The primary tool the Centers for Medicare & Medicaid Services (CMS) has for enforcing care standards at skilled nursing properties are civil monetary penalties (CMPs). CMPs are essentially fines for facilities found to be out of compliance with CMS care standards. Based on a national average, CMS penalties for skilled nursing properties had been on the rise from 2016 to the third quarter of 2019.  

Impact of the COVID-19 Public Health Emergency 

As the country began to grapple with the COVID-19 pandemic and the public health emergency was announced, average CMS penalties for skilled nursing properties declined. This is likely a reflection of the more collaborative, less-punitive surveys that took place while surveyors – the CMS regulatory staff who assess compliance with Medicare health and safety regulations – and operators alike learned about COVID-19 and its spread. 

A new federal government administration and a more thorough understanding of COVID-19 and the importance of strong infection control measures may mean that these penalties could be on the rise again, a trend that seemingly has already begun.   

Source: Data.cms.gov; Nursing Home Services Data Archive, 2016-2021

A Rise in Per-Incident Penalties 

Skilled nursing properties can be penalized through the imposition of a CMP for either the number of days that a facility has been out of compliance with a federal requirement (per-day or per-diem), for each instance of noncompliance (per-instance), or CMS can deny payments for new admissions. In 2017, guidelines were changed to set per-instance CMPs, rather than per-day, as the default penalty. Per-day penalties are often applied retrospectively and can accumulate to significant fines. Although per-day penalties remained the recommended approach for major violations, their overall use has been curtailed substantially.  

This transition has meant that the total amount of fines collected through per-incident penalties increased more than eight-fold from 2016 to 2020 and are projected to be even higher at the completion of the 2021 fiscal year (on September 30, 2021). As per-day penalties can be applied retrospectively and accumulate to significant amounts, operators benefitted during these years, as they were sheltered from penalties above the per-incident maximum fine of $20,965. There is no cap on the accumulation of per-day penalties. The Center for Medicare Advocacy has opposed the switch to per-incident fines and has been working to reverse what it considers to be efforts to roll back skilled nursing resident protections.  

Source: CMS Quality, Certification, & Oversight (QCOR) Reports 

At the time of the policy change, Dr. Kate Goodrich, director of clinical standards and quality at CMS, said in a statement that unnecessary regulation was the main concern that health care providers raised with officials. “Rather than spending quality time with their patients, the providers are spending time complying with regulations that get in the way of caring for their patients and doesn’t increase the quality of care they provide,” Dr. Goodrich said. 

With a new federal administration, high vaccination rates among skilled nursing residents, and the U.S. Senate confirmation of CMS Administrator Chiquita Brooks-LaSure, we could see a change in focus and policy and possibly a return to a stricter, and potentially costlier, enforcement. 

CMP’s Impact on Workforce and Labor 

Under current law, skilled nursing properties that are assessed civil monetary penalties above a certain threshold on their annual survey automatically lose their authority to train staff to be Certified Nursing Assistants (CNAs) for two years. With critical shortages in labor pools routinely being reported, particularly among CNAs, this penalty could have a major impact on a skilled nursing property’s staffing pipeline.  

In February 2019, the bi-partisan Nursing Home Workforce Quality Act was introduced, which would allow suspensions on in-house CNA education to be rescinded once the related deficiencies are remedied, albeit while allowing additional oversight of skilled nursing properties. The Nursing Home Workforce Quality Act did not receive a vote from the 119th Congress, and in-house CNA training programs can still be impacted by a certain level of civil monetary penalties, even if the fines are unrelated to the quality of care given to residents or if the care deficiencies cited on the survey are unrelated to the CNA training program.  

While penalties from CMS are an essential tool for ensuring skilled nursing properties are complying with care standards and are protecting their residents, both the approach and severity can be markedly different between administrations. A greater emphasis on infection control has broadened the scope of surveys, and subsequently the amount of time and resources involved in survey preparation. Without additional funding, a revival of more stringent surveys and quality standards could result in added annual costs for operators.  

“Recent data from NIC’s Executive Survey Insights, NIC MAP^® Data, powered by NIC MAP Vision, and NIC Analytics suggest that cautious optimism may be justified as occupancy rates appear to have reached their low points around the end of March and are gradually improving for many operators of seniors housing and care properties across the nation. Between 48% and 71% of organizations reported upward changes in occupancy depending on the type of care segment. Of note, more than a third of organizations with assisted living residences and nearly one-half with nursing care beds saw occupancy increases of three percentage points or more. Amidst this good news, seniors housing and care occupancy rates remain at historic lows, and the number one challenge currently facing operators is attracting community/caregiving staff. ”

–Lana Peck, Senior Principal, NIC

NIC’s Executive Survey of operators in seniors housing and skilled nursing is designed to deliver transparency into market fundamentals in the seniors housing and care space as market conditions continue to change. This Wave 29 survey includes responses collected May 17 to June 13, 2021 from owners and executives of 75 small, medium, and large seniors housing and skilled nursing operators from across the nation, representing hundreds of buildings and thousands of units across respondents’ portfolios of properties.

