• 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.

The NIC MAP® Data Service recently released national monthly data through September 2019 for actual rates and leasing velocity. The NIC Actual Rates initiative is driven by the need to continually increase transparency in the seniors housing sector and achieve greater parity to data that is available in other real estate asset types. Having access to accurate data on the monthly rates that a seniors housing resident pays as compared to asking rates helps NIC achieve this goal.

Key takeaways from the 3Q2019 Seniors Housing Actual Rates Report by Property Type include:

• Average initial rates for residents moving in were below average asking rates for both majority independent living and majority assisted living properties, with monthly spreads generally larger for majority assisted living properties dating back to April 2015.
• As of September 2019, initial rates for majority assisted living properties averaged 9.5% below their average asking rate, which equates to an average initial rate discount of 1.1 months on an annualized basis, close to the discount that has existed since July and close to the year-earlier discount.
• Similarly, the average discount for initial rates for majority independent living properties was equivalent to 1.1 months in September. This was as high as it has been since NIC began reporting the data in April 2015 and was also notable because until January 2019, the discount had generally been smaller for majority independent living than majority assisted living for nearly the entire time series. In January of this year and extending for several months, the annualized discount for initial rates was larger for majority independent living. More recently, the annualized discount for initial rates was larger for majority assisted living until September when they were the same.
• Average asking rates for majority independent living properties have exceeded in-place rates since May 2018 and the monthly gap between these rates was 1.8% or $59 in September 2019. For majority assisted living properties, average asking rates have consistently exceeded average in-place rates. The monthly gap between these rates was 3.6% or $181 in September 2019.
• In September 2019, the average majority independent living asking rate was 1.1% above its year-earlier level, the smallest annual increase since February 2018. The annual pace of growth for majority independent living in-place rates was nearly the same at 1.2%. Initial rates fell 1.3% from year-earlier levels, the third decline in the past four months.
• The rate of move-ins has exceeded or equaled the rate of move-outs for seven of the past twelve months for majority assisted living and eight of the past twelve months for majority independent living.

This Seniors Housing Actual Rates Report provides aggregate national data from approximately 300,000 units within more than 2,500 properties across the U.S. operated by 25 to 30 seniors housing providers. The operators included in the current sample tend to be larger, professionally managed, and investment-grade operators as we currently require participating operators to manage 5 or more properties. Note that this monthly time series is comprised of end-of-month data for each respective month.

This quarter, NIC is also providing clients access to the Seniors Housing Actual Rates Report by care segment. 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 or memory care. In addition, care segment actual rates data is also available for the Atlanta metropolitan market. 

Additional Data Available in 4Q 2019

Beginning in 4Q 2019, NIC is now providing clients access to the Seniors Housing Actual Rates Report by care segment. 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 or memory care. In addition, care segment actual rates data is also now available for the Atlanta metropolitan market. 

NIC is prioritizing the roll-out of the reported metropolitan markets for the Actual Rates data based on the participation rates of local seniors housing operators, with the Atlanta metropolitan market the first available market.

Additional metropolitan areas will be added in the future as NIC collects additional data and grows the sample size to be large enough to release data at the metropolitan area level. Toward that end, NIC is now partnering with leading software providers including Yardi, PointClickCare and MatrixCare to facilitate data contribution to the Actual Rates initiative for operators. NIC appreciates our partnerships with these software providers and our data contributors and their work in achieving standardized data reporting.

If you are an operator or a software provider interested in how you can contribute to the Actual Rates initiative, please contact Brian Connolly at bconnolly@nic.org.

I recently joined the Outreach team with National Investment Center (NIC) following a career in acute-care hospital and ambulatory operations with a large academic medical center. My previous focus was on patient throughput strategies, EHR optimization, telemedicine implementation, value-based care, and lean deployment throughout our organization. I join NIC in the hope of bringing a perspective on how hospitals and health systems can collaborate with the senior housing and skilled nursing sector to increase value, improve care, and ultimately provide a better patient experience. With the implementation of CMS’ Patient Driven Payment Model (PDPM), I am also able to serve as an expert in industry transition to quality-based reimbursement.

As senior housing becomes further ingrained in the care continuum, I believe that we can meet the needs of all seniors, but to do so will require skillful cooperation and coordination among all who play a role. I hope to bring a unique viewpoint to our team and share many of the valuable lessons I learned throughout my tenure in hospital administration. It is in that vein that I share my first post, one that focuses on employment retention and workforce engagement strategies.

