Among those filing Chapter 11 was Evangelical Retirement Homes of Greater Chicago, which operates Friendship Village in Schaumburg, Illinois. The large nonprofit continuing care retirement community offers skilled nursing, assisted living and independent living. In its June bankruptcy filing, Evangelical Retirement Homes listed $10 million to $50 million in assets and between $100 million and $500 million in liabilities.
In Rhode Island, three of the state's 79 nursing homes, representing more than 450 beds, are in receivership: Hebert Health in Smithfield, Trinity Health in Woonsocket and Pawtucket Falls Healthcare Center in Pawtucket Falls. A receivership is a process designed to allow a company to restructure its debt while avoiding a bankruptcy filing.
Attorney Jeremy Savage, a court-appointed receiver for Hebert Health and Trinity Health, said rising interest rates and staffing shortages have contributed to the facilities' financial problems.
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Six other nursing homes in the state have closed in the past couple of years. “There’s hope that someone is going to come in and take over those three in receivership, but it’s a tough environment for that to happen,” said John Gage, president and CEO of the Rhode Island Health Care Association.
Filing for Chapter 11 allows a debtor to retain ownership and, under court supervision, develop a reorganization plan and pay back creditors over time. However, not all companies successfully reorganize and a company can be sold during the process or its assets liquidated.
“There’s likely to be little purchaser interest or there is going to be interest at a low price because the buyer will have to fund some losses out of pocket for a period of time while he tries to turn the business around,” said Ronald Winters, principal at Gibbins Advisors.
The COVID-19 pandemic dealt a blow to the nursing home industry. More than 200,000 nursing home residents and staff died from the virus, prompting the industry to come under increased scrutiny from federal regulators as well as the public. Three years later, many nursing homes are still struggling from the pandemic's aftermath. More than 300 nursing homes closed due to low occupancy rates, added costs related to the pandemic and staff shortages, according to the American Health Care Association, an industry trade group.
While average occupancy at skilled nursing facilities has returned to near pre-pandemic levels, staff shortages persist and other problems have emerged. Rising interest rates are making it harder for some nursing homes to access credit, according to Krystal Mikkilineni, a bankruptcy attorney with Dentons Davis Brown.
“If a loan is up, banks are less willing to enter into a refinancing arrangement or extend new credit, Mikkilineni said. “A lot of them are just wanting out of that business.”
The switch from fee-for-service Medicare plans to Medicare Advantage also is hurting nursing homes, said Fred Bentley, managing director at ATI Advisory, a long-term care advisory firm. Private insurance plans typically pay nursing homes lower reimbursements for rehabilitation services and often require shorter skilled nursing stays. “For organizations with thin margins, that really hurts,” Bentley said.
A looming minimum staffing mandate from the Centers for Medicare and Medicaid Services could be the final straw for some nursing homes teetering on insolvency, according to the American Health Care Association. The mandate could require nursing homes to increase the number of nurses and certified nursing assistants on staff or reduce occupancy. More than half of the nursing homes polled by the trade group in June said they were operating at a loss and 45% said they could not sustain operations at the current pace for another year.
The situation has prompted some action from CMS and states. CMS is increasing Medicare reimbursement rates to nursing homes 4% next year and a number of states have approved higher Medicaid reimbursements for 2024.
Rhode Island nursing homes will receive a 6.9% increase in reimbursements next year. Gage called the increase helpful to financially stable nursing homes in his state, but said it could be too little, too late for others struggling to remain solvent in a challenging environment.