Detailed reports for each “wave” of the survey and a PDF of the report charts can be found on the NIC COVID-19 Resource Center webpage under Executive Survey Insights.

Wave 29 Summary of Insights and Findings

• Nine out of ten organizations report an increase in lead volume since the beginning of the year (91%), and one-third are seeing lead volume currently above pre-pandemic levels (34%). A clear trend in the rising pace of move-ins began around the Wave 25 survey conducted at the end of March (however, this trend occurred sooner for the nursing care segment).
• Between two-thirds and one-half of respondents note that the pace of move-ins accelerated in the past 30-days. The shares of organizations reporting acceleration in the pace of move-ins were highest for the nursing care (66%) and assisted living care segments (62%) and the lowest for the memory care segment (49%). The nursing care segment saw the largest share of organizations reporting acceleration in move-ins (66%) since the beginning of the survey in March 2020.

• Increased resident demand has been cited by nine out of ten respondents as a reason for acceleration in move-ins since the Wave 25 survey (around the time occupancy rates may have reached bottom). Since then, the average rates of resident and staff vaccinations have leveled off at around nine out of ten residents and two out of three staff.

• The Wave 29 survey data continued to show improving trends in the percentages of organizations reporting higher occupancy rates, and each of the care segments (except independent living) set new peaks in the time series. Between 48% and 71% of organizations reported upward changes in occupancy depending on the type of care segment.

• However, the degrees of occupancy change vary. As referenced in the section above, occupancy increases in organizations with assisted living, memory care and/or nursing care beds peaked in the Wave 29 survey. However, as shown in the chart below, occupancy increases were relatively small (between 0.1 and 3 percentage points) for the independent living and memory care segments. Of note, more than a third of organizations with assisted living residences (36%) and nearly one-half (47%) with nursing care beds saw occupancy increases of three percentage points or more.

• While rent concessions may be helping to bolster occupancy rates, they are by no means the primary reason for occupancy rate increases as the percentages of organizations offering rent concessions has not increased significantly since last summer (2020) when we began tracking the data. In Wave 29, under half (45%) of respondent organizations were offering rent concessions to attract new residents. As in the prior three waves of the survey, most were discounting monthly rents (78%), and more than half (56%) were offering free rent for a specified period.

• Since the Wave 27 survey conducted in the latter half of April, the share of organizations experiencing staffing shortages in their properties has leveled off around 90%, and roughly two-thirds of organizations (64%) with multiple properties have had staffing shortages in more than one-half of their properties.

• Since the Wave 27 and 28 surveys, to attract staff, most respondent organizations are increasing wages, offering referral bonuses, and offering hiring/sign-on bonuses. Staff wages and benefits are typically the most significant operating expenses for seniors housing and care providers. As a result, and coupled with months of receding occupancy rates that had fallen to historic lows in the first quarter of 2021, NOI has been squeezed by the efforts to replace workers who left the labor force during the pandemic.
• The single biggest challenge operators are facing at this point in the pandemic are attracting community/caregiving staff (45%), followed by low occupancy rates (31%), and staff turnover (14%). The Wave 30 survey will seek to provide greater insight into the tactics operators are finding are the most effective methods of attracting new community staff today.

Wave 29 Survey Demographics

• Responses were collected between May 17 to June 13, 2021 from owners and executives of 75 seniors housing and skilled nursing operators from across the nation. Owner/operators with 1 to 10 properties comprise 64% of the sample. Operators with 11 to 25 and 26 properties or more make up 36% of the sample (21% and 15%, respectively).
• One-half of respondents are exclusively for-profit providers (50%), and 50% operate both not-for-profit (42%) and for-profit (8%) seniors housing and care organizations.
• Many respondents in the sample report operating combinations of property types. Across their entire portfolios of properties, 63% of the organizations operate seniors housing properties (IL, AL, MC), 24% operate nursing care properties, and 41% operate CCRCs (aka Life Plan Communities).

Owners and C-suite executives of seniors housing and care properties, please help us tell an accurate story about our industry’s performance.  

The current survey is available and takes 5 minutes to complete. If you are an owner or C-suite executive of seniors housing and care and have not received an email invitation to take the survey, please click this link, which will take you there.

