The Endemic Staffing Crisis

NIC Co-Founder and Strategic Advisor Robert Kramer has identified “Six Key
Drivers” that will shape the senior living industry over the next 10 years. Kramer
is also Founder & Fellow at Nexus Insights, a think tank to advance the well-being of older adults through innovative models of housing, community, and healthcare. NIC Notes is publishing a bi-weekly series detailing each key driver. View the first two installments. What follows is an analysis of the second key driver: the workforce.

While senior living providers struggled with labor shortages prior to the pandemic, the crisis not only exacerbated the problem but brought into bold relief the enormous staffing challenge the senior living industry will continue to face over the next 10 years. Just as the pandemic has become endemic—a situation we must adjust to and live with—so too the staffing crisis will be an ongoing issue that requires radical new approaches.

Our industry has historically struggled with workforce issues that were often viewed as correlated with the economy. Low unemployment rates have always been a challenge for the industry.

The crisis today, however, is clearly not just a question of a tight labor market. It is rather a recognition that senior care providers are not just competing to be the employer of choice among other senior care and aging services providers but also with the broad scope of employers in retail, hospitality and healthcare.

It is critical that we compete for the best workers. Staff shortages are a detriment to our residents and our business. The quality of care suffers when too few workers are trying their best to take care of residents. Overworked employees can get stressed, leading to absenteeism and turnover. Providers that face a staffing shortage often have to limit new admissions.

The old approaches alone won’t work. New, innovative ideas are essential to meet this ongoing endemic labor challenge. Here are five short- and long-term strategies to consider:

1. Recast our relationships with frontline and other hourly employees.

   We need to rethink how we view and interact with our hourly employees. Prior to the COVID-19 outbreak, many operators and providers were focused on their hourly staff only from the time they clocked in for a shift to the time they clocked out. What happened outside that shift was not really relevant to us. That approach became totally inadequate during the pandemic. Workers with young children at home needed to care for them when the schools were closed. Workers were worried about feeding their kids who received free, nutritious meals at school which were no longer available. Our hourly workers weren’t just worried about providing dinner but having to provide three meals a day. Added to that, family members, and the workers themselves, got sick and needed help. Scheduling disruptions were common.

   I believe that a significant shift in our approach is needed for our providers to be successful employers of choice in the future. We need to move from a transactional relationship with hourly employees to one of empathy and understanding.

   We can’t solve their problems, but we can help to address the issues these hourly workers bring with them to work. What does that mean? This is often a population in poverty or struggling to stay out of poverty. They are often juggling multiple jobs as well as multiple assistance programs that they hope to qualify for or continue to qualify for. They are overwhelmingly female, and a significant number are people of color. About a quarter are immigrants. Many are single mothers with children. Understanding these issues means addressing everything from daycare and housing to that last mile of transportation to get to work and even domestic and spousal abuse.

   In her book, Workforce Stability, author Ruth K. Weirich, shows that increased worker stability boosts productivity, retention, and morale, leading to greater profitability. The question is how to create an environment that supports workforce stability.

   Weirich points to the huge gap that exists between management and employees. Management is often so far removed from the world of the hourly worker that it’s hard to have any understanding, let alone empathy for the daily world of survival that these employees and their families face. We have to start there. Without understanding and empathy we cannot do what’s necessary to boost morale and retain good workers.

   Let me emphasize that we are not going to solve all their problems. But we can demonstrate our empathy and be willing to partner with them to be part of the solution.

   For example, maybe that means providing day care on site, or partnering with a childcare program. Maybe it means aligning with a domestic abuse center so employees can get free access to confidential services. Perhaps the human resources team needs to be trained on how to navigate various housing and government assistance programs. That’s not what you normally think of as a duty for your HR/benefits team. But if your employees are struggling to get support from these programs, you either need to contract with someone to provide that assistance or you have to offer that expertise in house.

   The more employees realize that they’re getting help with these tangible issues that they struggle with outside of work, the more you will become the employer of choice. In turn, they are going to pass that word along to their family and friends.

2. Highlight our purpose-driven work.

   As the acuity level among residents continues to rise, the industry already has a reputation of paying low wages for demanding work. But we also have a good story to tell. Senior living provides the satisfaction of a job with purpose. Not every employer can say that. We can promote personal connections and how we make a difference in people’s lives which can be enormously attractive to potential workers.

