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Tuesday, Mar 19, 2024
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Boomers Brainstorm

Nursing home operators are shifting long-term development strategies to account for an anticipated downturn in government reimbursement for eldercare despite a dramatic graying of the nation’s demographics.

One big new focus: shorter-term nursing stays, for which the reimbursement prognosis is decidedly healthier than for long-term care.

More than a fifth of all Americans will be 65 or older in 2050, up from just 13% of the population in 2010, according to the U.S. Census Bureau. The trend is tied to the aging of the Baby Boomer generation and the lengthening of life expectancies.

Meantime, Congress cut Medicare reimbursements for healthcare to older patients by 11% in October, and nobody’s predicting a big boost in such funding anytime soon.

Skilled Healthcare Group Inc. of Foothill Ranch, Mission Viejo-based Ensign Group Inc. and Irvine-based Sun Healthcare Group Inc. are among operators grappling with the trends. (Sun is soon to be acquired by Genesis HealthCare LLC of Kennett Square, Pa., for $275 million.)

Ensign, which has 107 facilities, is moving its skilled nursing business “from the long-term convalescent model to the short-stay rehab model,” said Gregory Stapley, Ensign’s executive vice president and corporate secretary.

He addressed the issue during a June healthcare conference presented by Stamford, Conn.-based investment bank Jefferies & Co.

Ensign is “grabbing patients who are younger but who are sicker or who have conditions that require higher levels of skilled care,” Stapley said.

“These are not your grandmother’s nursing homes,” he said.

Stapley: “not your grandmother’s nursing homes”

Skilled—which has 74 nursing homes and 22 assisted-living facilities—saw the baby-boom aging trend “coming back in 2004, 2005,” Chief Executive Boyd Hendrickson said.

Skilled’s officials examined that trend and said, “Whoa, whoa, nobody’s paying any attention to that younger patient yet with technology,” Hendrickson said. “(Younger patients are) becoming a real important player in our segment.”

He noted boomers are getting more orthopedic procedures such as hip and knee replacements, which require rehabilitation.

The company developed its “express recovery units” with environments similar to acute-care hospitals that primarily cater to patients aged 65 to 80 as a result of the research. Those units include private entryways, automated beds and wooden floors.

Today some 80% of Skilled’s facilities have express recovery units.

“If we do a better job and we demonstrate a higher-quality of care and a greater ability to [treat] the higher-acuity patients, then we will, in general, be able to get more of those patients than the lower-acuity patients (who) are generally paid at a lower rate,” Skilled General Counsel Roland Rapp said.

Shorter Stays

So-called higher-acuity patients stay 15 to 30 days in a nursing home on average, and many are covered through managed-care plans of some sort despite being Medicare-eligible, Hendrickson said.

“(Younger patients are) becoming a real important player in our segment.” —Boyd Hendrickson, chief executive, Skilled Healthcare Group Inc.

Home healthcare and hospice services also are recent growth areas among nursing home operators and represent roughly $100 million of Skilled’s $870 million in annual sales, he said.

Ensign has started to get into assisted living, which usually attracts seniors that need some help but are not sick enough to require 24-hour medical care.

“We don’t compete at all levels of the assisted-living business,” Stapley said at the Jefferies conference.

Ensign likes “sort of the B-level assisted living that you can get into inexpensively and you can appeal to a much broader swath of the population at a much better price point for them,” he explained.

Urgent Care

The company, in another diversification move, has also taken a step into urgent care, which has “pretty tremendous inefficiencies that we think we can solve and bring [our] operating model to bear in that industry,” Stapley said.

Ensign is known for a decentralized model in which it gives local managers a heavy amount of operating authority.

Wall Street seems to like how nursing home operators have been dealing with their market challenges.

Ensign’s stock is up 16% so far this year with a market value of $614 million as of early August. Skilled’s stock is up 2% since the start of 2012 to a recent market value of $207.5 million.

Stifel, Nicolaus & Co., a St. Louis-based brokerage, has remained neutral with “hold” ratings on its nursing homes, said analyst Daniel Bernstein.

One concern is “the overall perception that the public reimbursement of healthcare services needs to be curtailed over time to fix the U.S. and state budget deficits,” Bernstein wrote recently.

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