NIC wishes to thank survey respondents for their valuable input and continuing support for this effort to bring clarity and create a comprehensive and honest narrative in the seniors housing and care space at a time when trends are continuing to change in our sector.

NIC’s recent acquisition of VisionLTC and the creation of NIC MAP Vision integrates the market-leading NIC MAP^® Data Service with VisionLTC’s best-in-class data for investors, owners, and operators to provide significantly deeper and broader data for industry stakeholders. This article highlights one of the data concepts available to clients.

Key Takeaway: Typically, in seniors housing market feasibility studies, the target demographic is qualified by households or individuals that can afford to pay the minimum or average annual rent charged by a property. Depending upon the property type under consideration, a simple annual income qualification search metric alone may not always be sufficient—and may return different results.

Some Context: Whether a development or acquisition strategy is proactively market-driven by identifying specific markets that meet pre-determined criteria, or reactive by reviewing a specific property’s characteristics (such as size, unit count, asking rents and programmatic features), data on demographic, psychographic, and wealth characteristics of potential new residents is critical. Gathering data on household net worth (“wealth”) can be particularly challenging but is an essential data point in quantifying a target market with accuracy. An analysis of average annual household income in both a primary market area (PMA) and its respective metropolitan area provides insights into the scale of available purchasing power—but understanding household net worth is also crucial to accurately assessing the marketability of seniors housing to prospective residents—especially when average length of stay by property type is considered.

Financial Resources and Length of Stay (LOS)

Typically, in seniors housing market feasibility studies, target market depth is quantified by whether qualified households or individuals can afford to pay the minimum or average annual rent charged by a property. The metrics commonly used are thresholds for income-qualified age cohorts for either households or individuals. Home value is also often considered because the sale of a home may be used to subsidize the cost of residency. However, there is often a considerable difference between a property’s minimum or average rent (annualized) and the average annual income of age-qualified households when including a consideration of the estimated length of stay to determine how long a typical resident’s financial resources will allow them to live at the community.

The income streams of seniors include earnings, pensions and annuities, Veteran’s payments, alimony, Social Security, retirement savings, assets such as vehicles and other investments such as stocks, IRAs and bonds. These income streams alone do not make up all of a household’s financial resources, however. Housing equity net of mortgage debt is an important source of capital often used to support a move to seniors housing. Combined, these financial resources make up net worth. Unfortunately, obtaining net worth data is challenging at best, especially information on the housing equity component. The U.S Census Bureau’s decennial census and its yearly American Community Survey (ACS) do not measure net worth. And, while the U.S. Census Bureau’s Survey of Income and Program Participation tracks a wide variety of wealth-related data points, it does so only at the national level.

According to the State of Seniors Housing 2020 report, seniors housing median length of stay rates vary widely from 4.8 years (58.0 months) for CCRC residents to 1.4 years (17.1 months) for memory care residents. Therefore, net worth data, which considers all of a potential resident’s financial assets, may be a better source in selecting markets in terms of ability to pay a property’s fees for an estimated duration of residency than average annual income based on one year of minimum or average rents alone.

Seniors often combine income and assets (including the proceeds of home sales) to fund residency in seniors housing—and this is especially true for Continuing Care Retirement Communities (CCRCs, also referred to as life plan communities) which typically attract younger, healthier residents who plan to age in place (across the continuum of care from independent living to nursing care) for a longer period of time than residents that enter senior living with higher levels of care needs. In fact, the relatively newly designated term “life plan communities” is based on the concept that most residents in CCRCs are planners and have adequate savings to take them through retirement.

The primary payment source for CCRCs is the resident’s income and assets. Additionally, the value and liquidity of prospective residents’ houses are particularly important factors in their ability to afford an entrance-fee CCRC.

Different Measures, Different Outcomes: CCRCs Example

To illustrate different outcomes in broad market selection based on minimum annual income or net worth, the comprehensive datasets provided by NIC MAP and Vision LTC, powered by NIC MAP Vision, in combination with a unique subset of its 4,000-plus data points related to senior housing demand was used to develop a select subset of the top 929 MSAs across the country (Metropolitan Statistical Areas) based on relative target market depth (excluding supply), quantified in two different ways (Tables A & B).

