Bill KaufmannWhat will the skilled nursing sector look like in five years, or even 10 years? Where will the dollars come from to fund the transition and the models that will define the new skilled nursing sector?
There has never been more uncertainty in the skilled nursing sector than there is now, but there is also opportunity for the sector to be a major part of the solution to the care challenge the nation will face over the next decade and beyond.

As the changes in health care payment models and the delivery system progress, skilled nursing operators need to adapt to the changes in the marketplace. However, adapting requires knowledgeable capital providers to invest in long term and post-acute care operating businesses to meet growing demand from consumers, referral partners, and payers.

Investment Capital Needed, Not Just For Real Estate

There is little doubt that with half of the nation’s skilled nursing care centers built before 1980, investment dollars will have to be allocated to the construction of new buildings and/or the rehabilitation of existing buildings. Some investment in real estate seems to be occurring now, and many would argue that there is plenty of capital for the real estate business, but the operating businesses need capital for the industry to be able to seize this opportunity.

Some might ask, where do we allocate the investment dollars when it comes to the operating and service companies? One answer is to invest in the people, technologies, and service capabilities required for short-stay and long term care models of the future. Some experts have observed that operators need to pursue simultaneously a short-term survival strategy and a long-term positioning strategy for success, both of which necessitate greater investment capital.

For example, in the future, the sector most likely will serve higher-acuity residents with the need for more skilled care, both for short stays and longer-term stays. Many of these admissions previously would have been in acute care settings. This is a long-term change that requires a long-term strategy that involves investment in more care capabilities. This change, along with countless others, requires investment in expanding service capabilities and, in many instances, developing areas of specialization.

Currently, there is tremendous opportunity within the skilled nursing sector to accommodate the increase in the number of seniors needing both short-term transitional care and long term care, as this growth in demand will increase exponentially in the 2020s. To be clear, capital is needed not only for the building structures but also for the actual operating companies as well.

Attracting Capital For Operators And Services

The question is, how does one get more capital to invest in the operating businesses? An important first step is to provide increased transparency that will facilitate informed investment decisions in the sector.

Historically, the data produced by the skilled nursing sector has not enticed many capital sources to invest in it. The reason, quite frankly, is that there is a lack of relevant data for investors.

For one, the industry needs data that are timely. The current primary provider of data is the Centers for Medicare & Medicaid Services, and those data are typically at least 12 to 18 months old. Given the rapidly changing dynamics of the current marketplace, the government data simply are not sufficient for investors seeking to make informed investment decisions. In addition, the data required by investors need to be reported on a consistent and reliable basis.

Skilled Nursing Data Initiative

Working toward the goal of bringing providers of capital and providers of care together, the National Investment Center for Seniors Housing and Care (NIC) has sought to go out to the investment community to facilitate capital formation, specifically for skilled nursing providers. Investors have responded that they need better data if they are to either enter or expand their investment in the sector.

Specifically, they have said that while extensive data are available through different government sources, they are difficult to access and digest and, more importantly, are not timely in terms of giving investors a current picture of trends in the sector.

In order to meet this void of transparency, NIC currently is collecting monthly data from skilled nursing operators through the NIC Skilled Nursing Data Initiative. NIC currently collects data from 18 operators with a total of 1,500 properties. This collection includes both small operators and large operators and provides monthly time-series data, including: occupancy, quality mix, skilled mix, patient day mix, and revenue per patient day by payer source, which includes breaking out managed Medicare. Additional data metrics also will be added in the future.

Growing The Sample

The initial sample of 1,500 properties is only NIC’s initial step to provide timely data. Growing the sample size will allow it to provide aggregated results to be reported at the state and metropolitan levels and create the data needed for more capital to invest in the sector. A greater sampling also will allow operators to benchmark themselves within their markets with monthly data.

NIC is urging operators to participate by submitting data. All individual property data collected are kept confidential, and no property or operator data are disclosed. As is NIC’s practice with the data it collects, all of the data are reported on an aggregate basis. In addition, NIC also is working with a number of technology solutions providers to assist in growing the data collection.

Information on how to participate can be found at:
Each operator that contributes data to NIC on a monthly basis receives, free of charge, an aggregate monthly summary of the latest national data along with a benchmark comparison of its data to the national aggregate statistics.

As the database grows with more contributors, NIC will provide each contributor with more enhanced geographic data.

If readers wish to see some of the actual data, they can download the latest Skilled Nursing Data Report, which was released on June 21, 2016. It includes key monthly data points from October 2011 through March 2016.
The report can be accessed at

Some of the key takeaways from the latest report include the following.

Seasonality Effect Weaker

Skilled mix and quality mix increased to 26.0 percent and 35.5 percent, respectively, in first quarter 2016, as seasonality continued to play a role this time of year. However, the effect of seasonality was not as strong this year compared with the past two years, which may be attributed to the relatively late flu season.

For example, quality mix, which represents all payer sources but Medicaid, increased 0.6 percent, from 34.9 percent in December 2015 to 35.5 percent in March 2016. Seasonality played a greater role in the previous two years. From December 2014 to March 2015, quality mix increased 1.2 percent, from 36.2 percent to 37.4 percent. And from December 2013 to March 2014, quality mix increased 1.3 percent, from 35.8 percent to 37.1 percent.

Managed Medicare Rates Still Decreasing

Managed Medicare rates continued to decline as rates decreased 1.2 percent quarter-over-quarter, from $447 in December 2015 to $441 in March 2016. The rates decreased year-over-year, as well: From March 2015 to March 2016, the rate dropped from $468 to $441. This decrease of 5.6 percent accelerated from the prior year, when rates decreased only 2.8 percent from March 2014 to March 2015. However, this past quarter does represent a slowdown in the rate of decrease, as the rate decreased faster from October 2015 to December 2016, at 1.7 percent.

Occupancy Increased Quarter-Over-Quarter

Occupancy increased in January and February of 2016 but leveled off in March to end at 83.4 percent. However, occupancy is down 108 basis points from October 2011, as the decline in length of stay continues to be a challenge.

Over the past few years, there also has been more competition from home health and assisted living, which could be affecting occupancy, as well. The bounce back in occupancy from December 2015 to March 2016 is not surprising, considering the winter months often see a pickup of flu cases, slips/falls, and elective surgeries, all of which can cause an increase in occupancy rates.The quarter-over-quarter change in occupancy was 60 basis points, increasing from 82.8 percent in December 2015. When digging deeper into the data, however, they show that the year-over-year change was a decrease of 90 basis points, as occupancy dropped from 84.2 percent in March 2015 to 83.3 percent in March 2016. ■
Bill Kauffman, CFA, is senior principal at the National Investment Center for Seniors Housing and Care. He can be reached at or (443) 837-2429.