COVID Accelerates Shift to Qualified Private Nursing Rooms, Up 31% in 2020
The pandemic has sped up the shift to private rooms in the skilled nursing space, an attempt to help reduce infection, with 31 percent of operators making the switch to some capacity last year.
Chicago-based specialist investment bank Ziegler reported the statistic at a CFO workshop in April – a study also found that 47% of operators took beds and / or units offline and 16% took permanently reduces the number of beds.
“We were basically moving to private rooms before the pandemic,” Chris Utz told Skilled Nursing News. Utz is Managing Director of Zieger’s healthcare investment banking team. “There are a lot of skilled nursing facilities across the country that use a very old model that have rooms with three or even four beds per room.
Georgia-based operator Pruitt Health expects residents and their families to demand private rooms during its census, CEO Neil Pruitt Jr. told Skilled Nursing News in a previous report.
Pruitt is looking to increase its inventory of private rooms from its current 14% to 32% in five years.
“We are moving very quickly to open new wings and create completely private facilities, and I think that will impact our ability to recover,” Pruitt said in an interview in March. “I always said there was a 15% to 20% contraction in the skilled nursing industry that was going to happen.”
This contraction will not be seen in closures, but rather in providers moving from semi-private to private rooms.
The main challenge with this change, said Utz, is the care reimbursed by Medicaid.
“The income is just not there,” he added. “Every skilled nursing facility has a mix of Medicare, private pay, and Medicaid. The business model is simply not supported in terms of reimbursement for private rooms. “
If this model shifts to more private compensation and health insurance, more operators are likely to follow the trend.
Lenders like the Federal Housing Administration (FHA) and the Department of Housing and Urban Development (HUD) may perceive single rooms as less risky in the long run, according to Lindsay Konkel, director of senior housing and care finance operations. in Ziegler.
“Right now, the FHA is currently asking lenders to demonstrate the impacts of the limitations on neighborhoods – the analysis should take into account the facility’s ability to maintain the FHA’s minimum debt service requirements if the quarters were converted into semi-private rooms, ”Konkel explained. “The scrutiny hasn’t disqualified any of our transactions, but as you can imagine, you know from Chris’s observations earlier, a lot of our customers have told us that the decompression of these services is currently prohibitively expensive. “
Location is another big factor in moving to private rooms – available space, state acceptance of more facilities built nearby, and local regulations dictate new construction and renovations. .
“You look at places like California, where (the statewide Office of Planning and Health Development) makes it impossible to build new beds in incredibly under-indebted markets,” Utz said. “There are a lot of facilities in the California area, especially in San Francisco, Los Angeles, San Diego, where they are undercover; many establishments have rooms with three beds. Even if a new builder wanted to come in and try to build private rooms, they couldn’t do it at a cost-effective level or even a sustainable level, due to OSHPD regulations.
Utz continued, “LA and New York City real estate is worth more than the facility itself. In many of these areas, you are dealing with buildings that have a 30 year old property and plan. But when you go to a more rural area, you know, say, Nevada or Texas where there is a ton of land and the land is cheap, you can build a high end facility without any interference from the land. ‘other developers. and / or regulatory bodies which will make it difficult for you. “
Utz mentioned that he is seeing more for-profit operators building new facilities with private chambers and nonprofits with ties to continuing care retirement communities.
“A lot of the new for-profit builders are the ones who are really setting up absolutely beautiful and skilled nursing facilities that have a lot of private rooms. I’m actually working on a single transaction, and I can’t mention the name, but all the facilities in the portfolio are completely new private rooms, ”he noted.