The Top Skilled Nursing Trends of 2020 — and Beyond

As we prepare to close the door on the 2010s, we’re also about to say goodbye to a year that probably felt like a full decade for operators and investors in the post-acute and long-term care space.

With a new Medicare payment model, continued Medicaid pressures, and a raft of regulatory attention from Washington, D.C., 2019 will likely go down as a landmark year that industry players, years from now, will discuss in hushed tones whenever the topic of conversation turns to dark times and old war stories.

But the world, and the skilled nursing space as a whole, will keep spinning into 2020, and many of the trends that gained steam over the last few years will continue to intensify — along with new challenges and opportunities that we see in the months and years to come.


As has become an annual tradition at Skilled Nursing News, we’re using the final business week of December as a platform to discuss the year that was, as well as our staff’s top predictions for the year to come. Some of our 2019 prognostications came true, and others didn’t; just like in years past, we encourage you to send your feedback on our crystal-ball skills.

First up, three predictions from editor Alex Spanko.

CMS clawbacks will come faster than the industry thinks

More often than not, when I trot out the federal government’s line that the new Patient-Driven Payment Model (PDPM) will be revenue-neutral, I’m greeted with knowing chuckles from leaders and investors in the industry: Sure it will, the implication goes — and Santa himself will come down my SNF’s chimney on Christmas Eve with a brand-new, $500-per-day Medicaid rate.

If there’s one truism in covering an industry that overwhelmingly relies on government agencies to exist, it’s that operators will quickly adapt to whatever new rules that officials implement in an attempt to control their behavior.

It happened under the old Resource Utilization Group (RUG) system, which saw operators maximize their reimbursements through providing as much high-intensity therapy as possible, clustered around the times when it mattered most. It will happen under PDPM, with early returns demonstrating that there are far more reimbursement winners than losers, even when accounting a quirk of the transition process that saw most every operator receive a non-repeated boost for certain residents.

The Centers for Medicare & Medicaid Services (CMS) has all of this data and more; many of its employees also read this publication on a daily basis. They know exactly the levers that operators can pull to boost reimbursements under PDPM — from adding ventilator units to reducing therapy minutes to boosting group and concurrent services — and they will not be amused with providers who can’t back up those decisions with firm clinical justifications.

The best operators have prepared for PDPM by thoughtfully pairing every reimbursement-based decision with a clear, demonstrable benefit to their residents. The smartest leaders have also recognized that while they can certainly benefit both clinically and financially from PDPM, they shouldn’t go spending any surpluses immediately.

The CMS hammer will fall — whether it’s through clawbacks from operators deemed to have changed their strategies solely to cash in on the new model, an unwillingness to raise the market basket rate for Medicare nursing home reimbursement, or some as-yet-unseen penalty. We predict the fallout will start sometime in 2020, making it a key area of compliance attention for operators and their leaders in the coming year.

Washington’s laser focus on SNFs will continue

At the dawn of the Trump administration in 2017, there were likely many skilled nursing leaders and investors who — regardless of their personal political leanings — thought a unified Republican government would spell the end of regulatory scrutiny, at least for as long as the GOP held power.

Reality certainly hasn’t worked out that way.

Seema Verma, the president’s pick for CMS administrator, has overseen sweeping changes to nursing home oversight, from the PDPM shift to her flagship five-point plan on beefing up skilled nursing regulations. Under Verma’s watch, CMS has tightened the screws on staffing; overhauled the five-star rating system to specifically make it more difficult for operators to reach and maintain high marks; and set out to reform the state-level agencies that perform regular nursing home inspections on behalf of the federal government.

While Verma’s language is often couched with business-friendly nods toward reducing paperwork and other bureaucratic burdens — the inspection push, for instance, also came with CMS’s position that higher-rated operators should be subjected to fewer surveys in order to focus more resources on the worst performers — she’s made it clear that nursing home oversight is a top priority of both CMS and the White House.

