The pressure points that Senior Living providers felt in 2018 will only be exasperated in 2019. This increased strain is due to the same primary-driver that has impacted the healthcare industry for decades – changes in reimbursement models. With Patient Driven Payment Models (PDPM) coming into effect in Q4 of 2019, Senior Living providers will need to continue to find ways to provide high-quality care on a more efficient basis. Going forward, based on PDPM, reimbursement for skilled care will be based on clinically relevant factors (quality) vs. the historical volume-based services (quantity). Even more-so than some past reimbursement changes, the PDPM represents a significant change in the areas providers should prioritize operationally.
Reimbursement models and referral networks
This shift in the reimbursement model is increasing providers’ needs to establish/fortify relationships with referral networks – allowing for a smooth transition of care to the lowest-cost environment, which is frequently not a provider’s skilled nursing facility. Currently hospitals discharge to skilled or a rehabilitation facility if a patient is unable to go home following a surgery. We expect more discharges to assisted living and direct discharges to the patient’s home with increased use of home-health going forward. Many Senior Living providers are adopting a ‘care-coordinator’ type position within their admissions office to help navigate this care transition.
Average Lengths of Stay at higher levels of care (acute and skilled nursing) will likely continue to fall. Hence, skilled nursing occupancy will likely continue to face pressure. In some markets, Grand Rapids, Michigan, for example, CCRC/Life Plan Communities have already exited the rehabilitation business and have significantly reduced (or eliminated) the number of skilled nursing beds they have. They are providing enhanced levels of care in Assisted Living and in the broader community. Technology has facilitated increased levels of care in a home setting. The vast improvements of Telehealth and other technology have increase connectivity both inside the provider organization and in the broader community. Technology, especially if it is integrated throughout the care-continuum, can provide the real-time data to ensure that adequate care is being given in the lowest cost environment, maximizing the reimbursement under the new PDPM reimbursement model.
We’re seeing the combining of different types of players in the healthcare arena in ways that are unlike the traditional senior provider joint ventures or affiliations, creating a flattening of the healthcare industry. Many hospitals had shed their skilled nursing operations in the past decades. With the impending reimbursement shifting to PDPM, we’re seeing hospitals want to control more of the continuum and take a different approach in its ownership of senior-living care providers. The first week of 2019 brought the completed merger of Sanford Health (hospital system) and Evangelical Lutheran Good Samaritan Society (the nation’s largest non-profit senior living system). Likewise Promedica is acquiring HCR ManorCare. While we don’t know what the future of healthcare will look like, we would expect to see the increased consolidation of different types of players in the vast healthcare field (i.e. Aetna and CVS).
Joint ventures, acquisitions and affiliations
Growth will continue to be a focus of senior living providers looking to leverage their over-head costs with more units/communities. We expect the joint-ventures, acquisitions and affiliations to continue to be strong in 2019, coupled with organic growth with campus repositionings (adding more IL units to existing campuses) and new buildings. In many markets, the real-estate markets continue to be strong. While some markets are arguably overbuilt due to the significant surge of units by for-profit providers, other geographic markets still offer opportunities to add more independent living units to existing campuses. While it looks like interest rates and construction costs may have leveled off for the time- being, we learned in 2018 that this leveling off can be short-lived. The break-even for these new construction projects may be tougher if/when interest rates and construction costs continue to go up. However, in several markets, strong demand will still facilitate viable projects, especially for existing operators.
Finally, workforce availability and retention will continue to be a focus of providers at all levels in 2019. With the decrease in immigration and the increase in the minimum wage in many industries, senior living providers will have to differentiate themselves to attract a loyal and quality workforce. We would expect incentives and engagement levels to increase. Providers will need to focus on attracting employees as much as they do at attracting residents. Turnover in both employees and residents is detrimental to the bottom-line.
While 2019 is shaping up to be an exciting time for senior living providers, the demand and need for quality providers is indisputable. The care and services that providers give to residents is personal and can really make a difference in the resident’s and residents’ family’s sense of wellbeing. The strong providers that are able to adapt with changing reimbursement models and that are able to provide higher levels of care at in a lower cost environment will be well positioned to have a positive impact on its residents well into the future.
The opinions expressed are solely those of Lynn Daly and do not represent the opinion of BB&T Capital Markets. BB&T Capital Markets is a division of BB&T Securities, LLC, member FINRA/SIPC. BB&T Securities, LLC is a wholly owned nonbank subsidiary of BB&T Corporation.
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