Rural nursing homes face closure as occupancy wanes

Rural skilled-nursing facility occupancy levels continue to decline, making them susceptible to closure or consolidation, researchers at the National Investment Center for Seniors Housing & Care said.

While average occupancy levels in urban and rural areas have relatively stabilized over the past year, there is still a significant gap between the two at 83.7% and 80.4% as of the fourth quarter of 2018, NIC data show. Skilled-nursing facilities in rural and urban areas were around 87% full in 2012.

Rural skilled-nursing providers have struggled to staff their facilities as populations in remote areas continue to decline, which increase costs while reimbursement levels fall. This means more will likely close or consolidate, which can leave patients in the lurch, said Bill Kauffman, senior principal at NIC.

More than 440 rural nursing homes have closed or merged nationwide in the last decade, according to recent data from the Cowles Research Group.

"When you are skating on thin ice with your margins, any movements in payer type can really move the needle," Kauffman said.

Medicaid revenue represents half of the payer mix across all types of SNFs, putting pressure on operators' revenues streams, said Beth Mace, NIC's chief economist. This comes at a time when revenues are also being pressured by managed Medicare, particularly via the expansion of Medicare Advantage plans.

National managed Medicare reimbursement levels at SNFs have declined about 13% from 2012 to 2018, and around 20% for rural providers, NIC data show. Those plans are now responsible for about 11% of skilled-nursing facility revenue, up from around 7% in 2012.

"Even though Medicaid still accounts for half of skilled nursing's revenue, evidence suggests that managed care, specifically Medicare Advantage and Medicaid managed care, is the future," Mace said.

Managed Medicare is more common in urban than rural areas, Mace noted.

Even though managed Medicare rates are declining, some health systems are taking the opportunity to acquire skilled nursing facilities to boost admissions and gain market share, Kauffman said.

Post-acute care is becoming a more important part of the continuum, particularly as efforts to stem readmissions and bolster other quality measures ramp up.

While home healthcare is typically cheaper than skilled-nursing care, they are more prone to readmissions, new research shows. A study published week in JAMA Internal Medicine by researchers at the University of Pennsylvania, found that Medicare patients discharged to home health had a 5.6% higher 30-day readmission rate compared with patients sent to a skilled-nursing facility.

This could make skilled-nursing facilities a more attractive acquisition target, especially since they cost less than long-term acute care and inpatient rehabilitation hospitals and can take on sicker patients than home health agencies, Kauffman said.

The aging population will likely increase demand for post-acute providers. Private companies, including private equity, have and will likely continue to put capital into the skilled-nursing space, he said.

"There are plenty of willing sellers, but there are also plenty of willing buyers," Kauffman said. "It will depend on the type of buyer, but some could see these lower-occupancy facilities as a turnaround opportunity with some upside."