She’s not alone. Sen. Chuck Grassley, the powerful Iowa Republican, has used his position as chairman of the Senate Finance Committee to host hearings on nursing home safety that brought harrowing and unacceptable stories of abuse and neglect to Congress and the public at large. In conversation with reporter Maggie Flynn this month, Grassley asserted his desire to introduce a new nursing home oversight bill before the end of the year — one that might include an increased focus on exactly who owns the nation’s nursing facilities, and whether or not their pasts include tales of abuse and bankruptcies.

And with 2020 as a presidential election year, operators shouldn’t expect the rhetoric and action to stop anytime soon. In a sharply polarized political landscape, just about everyone can agree on the importance of protecting America’s seniors from harm and neglect, and nursing home oversight bills are perfect opportunities from lawmakers to score bipartisan victories with the general public — while also ushering in needed reforms.

We predict that post-acute and long-term care will appear on the agendas of both Congress and the still-crowded field of candidates vying for the Democratic presidential nomination.

Long-term care shortages begin in certain markets

Low occupancy numbers have been a consistent theme of my time covering the nursing home space, with no national relief in sight: The overall number, according to quarterly updates from the National Investment Center for Seniors Housing & Care (NIC), has hovered in the low 80% range for some time now, with June’s 83.7% figure representing the first year-over-year gain since 2015.

But as many leaders have pointed out, nursing home success relies more on local market factors — from Medicaid rates to hospital partnerships to specific state laws that encourage home health over institutional care — than national trends.

Given Medicaid funding shortfalls that have triggered waves of closures in states as geographically and politically diverse as Massachusetts, Kansas, and Washington state, many markets could soon start seeing bed shortages instead of empty wings: Demand for nursing home services in 17 of Wisconsin’s 72 counties will meet or exceed supply in 2020, according to a trade group in the state, with a statewide mismatch by 2027.

And Wisconsin isn’t an outlier. The demographic wave of aging baby boomers will crash on all 50 states, while the supply of long-term care beds will dwindle based on two separate but equally important factors: continued closures or bed-count reductions due to difficult Medicaid reimbursements, and persistent disinterest in developing new facilities that specifically serve long-term care residents.

State governments must shore up their Medicaid funding for nursing home care in order to spur investment in desperately needed beds now, before the effects of the “silver tsunami” fully reach the nursing home sector.

Until that happens, certain markets can and will find themselves short of space for the residents who need it most — creating both challenges for residents and their families, and significant opportunities for operators that can swoop in to alleviate the shortages.

And now, three more trends from reporter Maggie Flynn.

Operators and landlords will start taking new looks at their leases

Senior Care Centers’ (SCC) Chapter 11 bankruptcy, which saw the operator place the blame on its burdensome leases, might have been declared late in 2018, but the fallout of the case continued well into 2019. One of its major landlords, Sabra Health Care REIT (Nasdaq: SBRA), had to record a $77.7 million first-quarter loss due to an impairment charge related to SCC’s bankruptcy.

Meanwhile the bankruptcies of both SCC and Preferred Care, which filed for bankruptcy for 33 of its SNFs in 2017, ended up causing problems for another landlord, the real estate investment trust (REIT) LTC Properties (NYSE: LTC).

And those are just the bankruptcies that started prior to this year. In September 2019, the seven-facility operator Absolut Care also put the blame on leases when it filed for Chapter 11 bankruptcy, citing “crushing rent burden” in its filing. In November, the 14-SNF Cornerstone Healthcare Services pointed to issues with leases in its Chapter 11 filing, even though they weren’t the primary cause.

And even when operators didn’t declare bankruptcy, their leases could become a problem. Omega Healthcare Investors (NYSE: OHI) has run into persistent problems with Daybreak Venture over the past year, and was one of the landlords — Sabra was the other — that renegotiated leases with operator Signature HealthCARE when it fell behind on rent payments.