   Millennials and members of Gen-Z, in particular, are looking for purpose driven work. These young people want to feel they are making a difference in what they do, not just “holding a job.” Older workers are often looking for purpose in a second career. We offer what these groups are seeking. The added benefit is that we will expand our pool of potential workers to groups that the industry has largely ignored (see point #3 below).

   Sometimes residents and employees can even find purpose together.

   For example, at two Goodwin House properties in Virginia, the staff included a large number of immigrants, many of whom for years had been seeking U.S. citizenship. So, the communities started a program to help. Residents raised money to pay the fees for filing for citizenship and tutored employees on civics. A front-page story about the program appeared in the Washington Post and the community’s recruitment efforts soared.

   At another community during COVID, a resident asked a frontline caregiver how she kept going because it was so tough. The frontline caregiver said she was concerned about her three children—ages four, six and eight—who were not learning at home. The resident was an educator and knew many of the other residents had college and graduate degrees. So, they started an online tutoring program for the staff’s children.

   Bottom line: If we want our employees to treat residents like family, we have to treat our employees like family too. We must demonstrate that we care about the details of their lives and their daily challenges, just as we want them to care for the details and daily challenges in the lives of our residents.

3. Expand our pool of workers.

   With low birth rates, competition for workers will become more intense. Though the senior living industry has typically targeted workers in the 35-55 age group, we need to expand our workforce to recruit those who are younger and those who are older.

   In the wake of the pandemic, Millennials and Gen Z now understand the effects of social isolation and loneliness and have increased empathy for older people. As I mentioned in the previous point, these younger generations don’t want just a job. They want to know their work has meaning and purpose. We need to highlight that our jobs make a real difference in people’s lives. This is enormously attractive to younger people.

   Older workers can help fill the gaps too. In Japan, for example, people aged 60-80 provide care and companionship for those age 80-110.

   Retirees here are exploring “encore careers.” These second careers combine continued income, personal meaning and social impact. The key is that these older workers, like their younger counterparts, want to help others. Take, for example, someone who has retired from decades of government service or clerical work. An “encore career” in senior living offers the spirit of service and a paycheck.

   Another interesting idea is to engage residents as volunteers. This model could be especially useful for middle market properties. The nonprofit 2Life Communities, in their new Opus middle market community, will require residents to volunteer 10 hours of their time every month to help out. Residents can help at the front desk, work in the library, coordinate activities, or perform other duties. An unexpected benefit is that new residents are attracted to the community because of its focus on volunteerism.

   Immigration initiatives are going to be key to address workforce shortage now and in the future. Immigration is critical to attract workers who both value service and esteem older adults. We must pursue opportunities to advance immigration at the state, federal and company level.

4. Emphasize training and career paths.

   Workers often leave their jobs because of an issue with their direct manager. The manager may be unaware of the worker’s situation or may not be providing the necessary support for the worker to be successful. Are our managers trained to develop a relationship with the worker? Do the managers listen? Are they engaged with the worker during those critical first 90 days on the job? The same holds true for frontline workers. Are they being properly trained? Do they understand their job and the company’s values? How are you investing in them to make them feel supported?

   Establish a career path for workers. Show them how they can advance and help them do it. A structured program can help caregivers become certified as CNAs and CNAs become LPNs. Line cooks can be trained to become chefs. Housekeepers can become supervisors. Consider a scholarship program for those seeking the credentials needed to advance. Or offer scholarships in return for a set number of years of service. Another idea is to develop relationships with community colleges and nursing schools to provide internship opportunities and a recruitment pipeline.

5. Leverage technology.

   Senior living providers are adopting innovative strategies to screen potential employees. Machine learning is being used to find applicants who want to serve others. Finding the right employees by asking the right questions can boost retention efforts.

   Technology will also free workers from some rote tasks. The goal of technology is not efficiency, which is simply the byproduct, but to enable the staff to have more real interactions with residents. The employee has the time to chat with residents and ask how they’re feeling that day, instead of rushing to quickly perform a task and move on or being bogged down with paperwork.