Pre-Determined Target Market Selection Criteria:

• Age: Households age 75+
• Markets: 4,000 or more Age-Qualified households
• Length of Stay: Data sourced from The State of Seniors Housing, 2020
  • Median, all CCRCs excluding nursing care beds, 58.0 months
• Annual Income (Table A): Minimum, based on annualized average monthly rent at CCRCs in 1Q 2021
• Net Worth (Table B): Minimum, based on CCRC average entrance fee, average length of Stay (LOS), and annualized average monthly rent as of 1Q 2021
  • Includes markets with average home value of senior households equal to or higher than assumed minimum property entrance fee

As shown below, selecting markets for further analysis by ranking the top 20 markets by either the percentage of age-and income-qualified households (Table A) or by the percentage of net worth-qualified households (Table B) yields generally different outcomes (and some similarities highlighted in blue).

Although six markets were common in both scenarios, looking at the top 20 net worth-qualified markets expands the income-based selection to markets that can be reasonably expected to be able to support the typical resident’s entire stay in a CCRC.

Given the diversity of seniors housing property types and levels of care setting combinations, and wide range of specific turnover rates, any market selection exercise or market feasibility study can be made more accurate with net worth data than relying on annual income data alone.

Having access to a variety of data related to seniors housing markets puts you in the best position to make informed decisions. NIC MAP Vision’s deep database of data points allows the analyst to search for any target market with unparalleled specificity—and creativity—and investment decisions with enhanced accuracy.

Interested in learning more about the data used in this analysis?

To learn more about NIC MAP and VisionLTC data, powered by NIC MAP Vision, and about accessing the data featured in this article, schedule a meeting with a product expert today.

The pandemic has not only affected operators and their ability to care for their residents but has also required equity and debt partners to revisit how they look at revenues, expenses and returns. In the latest NIC Leadership Huddle event, hundreds of senior housing and care leaders gathered virtually to hear from industry capital providers. The discussion focused on questions such as: Have capital providers altered their views on underwriting metrics, LTVs, recourse, and rates? Have relief funds provided through governmental programs exasperated or helped expense models? And how will COVID impact the structuring of capital on a go-forward basis?

Facilitator Ann B. O’Shaughnessy, managing director of Healthcare Banking, CIBC, kicked off the discussion by asking Susan Barlow, co-founder & managing partner, Blue Moon Capital Partners, about the several deals her company closed during the pandemic, and how they were impacted. Barlow said Blue Moon had closed about $400 million in debt financing over three deals throughout the pandemic. “The first closing, in April, right in the beginning, was definitely a soul-searching event, there’s no doubt about that…we didn’t know what we didn’t know,” Barlow explained. “We underwrote the equity to account for the risk, we renegotiated the price with the seller…but our lender stuck with us.” Barlow’s group was not asked to make any loan modifications and closed on the portfolio. Barlow added that, “we thought we’d added some protections on the equity side, and it worked out that it was about right. But, at the time we had no idea.”

In another deal which Blue Moon closed in December, during the depths of the pandemic, adjustments were made based on higher expenses, such as labor costs, insurance, and PPE costs. Shortly afterwards, as vaccinations began to take place, lease-up leads started to build. With a deal that Barlow said is due to close in July, lending terms are “very good, relatively speaking.” Barlow noted that all three deals were with the same lender, which, she said, “speaks to the [importance of] having good lending relationships where you know and trust each other going into these kinds of situations.”

Asked about how stabilization has changed, Morgin Morris, senior vice president, KeyBank Real Estate Capital, replied, “The traditional stabilized boxes are kind of gone right now. After 2020, everything is customized. Each deal has a story, and no matter whether performance was strong, our job is to unpack that story and understand what happened at the property in the past year, what the new definition of stabilized looks like for that asset, for that market.” She said they get a lot more granular now, asking questions such as: “Is the facility able to offer shared units? What type of concessions are they looking at? How do they treat companion units coming out of the pandemic? All these are questions we need to dig into a bit more, rather than looking at 85 [% stabilized] as a metric.”

Kathleen P. Ryser, senior director, Seniors Housing Underwriting & Credit, Freddie Mac, agreed that stabilization metrics through the pandemic have changed. She said, “For the first time, in March or April, we started to stabilize an NOI that was less than what had been collected historically, like on a T12 basis, or in 2019.” Ryser said her group started forecasting reduced occupancy and increased expenses, “to come up with an NOI that…was maybe 20%-25% below where the NOI had been.”

Throughout the pandemic, according to Ryser, “We never closed shop. We continued to provide liquidity in the market all throughout 2020.” Today, she sees stabilizing occupancy rates and expenses. “We’re looking at the NIC MAP® data. Move-in and lead activity is telling us that things are going to start improving.” She also noted that Freddie Mac’s senior housing group is having fewer rent collection issues than its larger multifamily group.