Retaining an engaged workforce is a cornerstone of long-term business success but doing so is not always an easy task. Generational preferences and rising wages across the country mean managing labor and its associated costs is a growing concern for all businesses. According to NSI Nursing Solutions’ “2019 National Health Care Retention and RN Staffing Report,” the average cost of turnover for a bedside nurse is anywhere from $40,300 to $64,000. It’s also widely recognized that turnover often leads to declines in safety, quality, and experience. Strategies designed to establish consistent labor pipelines and enhance the quality of staff may help mitigate these challenges. While some of the strategies discussed below in this commentary are specific to healthcare, others can be utilized in any setting. As is often the case, these strategies will require an upfront cost, but with a successful implementation, that cost can be recouped over time as employee turnover, recruitment, onboarding, and training costs greatly outweigh the initial investments.

Attract and Develop Talent Using Residencies & Training Programs

Getting new staff in the door is one of the biggest challenges currently facing health systems. With experienced clinicians commanding increasingly high salaries and generous benefit packages, attracting an early-career talent pool which can be trained to the standards and practices of a specific facility is a winning strategy. Traditional physician residencies have been around for more than a decade, but increasingly residencies and training programs are being made available for a wide variety of clinicians, including Nurse Practitioners, Physicians Assistants, Registered Nurses, Certified Nursing Assistants, and Clinical Technicians.

Residencies can provide a win-win for both the organizations seeking staffing and the employees looking to grow professionally. Access to training in a real-world care setting, the expertise of physicians, and continuing education opportunities can set up an organization with a pipeline to deliver quality clinicians at a more affordable cost. Graduates of these programs are better trained, and therefore better equipped to find employment, but they also establish roots during training. These roots–relationships, routines, and familiarity–often lead to a high retention rate following graduation from the program. It can be rewarding to train the next generation of quality clinicians, but for employers the ultimate goal is securing access to a deep pool of skilled talent.

Create Growth Opportunities for Long-Term Retention

All employers would like their employees to feel a sense of accomplishment in their work. However, employers often seem to fail their employees when it comes to the intrinsic satisfaction they feel. Senior staff with organization-specific expertise can grow frustrated when their organization adds new staff with the same titles and job descriptions they earned over years of service, for example. Even happy employees look for better opportunities, and often these employees are the ones that organizations most want to retain. Employers cannot overlook giving their employees a reason–beyond a paycheck–to stay with the organization.

Career ladders can both reward senior staff for years of service and allow for recognition of skillsets with additional compensation. Procedural skills, certifications, and the ability to staff various care areas should be built-in prerequisites in an organization’s career ladder. With careful design, the career ladder is a powerful tool, enabling organizations to encourage retention, raise average experience levels, and incentivize ongoing professional development.

Invest in Training for Organizational Success

Another often overlooked retention incentive is to invest in training and ongoing development. This strategy requires upfront investment, but can yield improved billing and reimbursement, as well as improved patient care. Take the recent implementation of CMS’ Patient Driven Payment Model (PDPM) and the impact it has on mental health treatment as an example. Only about 5% of nursing home residents have a diagnosis of depression, but academic studies indicate the prevalence is closer to 40%. The disconnect in depression identification in this population can partly be attributed to the differences between overburdened frontline caregivers with multiple pressing demands and the highly-focused nurse teams that conduct studies specifically for academia. Another contributing factor is that the methodology of identifying depression, the Patient Health Questionnaire (PHQ-9), relies on self-reporting that can be distorted by the respondent’s perception of the situation.

With PDPM, however, operators are rewarded for treating each resident’s specific needs, with payments increasing in line with patient acuity. This incentivizes depression identification and documentation, as payment boosts can bring in additional reimbursement income. Offering frontline staff training and education on how to identify and treat depression yields benefits in terms of staff satisfaction–and also improves resident outcomes, and a facility’s bottom line.

Avoid Single-Site Employment Models

Absences and call-outs are a reality facing any organization. Those absences are typically resolved using on-call staff or bringing in an unscheduled employee at a premium rate of pay. For employers with multiple sites in a specific region, creating an employment vehicle that allows for flexibility with regards to daily work location can be a strategy to avoid costly premium wages that are often used to fill holes in schedules. Additional incentive payments made to employees willing to work at multiple sites can be recovered by avoiding the costly alternative of overtime or on-call pay. Navigating Human Resources’ hurdles is the most challenging aspect of this strategy, as titles, benefits, and job responsibilities often vary slightly from one site to another. Usually, developing a separate employment intermediary that houses these flex-staff can resolve those challenges.

Amidst accelerating wage growth, persistent workforce shortages, and other labor-related challenges, the pressure to implement creative, evidence-based solutions to prevent shortfalls both in daily staffing and longer-term leadership roles is intensifying. Employing some–or all–of the strategies mentioned here will help organizations better position themselves for greater long-term success.