A grim prediction for the future of nursing homes in the United States.
Howard Gleckman, a Senior Contributor for Forbes and senior fellow at The Urban Institute with its Tax Policy Center and Program on Retirement, has made a compelling argument that the 16,000-plus COVID-19 deaths in senior living facilities will drive historic change for the industry.
You can read the full piece here.
The US operates two different models of residential care – skilled nursing facilities (SNFs) and long-term care.
Mr Gleckman notes short-stay skilled nursing is mostly paid by Medicare at a rate of about $500 a day, although Medicare managed care – which is growing – pays closer to $400. This works out at around an 11% margin.
In contrast, Medicaid pays at least part of the costs for around 80% of long-term care residents of nursing homes – about $200 a day, often less than the cost of care. Operators make up for the negative margin by providing extra services, such as medications.
Before COVID-19, providers were already challenged by this business model because more Medicaid-funded residents than Medicare-funded residents were coming in – average occupancy has dropped to around 83%.
The senior fellow says the pandemic has led to an exodus of residents and “exploding” costs for operators.
“Many facilities will have to redesign interior space to maximise infection control,” he writes. “They may lose beds if they must close shared rooms. Labor costs, already under pressure, could increase substantially as facilities have to both increase staffing and raise pay. Increasingly, nursing aides are unwilling to do this difficult and now dangerous work at the current average wage of about $13/hr.”
Mr Gleckman adds that operators will also be under huge regulatory and consumer pressure to maximise infection control post-pandemic.
“So far, facilities have been doing that by effectively keeping residents in their rooms—no visitors, few activities, no community dining. The challenge: No one wants to live like that. And social isolation is itself dangerous. Facilities must find a way to strike a balance between safety and a comfortable, engaging, and social community. It will not be easy.”
He also predicts financially-stressed states will look to cut Medicaid payments to nursing homes, while older people and their families will be even more motivated to age at home.
“Unless they can fundamentally change the way they deliver care, facilities will have a hard time marketing around those attitudes. And they can’t survive with just Medicaid residents, who are there only because nursing homes are the only setting where Medicaid pays room and board.”
And despite providers seeking waivers from liability for COVID-19 deaths, Mr Gleckman says many nursing homes and assisted living facilities will face a wave of lawsuits from families of residents.
“These enormous pressures are likely to result in significant losses for facilities unable to adapt, and a massive ownership shakeout. Some analysts predict that as many half the current operators may go out of business, unable to find the capital they need to keep going. Industry analysts disagree on whether this will result in ownership consolidation or a net decline in beds – or both.”