The pandemic has also impacted how debt providers look at underwriting. Morris said she’s not looking for “gotcha moments” but is “looking to give clients a reasonable approach to looking at covenants, and taking a reasonable approach as funds came in, whether it was a one-time PPP loan or an ongoing occurrence.” If funds look likely to be sustained over time, such as an increase in a state assistance program, Morris includes them in her “look-forward” analysis.

Asked about how Freddie Mac performed over the pandemic, Ryser quoted hockey great Wayne Gretsky, saying, “we underwrite to where the puck is going, not where the puck is.” She said Freddie Mac adjusted leverage and debt coverage requirements and implemented a forbearance program. “I think we weathered the storm really well,” she said, pointing to a single 90-plus day delinquent loan within Freddie Mac’s $15 Billion portfolio of securitized loans.

On valuations, Morris has seen some changes, such as the delta in underwritten to appraised valuations, which she has seen rise from 2%-5% to 20%-30%. “To me the LTV question, and the divergence, is not likely to go away…we all need to fully understand where the value is derived from,” she said. On that subject, she made the point that operators are “the backbone of maintaining and preserving that value for the owner.” While acknowledging that it is difficult to quantify the value of a great operator, Morris’s group is making an effort to incorporate the quality of an operator into their valuations. She said, “there’s got to be more to the equation than just income, expense, cap rate, and then a bank’s appraisal target.”

Asked about when the industry would fully recover and regain its pre-pandemic momentum, the panelists agreed that, despite positive signs, a full recovery will take some time. Morris said some properties will take longer than others, and pointed to factors such as negative media attention, and rising home values, that she believes will slow full recovery to approximately another 12 months. Barlow agreed, adding, “There’s just a lot of PTSD. If you’re a resident, a potential resident, or a capital markets player, as we come out of this, its going to take some time. But we are seeing the need show up. People that have put off a decision longer than they should have are out in the market. They are touring different communities…the demand is there. I think we’ll see those good operators having success early.”

As the pandemic eases, seniors housing and care operators are looking ahead. What lessons have been learned over the last 15 months to bolster consumer confidence? What strategies will boost occupancy?  

“The question now is whether we can really deliver on lifestyle,” said Ken Segarnick, chief corporate officer at Brandywine Living, a New Jersey-based operator of 32 luxury senior living communities in the Mid-Atlantic. “The game-changer is creating an environment that people want to age into.” 

An industry veteran, Segarnick is among the thought leaders attending the 2021 NIC Fall Conference in Houston. The Conference is NIC’s first in-person convening of leaders in seniors housing and care since the pandemic began and offers a chance to share ideas with others weathering the same challenges.  

Segarnick said the pandemic demonstrated that seniors housing can provide a safe environment. Acts of heroism and courage by the staff helped to protect residents from infection. Communities helped to provide early access to vaccinations.  Data show that resident outcomes have generally been favorable.

The pandemic also highlighted the fact that a senior living experience must include human interaction. Isolation became a huge issue over the course of the disease outbreak. “Human beings need social engagement in order to thrive,” said Segarnick. “As operators, we need to maximize joy and happiness to help residents have a life well lived.”  

Community programming did reach new dimensions over the last year, mostly out of necessity. Residents and families connected in creative ways through technology and social media. The customer experience became more tailored to individual preferences.  

What’s Next? 

The challenge now is to deliver a next-level lifestyle experience incorporating lessons learned. “Senior living is a consumer-driven business,” said Segarnick. “Though healthcare needs will continue to be a key element to senior living decisions, there’s more to what customers are looking for. They want to enjoy living their lives, they want a better experience.” The goal is to wrap the lifestyle experience around the care needs of residents. “Lifestyle is the differentiator,” Segarnick added.

Segarnick defines lifestyle as part choice, part engagement. Giving residents choices, based on their personal preferences, enhances their lifestyle. It could be offering different dining options or touch as small as knowing which newspaper the resident likes. “Small details build broader experiences,” said Segarnick.  

Engagement is also key to a rewarding lifestyle. But true engagement goes well beyond the basic activities on the daily calendar and includes all dimensions of wellbeing to provide joy and social enrichment.  

Segarnick challenged operators to translate the personal preferences of residents into exciting experiences tailored for them. “Our residents want engagement that meets them where they are,” he said.   

Real estate is part of the lifestyle equation post-pandemic. Residents want more space and connectivity with the outdoors. Common areas should be big and open. Residents want larger apartments to enjoy their own space too. “Where people live is an essential element of lifestyle,” said Segarnick.  

He admitted that more work needs to be done to rebuild consumer confidence in seniors housing and care. But he noted, “Consumer confidence is not something marketed or sold, but earned.”  

Post pandemic, consumers want a more robust senior living option, and providing that will have a direct impact on the operator’s bottom line.