain issues, labor shortages, and less favorable financing conditions have weighed on new supply.
Takeaway #5: Construction Activity Still Slow in Most Markets
By metropolitan market, this heat map below shows which Primary Markets are experiencing the most construction activity, with blue tones indicating that construction activity is relatively “cool” and red tones indicating markets with the most construction activity.
Washington, DC and San Jose have the most construction underway each totaling 16% of existing inventory, followed by Denver at 8% and Los Angeles and Miami, which were each at 7%.
The year ahead will likely be a dynamic one for senior housing and care with unfolding trends that will shape our sector in meaningful ways for the next decade as boomers age into the demographic most likely to access housing and services. The five trends below highlight some of these sector growth predictions to watch in 2024.
Is 2024 the year of the “Great Reset?” Many groups and industry experts feel that this year is going to be one of reconciliation. As transaction activity has dampened in recent years and bid-ask spreads were too large to move deals forward, we anticipate that there will be an industry reset to the reality of current valuations. Additionally, as loans are maturing, some with short-term extensions from the past year, owners may need to make difficult decisions regarding equity contributions and revised valuations for existing assets.
A silver lining for distressed assets? While select groups in the midst of this reset may feel pain, potential acquirers may reap the benefits of attractive assets at a cost unavailable just a few years ago, perhaps at price points below replacement costs. Those opportunities could foster more affordable housing options for middle market older adults, a cohort that is expected to grow significantly over the next several years.
Movement from the Fed. Unless there is a monumental unforeseen event, all indications point to rate reductions in 2024. Timing is the big uncertainty and is dependent upon key CPI and employment metrics, among others. December’s inflation figures released last week, which showed slight increases, somewhat muddied the waters on Fed strategy for the year. The timing and pace of anticipated reductions will shape strategies for acquisition and new development.
Positioning for future development projects. We ended 2023 with dramatically reduced levels of new construction in senior housing. As occupancy levels climb and certain markets experience demand-supply imbalances, we expect to see renewed interest in development projects. The construction cycle has lengthened in recent years, and thus, new developments initiated now will have on average a roughly 24-month time period between commencing construction and community opening. We anticipate that certain sidelined projects may start to make their way back to the planning table.
Avoiding Past Mistakes. What lessons have we learned from the last growth cycle in the senior housing and care sector, which peaked in years 2018-2019? Some anticipate that certain markets may potentially overbuild. Additionally, consistent operational oversight needs to keep pace with new growth. At the same time, we are falling short of projected future supply needs. As the sector continues to mature, it will be important to acknowledge lessons learned and to determine what should be done differently moving forward.
According to the Senior Housing News 2024 Outlook survey, most in senior housing are more optimistic entering this year compared to last year. NIC shares that optimism. There is a great need for more quality housing and care options for seniors, and the sector can benefit from this period of reset. The senior housing industry must be ready to respond to opportunities that lie ahead.
The 2024 capital markets outlook is that much remains the same. Credit is scarce and the capital markets remain unpredictable. Whether the Fed will cut rates in four months, six months, or even nine months, many investors believe that defense is the best offense. The preceding ten years created a fascinating environment with cap rate compression to historic lows and a substantial amount of newly issued debt. Today, the industry is entering a period of transition where cap rates are starting to progress upward, and historic levels of debt are being repriced in a higher cost of capital environment.
In the debt markets, loan to values are trending downward while the quality of assets and counterparties is going up. Spreads and base rates are providing investors with attractive unlevered returns, and many see credit as a good place to be active today. On the equity side, generally speaking, public real estate companies have traded off their highs, but there remains a lot of pricing uncertainty with respect to private real estate. Many private equity funds are waiting to see how the coming months unfold as repricing and price discovery occurs. Transaction volumes remain low. According to NIC MAP Vision, fourth quarter 2023 preliminary closed transaction volume was $465.8 million for senior housing, and $525.5 million for nursing care. Over the past four quarters ending fourth quarter 2023, senior housing transaction volume was $3.8 billion, down 59% year-over-year.
The senior housing market is showing signs of continued strength despite challenging capital markets. Annual inventory growth for the fourth quarter of 2023 was 1.4%, below its pre-pandemic average of 1.6%. New supply has been constrained by tighter credit conditions and increased construction material costs, which have outpaced CPI. Yet the slowdown in supply has been accompanied by persistent and accelerating demand, boosting fundamentals. Senior housing occupancy for the third quarter of 2023 was 85.1%, up 80 basis points from the previous quarter, which marks the tenth consecutive quarter of occupancy increases. Similarly, the fourth quarter of 2023 showed that all care segments maintained their near record high year-over-year rent growth.
In many ways it feels like it could be senior housing’s time to shine. From a demand perspective, the industry is at the beginning of an aging baby boomer population. Statistics show that that population grew five times faster than the overall US population from 2010 to 2020. New supply remains constrained, and this will continue throughout 2024. Rent growth has stayed elevated and investors are optimistic around the sector. As certainty in the treasury market returns, and capital forms around the sector, transaction activity should pick up. 2024 may represent an attractive entry point to senior housing as prices adjust lower and fundamentals remain attractive.
Sources:
4Q23 NIC MAP® Market Fundamentals Data
U.S. Bureau of Labor Statistics Producer Price Index Producer Price Index Home: U.S. Bureau of Labor Statistics (bls.gov)
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Anne Doyle, CEO of Spark Living and Learning, shares exciting new ideas here on how to develop a learning culture to attract the next generation of residents. Partnerships with local colleges or universities can provide unexpected benefits such as employee sourcing, expense management, educational enrichment, and engagement with the wider community. 
The 2024 capital markets outlook is that much remains the same. Credit is scarce and the capital markets remain unpredictable. Whether the Fed will cut rates in four months, six months, or even nine months, many investors believe that defense is the best offense. The preceding ten years created a fascinating environment with cap rate compression to historic lows and a substantial amount of newly issued debt. Today, the industry is entering a period of transition where cap rates are starting to progress upward, and historic levels of debt are being repriced in a higher cost of capital environment.