   For example, the Japanese market has pioneered the use of “smart” diapers. Equipped with sensors, these diapers not only alert the staff when a resident is wet or soiled but also perform an instant urinalysis. This tells the staff whether the resident is dehydrated and at risk for developing a urinary tract infection. The technology eliminates the need for the staff to perform the routine and invasive checks that can lead to confusion and sometimes anger on the part of the resident. The worker in that situation doesn’t feel good either. The technology frees up staff time so they can engage with residents in ways that improve their quality of life.

The pandemic made a difficult staffing situation much worse and just as the pandemic looks to be endemic so too the staffing challenge is going to be endemic and require new, creative solutions. If we are only competing on wages, we are going to keep losing and will continue to have high turnover. Paying fair and competitive wages is essential, but the challenge is much deeper. We must engage workers beyond the hours of their shift and demonstrate empathy and willingness to come alongside them in their challenges. We must rethink our role and deploy a range of short- and long-term strategies to win the competition for talent.

Next Up—Key Driver #3: A New Customer Arrives with a Different Take on Longevity. Our new customers want their lifespan to match their healthspan or wellspan. We need an engagement view of aging and retirement shaped by growth and opportunity, not by deficits and decline.

Subscribe today to be notified when each blog in this series is published. 

“Skilled nursing occupancy held steady in May, as operators still confront a challenging operating landscape amidst high inflation and staffing challenges.”

– Bill Kauffman

NIC MAP Vision released its latest Skilled Nursing Monthly Report on August 4, 2022. The report includes key monthly data points from January 2012 through May 2022.

Here are some key takeaways from the report:

Skilled nursing property occupancy increased in May, albeit slightly. It increased 9 basis points from April, ending the month of May at 77.3%. In the last three months, skilled nursing occupancy has hovered in the range of 77% which is the highest occupancy level since April 2020, at which time occupancy began to fall rapidly due to the onset of the pandemic. Occupancy continues to recover since the pandemic low of 72.1% set in January 2021 but has encountered challenges such as new COVID-19 variants, e.g. Delta and Omicron. In addition, staffing shortages continue to create difficulties within skilled nursing properties limiting the ability to admit new residents. However, the current occupancy trend does suggest that demand for skilled nursing properties is recovering, given the 149-basis point increase from January to May. Occupancy has increased 307 basis points from one year ago and 518 basis points from its pandemic low.

Skilled mix increased 10 basis points from April to end May at 25.8%. This increase seemingly was driven by Medicare as its patient day mix increased from the prior month and managed Medicare patient day mix decreased in the same period. Managed Medicare patient day mix decreased 7 basis points to end the month of May at 7.6% and Medicare increased 13 basis points ending the month at 11.7%. Skilled mix has increased 11 basis points compared to one year ago. In addition, in a similar trend to patient day mix, Medicare revenue mix increased from the prior month. It increased 49 basis points from 20.8% to end the month of May at 21.3%. This suggests that skilled nursing operators increased the use of the 3-Day Rule waiver as COVID-19 cases increased in the month of May.

Managed Medicare revenue mix decreased 18 basis points in the month of May, ending the month at 10.6%. After increasing 13 basis points from March to April this year, it is now down 82 basis points from 11.4% in February. Historically, there has been declines in the managed Medicare revenue mix from the winter to spring months, which suggests lower volumes in the springtime whereas the winter months typically have an increase due to slips and falls, more illnesses, and elective surgeries. In addition, Managed Medicare revenue mix has increased 251 basis points from the 8.1% pandemic low set in May 2020. Meanwhile, managed Medicare revenue per patient day (RPPD) continued its decline, decreasing from $456 in April to $454 in May. It has decreased 1.84% from the prior year in May 2021.

Medicaid patient day mix increased for the third consecutive month, although only increasing slightly from April to May. It increased 3 basis points from the prior month to end May at 65.9%. Its patient day mix has increased 293 basis points from February, while Medicare patient day mix decreased 255 basis points in the same period. Some of the explanation of this increase in Medicaid patient days is due to the decline in COVID-19 cases relative to February as operators moved residents back to Medicaid days from Medicare days, after requiring isolation and higher skilled care.

