The Incredible Shrinking Skilled Nursing Occupancy

How Low Will She Go?  Where She Stops, Nobody Knows!

RIGHT-SIZE NOW OR PAY LATER!!!

As our senior population grows seemingly exponentially, so, too, does its demand for housing.  Yet as trends and preferences evolve, the senior housing landscape is in flux and while no level of care is impervious to the transformation, providers of Long-Term and Post-Acute Care are particularly vulnerable, faced not only with changes in behavioral and demographic trends, but also with potentially significant modifications to Medicare guidelines.  Indeed, with pressures to shorten stays and bundle services, occupancy rates among long-term and post-acute care providers have been trending downward.  In fact, even as the population aged 75 and over (i.e., the age cohort to most likely need long-term care) expanded 2.0% in 2016, skilled nursing occupancies drifted steadily lower.  According to the National Investment Center for Seniors Housing & Care, after starting the year at 84.1% in January (down from 86.4% in January 2015), the average occupancy fell to 82.5% by year-end.  It tumbled even further in 2017, reaching a new low of 81.6% most recently in September.  And NIC projects further declines to be forthcoming.

To navigate the sea of change, providers turn time and time again to PMD Advisory Services as their one-stop-shop for market intelligence.  And for those specializing in long-term or post-acute care, PMD’s Maryann Timon, Vice President of Post-Acute Care Strategies, has been committed to smoothing their waters.  While her work to date has been game changing for clients in search of hospital and physician partnerships and post-acute care survival strategies, concerns of falling occupancies have driven Ms. Timon to expand her post-acute care toolbox even more and with that said, PMD is pleased to announce the rollout of her newest approach: Right-Sizing.

To right-size your facility is to determine the “right” number of long-term and post-acute care beds so that any erosion in occupancy rates will be minimized, if not avoided altogether.  Right-sizing will protect profit margins, too, and a cost/benefit analysis will show that, if inappropriately sized, the cost per bed (fixed and variable) will quickly outweigh any revenues earned as occupancies fall.  Yet with the post-acute landscape forever changing, right-sizing requires careful analysis of emerging patterns and in her research, Maryann Timon has identified several universal trends, or “influencers,” that collectively, are manipulating the future of post-acute care and driving the course of occupancies.  And she notes that they are not only universal, but also unavoidable.

The Influencers:  As a post-acute care strategy specialist, Ms. Timon remains on the forefront of industry trends, always in tune to the changing environment within which her clients operate.  And in her studies, she has observed the evolution of four key occurrences that together, are shaping occupancy patterns.  And while their effects on skilled nursing bed need differ, with some pushing demand upward and others driving it down, the overall impact is, indeed, a downward one.

More specifically, aging Baby Boomers are driving explosive growth of our elderly population and healthcare advances are extending their life spans.  And as Boomers shift from being family caregivers to being receivers of care, the number of family caregivers is falling and Ms. Timon notes that while today, there are more than 30 adults of prime caregiving age for every person 85 and older, by mid-century, there will be just 11.  Yet while these trends argue for an increase in residential and long-term care settings, regulatory and reimbursement pressures are pushing down hospital admissions and diverting post-acute care to lower cost and less restrictive settings (i.e., Home & Community-Based Services), thereby creating excess capacity of beds.  And hospitals, in turn, are exploring alternative uses for those beds, such as hospice, step-down, and/or observation beds.  These forces are real, they are here to stay, and again, they are unavoidable.  For providers, determining right size amid these opposing forces can seem not only challenging, but also downright daunting.  On the other hand, failure to address them will lead to near certain erosion in both occupancies and profit.  How to make sense of it all?  Not to fear, help is here and to right-size her clients, Ms. Timon approaches these influencers from two angles.

The Methodologies:  To determine a provider’s right size, Ms. Timon has adopted a two-prong approach.  From one angle, taking into account the noted influencers and their impacts on the local market, she also considers current and anticipated population counts, use rates for long-term care beds, trends in patient days, existing and planned beds, and market draw to identify the supportable complement of long-term and post-acute beds.  By then factoring in project penetration, she is able to pinpoint the appropriate number of beds for the provider.  And from a second angle, she also studies a provider’s historic occupancy trends and projects them out to a future year using regression analysis, allowing her to develop an alternative estimate of supportable beds and, if necessary, an opinion on downsizing.  While these methodologies may yield different findings, they are not mutually exclusive and Ms. Timon takes both into consideration when forming conclusions and making strategic recommendations.

The time to right-size is now!  There is no denying that influences beyond a provider’s control are driving occupancies, causing them to spiral downward.  And the trough has not yet been reached, such that further descent is almost certain.  To adapt to these market forces in real time, plasticity is key.  Take note, the advice here is not to “get out of the post-acute care business,” says Timon, rather “be smart about how many post-acute beds you have.”  The solution, she adds, is “to develop a plan…’how many beds do I need this year, next year, five years from now?'”  To be competitive, providers must be cost-conscious and to do that, they MUST remain flexible, always prepared to right-size as the market dictates.

With 35 years of experience in senior housing and long-term care at the executive level, PMD’s Maryann Timon has helped countless clients to navigate the ever-changing industry and position themselves for growth amid oftentimes unfavorable forces.  And her innovative approach to right-sizing is not only pioneering, but also essential for those wanting to jump ahead of the curve and avoid declines in both profits and market share.  The industry is evolving and to keep beds full, minimize vacancy, and maximize margins, providers must right-size today so that they will be positioned for success tomorrow.

To learn more about right-sizing and other opportunities for strategic growth in long-term and post-acute care, contact Maryann Timon at (443) 223-1115 or maryann.timon@pmdas.com. Michael Starke and Rita Lacy will both be at Peak if you would like to meet or if you have any questions. Michael can be reached at michael.starke@pmdas.com and Rita at rita.lacy@pmdas.com.