Many of the nation’s skilled nursing facilities (SNFs) are
due for a makeover, yet providers must grapple with whether to tear down and
start anew or refurbish an existing building.
The heyday of SNF construction occurred in the ’60s and ’70s.
Besides aesthetics—many residents do not want to be housed in cramped rooms and
share bathrooms—these units face the possibility of coding
violations. Yet the issue is not so black and white. Shades of grey exist in
terms of business models, new reimbursement programs, and demographics.
“The answer is kind of complex,” says Fred Benjamin, chief operating
officer of Medicalodges. “It depends on the surroundings and the marketplace.”
Nursing center financing is extremely tight, with margins
typically ranging from 3 to 5 percent, so little room is available for building
projects. Medicaid typically covers 60 percent to 75 percent of the SNF market,
says Benjamin. To cover costs, nursing centers have increasingly diversified or
expanded to higher-paying lines of business (home health, assisted living, post-acute
care, insurance) to cross-subsidize services with lower reimbursement levels,
such as Medicaid.
Compounding the problem is that numerous states are facing
budgetary shortfalls. Kansas and Oklahoma are encountering a $600 to $1 billion
budget deficit, while Illinois is bankrupt, turning all these states into
“political powder kegs” in terms of getting Medicaid reimbursement, says
Medicare payment programs, such as accountable care
organizations and bundled care, are also eating away at SNF providers’
profits—and their chances to increase their buildings’ curb appeal.
“In this environment of payment reform, what we’ve had to do
is remodel our buildings because it’s so expensive to build anymore,” says Tom
Coble, chief executive officer of Elmbrook Management Co. and 2015-2016 chair
of the American Health Care Association (AHCA) Board of Governors. “There’s a
lot of new products and technologies available where you can make older
buildings look really nice.”
The faces of residents, and their needs, also factor into
the construction conundrum.
“The younger cohort [have fewer disabilities] but have more
chronic conditions—Medicare does not pay as much for chronic conditions,” says
Mike Cheek, senior vice president of finance policy and legal affairs. “Also,
the length of stay is cut in half. Hip replacements go home in two days and do
physical therapy in their homes instead.”
Another contentious issue is that of certificates of need (CONs),
legal documents required in 35 states before any facility expansion is allowed.
CON supporters say these papers prevent overbuilding and thus price inflation
(facilities that cannot fill their beds must meet their fixed costs through
higher charges for the beds that are being used). CON opponents say these
documents reduce competition between facilities and may actually keep prices
For the time being, more providers are opting to do
renovations. Several states, such as California, have programs that finance
refurbishment/modernization of buildings all in the name of “culture change.”
Cheek advises providers to look to see if their state has a similar program.
Meanwhile, most providers are making the decision to build
or not to build one facility at a time.
“It’s difficult to decide what to do,” says Chuck Brown, culture
and development officer at PruittHealth. “We try to figure out what’s best for
the community and what’s best for the patient.”
Jackie Oberst is Provider’s managing editor. Email her at
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