To get more trends from the latest data you can download the Skilled Nursing Monthly Report. 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 to provide data at localized levels in the future. Operators who are interested in participating can complete a participation form. NIC and NIC MAP Vision maintain strict confidentiality of all data received.

NIC MAP Vision clients, with access to NIC MAP^® data, attended a webinar in mid-July on key seniors housing data trends during the second quarter of 2022. Findings were presented by the NIC Analytics research team. Here are key takeaways from the data release.

2Q 2022 Key Themes

Key trends during the second quarter of 2022 for the seniors housing market include:

• Senior housing occupancy increased 0.9 percentage point to 81.4%.
• The number of senior housing units under construction across the 31 NIC MAP Primary Markets was the fewest since 2015.
• Assisted living’s occupancy is recovering faster than that of independent living, but both property types still require significant occupancy gains to fully recover to their respective pre-pandemic levels.
• Reflective of its faster recovery, the average asking rent for assisted living grew by 4.6% from year-earlier levels. This represents its largest annual increase since NIC MAP began reporting the data in 2005.
• The preliminary data shows the dollar volume of seniors housing and care property sales transactions during the second quarter totaled $2.0 billion.

Takeaway #1: Senior Housing Occupancy Improved Further in 2Q 2022

• The occupancy rate for seniors housing—where seniors housing is defined as the combination of the majority independent living and assisted living property types—rose 0.9 percentage point during the second quarter of 2022 to 81.4% for the 31 NIC MAP Primary Markets. This marked the fifth consecutive quarter where occupancy did not decline. At 81.4% in the second quarter, occupancy was 3.4 percentage point above its pandemic-related low of 78.0% recorded in the second quarter of 2021 but was still 5.8 percentage points below its pre-pandemic level of 87.2% in the first quarter of 2020.
• Demand as measured by the change in occupied inventory or net absorption was strong in the second quarter, increasing by more than 8,609 units in the Primary Markets. This was the strongest demand ever recorded by NIC MAP except for the post-pandemic boost in demand we saw during the last half of 2021.
• Since the recovery began in second quarter 2021, 35,544 units of the 45,525 units placed back on the market have been re-occupied, or 78% of those units.
• These improved supply and demand dynamics at midyear offer a positive outlook for 2022.

Takeaway #2: Units Under Construction Fewest Since 2015

• In the second quarter of 2022, the number of seniors housing units under construction in the 31 NIC MAP Primary Markets was the least since 2015.
• For assisted living, there were 19,162 units under construction, down about 1,000 units from the first quarter. Notably, this was the fewest units under construction since early 2015. As a share of inventory, this amounted to 5.7% but below its peak of 10.1% in late 2017.
• For independent living, there were 15,882 units under construction in the second quarter, equal to 4.5% of the stock of independent living, as compared to 6.7% in 1Q 2020.

Takeaway #3: Construction Activity Still Slow in Most Markets

• This heat map shows which metropolitan markets are experiencing the most construction activity. First, notice the generally blue tones on the right side of the chart indicating that construction activity is relatively “cool” in many markets.
• Looking at the right-hand part of the grid, those markets that are shaded brighter red are seeing the most construction as a share of inventory. This includes Miami where construction as a share of inventory amounted to 11.2% in the second quarter (2,885 units in 18 properties). This was the market’s second most ever (first was 2Q 2021 at 11.3%). And, at 9.8% of inventory, Portland, Oregon’s construction was at an all-time high at 2,093 units in 15 properties. Washington, D.C. (10%) was also high as seen by the red shadings.
• Atlanta stands out on this heat map, with its red shades, but construction as a share of inventory in Atlanta was relatively low for Atlanta in the second quarter at 7.3% (16 building and 1,876 units). This is well below the 17.4% share seen in Atlanta in mid-2017, when there were 31 buildings under construction (over 3,333 units). Since that time, the inventory of senior housing in Atlanta has increased by 33% (more than 6,300 units).
• On the other extreme is Pittsburgh where construction as a share of inventory was virtually zero in 2Q 2022. This is a dramatic shift from a share of 10% in 2019.
• For perspective, for senior housing, the 2Q 2022 construction level equals 5.1% of inventory for the Primary Markets, and it peaked at 7.7% in late 2017 and more recently at 7.7% in the pre-pandemic 1Q 2020.

