The Reasons Behind Skilled Nursing’s Occupancy Decrease

Bill Kauffman, senior principal at NIC, discusses the key findings of the organization's latest report on the industry. He also touches on the new recipe for a successful business model in the sector.
Bill Kauffman, senior principal, NIC

The typical upward movement in skilled nursing occupancy at the beginning of the year—mostly due to seasonal factors such as the flu—failed to occur in 2018. According to the National Investment Center for Seniors Housing & Care’s (NIC) latest Skilled Nursing Data Report, occupancy declined to 81.6 percent at the end of the first quarter, down 30 basis points from the previous quarter and a 210-basis-point decrease year-over-year.

The report highlights occupancy and revenue trends in the skilled nursing sector. Bill Kauffman, senior principal at NIC, expands on the key takeaways in an interview with Multi-Housing News.

What can you tell us about the decrease in occupancy in the first quarter of 2018? Is there more to it than an occasional deviation from the usual first quarter uptick?

Kauffman: We typically see an increase in occupancy from the fourth quarter to the first quarter, which did not occur this time around, in 2018. However, we did see the expected increase in skilled mix, which includes Medicare and managed Medicare patient days and suggests that seasonality did influence the data as more higher acuity—Medicare and managed Medicare— patients are often admitted during the winter/flu season. This, in turn, often drives an increase in overall occupancy. Since the overall occupancy did not increase along with skilled mix, there may be other factors at play which are offsetting this influence, such as pressures on admissions and/or length of stay.

Managed Medicare revenue mix reached a time-series high in February. What can you tell us about the reasons behind this growth and what do you expect going forward? 

Kauffman: Managed Medicare penetration has increased overall within health care over the past few years and skilled nursing is not immune to that, as the data shows. Given the fact that continued growth in this payor category is expected into the future, we should anticipate this trend to continue at skilled nursing properties. Some continued pressures on length of stay and reimbursement from managed Medicare could impact the skilled nursing real estate sector. However, the positive side of the equation is the growth in demographics, especially towards the end of the 2020s.

Medicare revenue mix declined in urban areas, while increasing in urban cluster and rural settings. How do you interpret these findings?

Kauffman: Medicare revenue mix actually increased in urban areas from the fourth quarter of 2017, as it did in urban cluster and rural areas. However, the trend over the past few years does show a decrease in urban areas where there has likely been more penetration of managed Medicare and more competition from other post-acute players, such as home health care.

Looking at the graphs provided in the NIC report, Medicaid and managed Medicare patient day mix are on the rise since 2011, while Medicare and private patient day mix are falling. What drives these trends?

Kauffman: In general, this is most likely related to growth in managed Medicare and more competition from other settings for Medicare and private dollars, thereby bypassing the skilled nursing properties or going straight home from the hospital. 

What are the greatest challenges of the skilled nursing sector?

Kauffman: The greatest challenges to the skilled nursing sector are really the same since the move to value-based care in 2015. The sector needs to adjust to strong growth in managed Medicare, a supply/demand imbalance at the moment when it comes to available Medicare days, as well as perceived wage pressure and labor/staff retention.

The recipe for a successful business model has changed in many markets, whereas now the operators have to not only be able to provide quality care at a lower cost, but they need to be able to prove that by showing their quality outcomes and data to their hospital relationships and the payers/insurance companies. With such a concentration on quality outcomes in the current market, NIC has enhanced its data offerings through the NIC MAP Data Service by supplying quality metrics data including CMS Five-Star data and PointRight Pro 30 scores, which enable benchmarking at the metro level.

What trends should we expect in the upcoming year in skilled nursing?

Kauffman: Most likely we will continue to see more of the same as the sector continues to adjust to the value-based care models within the health-care system. However, keep in mind that all markets and many operators are different and there can be a wide variation in performance among operators and markets.

Image courtesy of NIC