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 No Panic, But Lots Of Head Scratching In Seniors Housing Sector

​Major uncertainty exists in the seniors housing and investment markets because of reduced Medicare reimbursement for fiscal year 2012 and the possibility for even more when the deficit-cutting congressional Super Committee completes its work, but one leading expert says stakeholders are not panicking, and there is ample opportunity for flexible skilled nursing operators to be successful.

Robert Kramer, president of the National Investment Center for the Seniors Housing & Care Industry (NIC), says the main priority in the post-acute care provider sector is based on what happens with Medicare reimbursement. NIC recently held its annual conference in Washington, D.C., where Kramer said all Medicare-related meetings met with standing-room-only crowds.

“There is no sense of panic, but it will shift the business model,” Kramer says, referring to the world skilled nursing facility operators find themselves in after the Centers for Medicare & Medicaid Services (CMS) reduced reimbursement 11.1 percent for fiscal 2012.

A further mandatory cut of 2 percent could be triggered if the Super Committee does not come up with a deficit reduction plan by its pre-Thanksgiving deadline. Created as part of the negotiations to settle the debt ceiling confrontation earlier this year, the Super Committee is a group of 12 lawmakers representing both Republicans and Democrats equally that must find $1.5 trillion in debt savings over a 10-year period.

“There is so much unknown, from the Super Committee, Congress, and the president,” Kramer says. “What will the cuts be? Where will the incentives be? Where are the payments?”

The feeling amongst lenders, equity investors, and operators is that more cuts could be coming, with or without the Super Committee trigger.

“Skilled nursing facilities could get a disproportionate share of future cuts,” he says, relaying the talk at NIC’s conference.

How the Medicare situation plays out will have a huge impact on how providers operate. Will they focus more on rehab residents or high-acuity cases, he asks. The operators who can adapt will do well, Kramer says, and that does not necessarily mean only the largest firms will do the best.

“There will be an adjustment period, but at some point and time, when the dust settles, we will probably see significant transaction activity,” Kramer says.

The shakeout from lower reimbursement levels will see some buildings and companies shut, but he hopes a clear sense of direction emerges from CMS and whatever administration is in charge after the 2012 elections.
“There is no question there is a great deal of frustration with CMS. But it is not clear how much [of the move to reduce reimbursement] is truly CMS and how much is the [Obama] administration,” Kramer says.

CMS has staked out its priorities, he notes, which are what the agency feels are overpayments in the Medicare and Medicaid systems.

As for the Super Committee, Kramer sees two distinct views on what will happen. One group thinks the automatic cuts will not happen because both Republicans and Democrats have too much skin in the game to let their favorite programs suffer.

“If the triggers occur, Republicans will see cuts in defense spending and Democrats deeper cuts in social sector programs, like in education, for example,” Kramer says.

The other point of view is more pessimistic, but possibly more realistic. This argument says both parties will refuse to cooperate with each other before the presidential and congressional elections in November 2012. “No one will give an inch,” Kramer says.

Separately, the view of the memory care and assisted living markets is definitely more optimistic, even with the down economy and housing prices. “There is a good deal of bullish optimism from the investment community,” Kramer says. This mood reflects the view that there is pent-up demand for such housing. Where the business goes will depend on the general economy and housing markets.
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