Takeaway #4: Senior Housing Occupancy Up from Pandemic Low in All Markets

• The chart below provides more detail on market recovery patterns from the pandemic low by metropolitan market. The dash line shows the occupancy rate in 2Q 2022, and the top of the grey bar shows the 1Q 2020 occupancy rate and the bottom of the grey bar shows the pandemic-related low point which was 1Q 2021 for many markets, but some did not reach that point until later in 2021.
• Of note on the chart, all markets are above their pandemic-related low points. The market with the highest first quarter senior housing occupancy rate was Boston at 86.3%, followed by Minneapolis (85.1%), Portland, and Baltimore. San Jose fell from its second-rate position in the first quarter and its first-place position prior to that. The lowest were Houston (76.1%), Atlanta, and Cleveland.
• There is a 10.2 percentage point wide gap between the best and worst performing markets.
• Based on the length of the grey bar in the chart, you can see that San Jose, St. Louis, Los Angeles, Miami, and Sacramento saw the deepest drops in occupancy, all more than 12 percentage points. In contrast, Orlando, Portland, San Antonio, Detroit, Seattle, and D.C. all saw peak-to-trough losses of less than 8 percentage points.
• Regarding improvements from their respective low points, Riverside saw a jump of 7.1 percentage points from its low point to 81.6%, but its low point was very low at 74.5%. Miami saw a gain of 6.4 percentage points, an improvement from a low of 73.8% up to 80.2%. The smallest improvements occurred in Cincinnati, Seattle, and Chicago.
• For perspective, the aggregate Primary Markets’ occupancy rate was 81.4%, and it saw a 3.4 percentage point improvement from its low point.

Key Takeaway #5: Preliminary Closed Seniors Housing & Care Dollar Volume: $2.0 Billion for 2Q 2022

• According to the preliminary data, the number of closed deals and the dollar volume closed in the second quarter increased from the first quarter. The second quarter ended with $2.0 billion in closed transaction volume. If that figure were to hold, volume would be up 22% from the relatively weak first quarter as volume closed registered only $1.7 billion in 1Q2022.
• The number of transactions closed, a different measure in activity than dollar amount, increased from 68 deals closed in the first quarter to 80 deals in the second quarter, according to the preliminary figures.
• Of the $2.0 billion closed, the private buyers represented $1.5 million of that, or in other words, represented 73% of the closed volume in the second quarter. The private buyer category is comprised of companies that are not publicly traded—for example, a private REIT, single owner or partnership, family offices, etc. Private partnerships and family regional owner/operators have been a steady source of liquidity. However, we are now coming into a different paradigm in terms of the real estate investment markets as interest rates and inflation continue to pressure overall liquidity.
• Note that the transactions data discussed in this key takeaway include only the closed property sales transactions throughout the United States. It does not include deals that have been announced in the quarter and not yet closed. It is also important to remember that this data is preliminary for the second quarter of 2022, as data points could be updated with other deals being captured as we learn about their closings. These updates typically occur as public records become available and given slower recordings within public records it is possible this data is updated more so than usual, especially when it comes to single property transactions that are often under the radar from public announcement and reporting.

Interested in learning more?

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

In a new question in the Wave 43 survey, suggested by Wave 42 participants, respondents were asked how their organizations’ property insurance and professional liability insurance have changed, as compared with before the pandemic started. Across all care segments – independent living, assisted living, memory care, and nursing care – about 50% indicated their professional liability insurance has increased slightly, with an additional 30% of nursing care respondents indicating it has increased significantly. The findings are similar for property insurance, with approximately 50% indicating property insurance has increased slightly and between one-quarter and one-third indicating property insurance has increased significantly. Among the reasons cited for the increases are lack of competition in local markets, COVID concerns and litigation, increased frequency of natural disasters, and a nationwide increase in frequency and severity of claims.

–Ryan Brooks, Senior Principal, NIC

NIC’s Executive Survey of senior housing and skilled nursing operators was implemented in March 2020 to deliver real-time insights into the impact of the pandemic and the pace of recovery. In its third year, the “ESI” is transitioning away from the COVID-19 crisis to focus on timely industry topics. While some standard questions will remain for tracking purposes, in each new survey “wave,” new questions are added. 