Even for success stories, such as the work of turning around major operator Consulate Health Care, renegotiating leases came with the territory.

That means leases and rent payments are going to come under the microscope at the negotiating table. And it’s not out of the realm of possibility that state and federal authorities might start putting ownership and lease agreements under the spotlight. Multiple states have passed new laws related to vetting ownership of SNFs after the fallout from the defunct Skyline Healthcare, and many of those require information about the financials of the operators.

Lease agreements are a key factor in operators’ ongoing viability. Expect providers and landlords to take a hard look at the cash flow of operations and reassess existing agreements — for the sake of both the bottom line and possibly the law.

SNFs will bite off more than they can chew — on both services and payment models

I should preface this by saying that quite a few SNFs will see — or are already seeing — success by branching out into other service lines, even if they hit some speed bumps along the way. Multiple consultants and CEOs have advocated diversification beyond standard SNF services, and many operators are seeing their ventures pay off in the form of new lines of business and new opportunities.

This will only become more important as Medicare Advantage becomes more and more widespread, and as states increasingly move to managed long-term supports and services. The former will keep pushing their beneficiaries to the cheapest setting possible, while as part of the latter shift, governments and municipalities are emphasizing home and community settings as the preferred places of care.

But when it comes to moving into the Medicare Advantage space via the Institutional Special Needs Plan (I-SNP) model, and adding services, many SNFs could get badly burned.

Seemingly every industry conference I attended this year had sessions on how SNFs could break outside the skilled care box, mostly with I-SNPs and occasionally through other lines of business. But it’s the I-SNP model that draws the most attention consistently.

It’s blown up the phone lines and inbox of Jill Sumner, the American Health Care Association’s (AHCA) vice president of population health management, and multiple operators have expressed interest, both at conferences and in conversations, about moving into the model. For many providers, the wheels are already in motion to become insurance providers.

But the I-SNP model is also the one that constantly comes with warnings: It’s not the right fit for every provider, especially those struggling with rehospitalizations. It requires scale. It’s a path that’s fraught with peril for providers who move into it.

“You need to look at all the health plans that were started by medical groups and hospitals that didn’t survive,” René Lerer, CEO of Longevity Health Plan, said on a recent episode of SNN’s Rethink podcast.

I-SNPs have been taking up a lot of oxygen in the skilled nursing space, at the expense of some of the other options that might be less capital-intensive and less strenuous in terms of regulatory hurdles. And while home health, assisted living, and other service lines can certainly ease the pain SNFs are feeling financially, that’s assuming the investments in time, talent, and resources work out. That won’t always be the case.

For providers who’ve overreached, 2020 could be the year when the first signs of overextension emerge.

The Medicare Advantage pincer will start to tighen

Medicare Advantage (MA) plans are going to significantly increase their ancillary benefit offerings next year, from adult day services to home care. This isn’t going to directly affect SNFs — yet. The real impact of these expanded services are probably at least a few years out; if Medicare Advantage plans see success in generating savings with these benefits, expect them to go all-in on ways to move more beneficiaries to the home and community settings in the next few years.

But 2020 is the year SNFs can start to get ready for this pinch, which is not going to be confined to ancillary services offered to Medicare beneficiaries by the MA plans. Increasing numbers of states are looking to managed long-term supports and services to control the costs of their long-term Medicaid populations, and with more and more SNF stays covered by Medicaid, providers can expect even more reimbursement pressure.

That means providers have to start engaging with the plans now, especially since they won’t necessarily break into a plan’s network right away. It’s also going to be an uphill battle, since post-acute isn’t always top of mind for the Medicare Advantage and other managed-care insurers. But plans are thinking about the dollar impact of the full continuum, and providers need to use that fact as a way to start engaging with the plans.

And there’s no better time to start than 2020, as insurers are establishing their footprints and their patterns in the field of aging services — both in Medicare and Medicaid.