Market Outlooks, Stock Transfers vs. CHOWs, and Advocating for SNFs
As 2022 continues to throw varying levels of uncertainty and reactionary regulation into the skilled nursing industry, we remain committed to providing solutions-oriented commentary. For this quarter, we look at market trends, analyze an alternative to change of ownerships, and discuss our reaction to new regulations.
Our Outlook on Swinging Markets
Occupancy in facilities appears to be continuing its upward trend toward recovery. As home health options prove to be difficult for family members, expect an ongoing recovery of census as a need for centralized, well-scheduled care means more people turning to experienced post-acute and skilled nursing facilities. With SNFs reporting a continued increase in the acuity of their residents’ care needs, facilities are better positioned financially to coordinate and provide quality care.
While there are millions of job openings, the Bureau of Labor Statistics shows hires are well below employer demand, suggesting a lack of appetite for some people to enter the workforce. Data from the St Louis Fed shows a recovery from historic lows in employment in nursing and residential care facilities.
Are Stock Transfers a Viable Alternative to CHOWs?
Changing ownership through a stock transfer is an alternative to the traditional change of ownership (CHOW) process commonly conducted in the long-term care industry. When operators begin the process of taking ownership of facilities, there is a tremendous number of applications and reports to file, and regulations to follow. While a stock transfer aims to simplify the process, there are two sides to every coin.
- Less turnaround time to begin generating revenue
- Maintains existing exception status, if applicable
- Sometimes necessary if a deed has transfer restrictions
- Necessary in order to keep a current favorable Medicaid Rate
- Unwanted liability is inherited from prior ownership
- Existing contracts remain at prior terms and rates, which are often not on par with market rates
- New owners cannot choose which assets to maintain and must assume them at the seller’s carrying value
Taking ownership of facilities through a stock transfer doesn’t guarantee a smooth future for your operation. Instead, a buyer in this situation could be taking on more risk and liability than they would during a traditional change of ownership, where rates can be re-examined and reimbursements for facilities can be improved during the process in many states.
During a stock transfer, a buyer is practically taking on facilities as-is, which isn’t typically advisable. Whatever skeletons there may be in the closet, a buyer is accepting to take on that uncertainty with a stock transfer. Some exception statuses—for example, Employee Retention Credits and other funds coming into the facility—may make a stock transfer more for some buyers despite the risk.
In our experience, a well-conducted change of ownership gives operators many opportunities to shape a positive outcome and limit risk and liability. Our Change of Ownership Department has conducted hundreds of CHOWs in multiple states with accuracy, care, and professionalism. By doing everything in-house, including underwriting, credentialing, and enrollments, we have accelerated the timeline to complete a CHOW.
Raising Our Voices
A swath of new reforms and regulations have hit skilled nursing in the last year. The Centers for Medicare and Medicaid have since made it known they are looking at mandating staffing levels at nursing homes to improve care. This out-of-touch response to our industry, still recovering from the COVID-19 pandemic, is another signal that regulators on The Hill are unaware of the reality on the ground in our nursing homes.
Staffing agency use has sky-rocketed during the pandemic and remains at unpalatably high levels. At LTC Ally, we have assigned subject matter experts in agency use to support our operators in tracking and managing agency costs. Creating a mandate does not mean quality clinicians will emerge from the woodwork and help us staff our facilities. Instead, reimbursements need to match increased staffing costs and residents’ care needs. Facilities, many already operating on thin margins, cannot continue to staff up without the funding to do so.
As stakeholders in the industry, we are making it our priority to work with home-side associations to communicate the needs of facilities to lawmakers and representatives. While it appears the government has become blind to the importance of skilled nursing in providing essential care for a vulnerable population, it is our responsibility to help them understand this.
Our responsibility is to boldly stand up and correct the narrative that skilled nursing facilities are dangerous places. We can do this by example, by caring deeply for our residents and their families. We can also do this by supporting organizations like AHCA and our state HCAs whose experts represent the needs of our facilities, conduct important research, and speak directly to lawmakers who can make a difference.
Looking Ahead into Q3
With all eyes on the Fed moving into the second half of the year, many are speculating about a full-blown recession as continued attempts to control inflation take the form of rate hikes. This is likely to have an impact on your facilities’ revolving line of credit and covenants. As money becomes more expensive for lenders and borrowers alike, operators will have to position themselves in a way to handle their AP and AR as efficiently as possible.
Rising costs across the board will mean accurate reporting on your facilities’ costs becomes even more vital in areas where cost-based reimbursement models exist. Operators with a strong back office will be able to keep abreast of rising costs by preparing now for prolonged inflation.
We are cautiously optimistic that reimbursements could see corrections to align with the reality of how much SNFs are paying to keep their doors open as steep inflation settles into the minds of those with the pursestrings. When that happens is presently a mystery, but Pennsylvania recently announced a 17.5% increase in Medicaid reimbursements for nursing homes in 2023. Hopefully this is a sign of good things to come.