This Wave 43 survey includes responses from June 27 to July 24, 2022, from owners and executives of 50 small, medium, and large senior housing and skilled nursing operators across the nation, representing hundreds of buildings and thousands of units across respondents’ portfolios of properties. More 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.  

Across 43 Waves of the ESI, the pace of move-ins has closely corresponded with the broad incidence of COVID-19 infection cases in the United States. This is demonstrated in the timeline below that shows the share of organizations reporting an increase in the pace of move-ins during the prior 30-days. Data from Waves 42 and 43, conducted between May 31 and July 24, 2022, indicates a decrease in the share of operators reporting an acceleration in the pace of move-ins. This time period coincides with the highly transmissible BA.4 and BA.5 subvariants emerging as the dominant strains in the United States.

Of respondents indicating a deceleration in the pace of move-ins, 76% indicate the deceleration is a result of a slowdown in leads conversions/sales, 18% report the deceleration is a result of an organizationally imposed ban, and 6% indicate resident or family member concerns as the driving factor. There were no reports of staffing shortages driving the deceleration in pace of move-ins, as compared to 16% of respondents in the Wave 42 survey conducted in June 2022.  

In the Wave 43 survey, reflecting operator experiences in July 2022, the pace of move-ins in the past 30 days remained steady for assisted living residences (50%), but declined for independent living residences (31%) and nursing care residences (29%). For nursing care operators, this marks the second consecutive wave where the shares of organizations reporting an acceleration in the pace of move-ins has decreased from the prior wave, down from 68% in Wave 41 and 37% in Wave 42. Conversely, it is also the second consecutive wave where the shares of organizations reporting a deceleration in the pace of move-ins increased, up from 7% in Wave 41 and 17% in Wave 42. Interestingly, with 48% of respondents reporting a decrease in the pace of move-ins, memory care properties rebounded from the significant decrease that was experienced in Wave 42.

As it pertains to the pace of move-outs, most survey respondents across all care segments reported no change in the pace of move-outs within the past 30 days, a consistent theme across the most recent four ESI Waves. In Wave 43, 77% of independent living operators, 74% of assisted living, 63% of memory care, and 58% of nursing care operators reported no change in the pace of their move-outs.

Property and professional liability insurance premiums have increased for the vast majority of respondents. In a new question in the Wave 43 survey, suggested by Wave 42 respondents, respondents were asked how their organization’s property and professional liability insurance have changed, as compared to before the pandemic started. Approximately half of respondents – across all care segments – indicate that their property insurance premiums have increased slightly. Roughly 24% of independent living, 32% of assisted living, 25% of memory care, and 27% of nursing care respondents answered that their property insurance has increased significantly. Only 6% of independent living, and 3% of assisted living and memory care operators reported a decline in property insurance premiums. When asked why premiums have increased, survey respondents indicate COVID litigation, increases in fire insurance, inflation on replacement costs, and insurance companies leaving the market resulting in a lack of competition from carriers in certain markets.

When asked how their organization’s professional liability insurance has changed, approximately 50% of Wave 43 respondents indicated their professional liability insurance premiums have increased slightly. Additionally, 14% of independent living, 26% of assisted living, 19% of memory care, and 30% of nursing care report that their professional liability insurance premiums have increased significantly, as compared to the pre-pandemic period. Only 3% of independent living respondents indicated a slight decrease in professional liability premiums. For assisted living, memory care, and nursing care, there were no responses indicating a decrease in professional liability premiums. Among the reasons cited for the increase in professional liability premiums were a nationwide increase in claims frequency and severity, a perceived risk associated with COVID-19 deaths, inflation, cost of care, and fewer carriers resulting in less competition.

The Wave 43 survey asked respondents whether they found the acuity of new resident move-ins to have increased, decreased, or stayed the same as compared to before the pandemic started. Increased move-in acuity, compared to pre-pandemic acuity, was reported by 66% of the respondents for assisted living, 56% in memory care, and 64% in nursing care. Only 36% of independent living reported increased resident acuity at move-in. 

Wave 43 Survey Demographics

• Responses were collected between June 27 and July 24, 2022, from owners and executives of 50 senior housing and skilled nursing operators across the nation. Owners/operators with 1 to 10 properties comprise roughly two-thirds (67%) of the sample. Operators with 11 to 25 properties account for 20%, and operators with 26 properties or more make up the rest of the sample with 13%.
• One-half of respondents are exclusively for-profit providers (52%), approximately one-third operate not-for-profit seniors housing and care properties (38%), and 10% operate both.
• Many respondents in the sample report operating combinations of property types. Across their entire portfolios of properties, 70% of the organizations operate seniors housing properties (IL, AL, MC), 23% operate nursing care properties, and 36% operate CCRCs – also known as 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. 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 contact Ryan Brooks at rbrooks@nic.org to be added to the list of recipients.

NIC wishes to thank respondents for their valuable input and continuing support for this effort to provide the broader market with a sense of the evolving landscape as we recover from the pandemic. This is your survey! Please take the Wave 44 survey and suggest new questions for Wave 45.

Over the past couple years skilled nursing properties have continued to see strong interest from investors in the sector. This has contributed to skilled nursing valuations becoming what some deem as elevated. However, others might argue differently. Regarding the overall skilled nursing market, many continue to see steady demand trends as the industry passes the inflection point where the growth of the senior population accelerates, and more people with higher acuity levels need care. There are headwinds as we are all aware, including the risk of Medicare reimbursement cuts, low occupancy rates, chronic underfunding of Medicaid reimbursement in many states, a staffing crisis, and ongoing elevated inflation including wage rate growth. Given the challenges that are present, why has skilled nursing property price per bed increased?

Before answering that question, let’s look at the pricing trends. Below is a chart that shows private pay seniors housing price per unit and nursing care (a.k.a. skilled nursing) price per bed. For this article, pay attention to the nursing care price per bed trendline. In late 2019, specifically the fourth quarter of 2019, nursing care price per bed was $80,000 and in the first quarter of 2020 it was at $78,550. It then proceeded to decline to $74,900 in the third quarter of 2020, its pandemic low. The decline made sense as many assets were struggling during the pandemic. However, the price per bed remarkably increased to $95,600 by the first quarter of 2021 during a period of very low occupancy levels. Occupancy is still challenged as of the second quarter 2022 but price per bed remained in the $95,000 range. Specifically, it was at $95,800 as of the preliminary data for the second quarter, which is 19.6% above the level in the fourth quarter of 2019 before the beginning of the pandemic.

There is not simply one answer as to the reasoning behind why skilled nursing price per bed is relatively high, given the challenging operating fundamentals. There are likely many factors involved.

First, both monetary and fiscal policy created a tremendous amount of liquidity and as a result most asset prices, e.g., real estate and public equities, increased significantly during the pandemic. Furthermore, the government made a commitment to help the skilled nursing industry during the pandemic. This was evident by many Paycheck Protection Program (PPP) loans, Medicare prepayments, Medicaid rate increases, and other forms of aid at the state levels. Second, the Patient Driven Payment Model, implemented before the pandemic, can compensate for higher care levels unlike the previous model but operators need to be able to code their systems accordingly to get paid. Hence, buyers can justify paying higher prices per bed if they are estimating higher cash flow.

In addition, owners with more properties can benefit from scale in certain geographies and potentially have other benefits like staffing flexibility. Therefore, some owners have planned to grow by acquisition and can justify higher prices paid if they own more properties in a certain area. Another reason is the opportunity for growth in other ancillary businesses. These businesses can include in-house dialysis, contract therapy, wound care, pharmacy services or an on-site diagnostic lab, among other businesses. Also, there is the dynamic that the number of skilled nursing property buyers seemingly were outnumbering the seller supply, at least for now.

Lastly, there is the yield spread vs. other real estate asset types. If skilled nursing properties are selling for cap rates at, say, 11%, investors still have significant cushion if they have debt cost of capital in the 5% range and a loan-to-value in the 90% range. In addition, from an overall real estate investment perspective when measuring against other real estate asset types, 11% cap rates look very attractive.

In conclusion, skilled nursing property pricing has been stronger than many would have expected during a pandemic for various reasons. However, the risk of higher rates and labor market challenges could give more reasons for sellers to come to market, which would increase the number of properties on the market. In addition, if the cost of capital continues to increase as well, the price per bed increases may be limited in the near-term.