Comeback On The Horizon After Pandemic Lays Bare Senior Housing Sector's Weaknesses
The nursing home industry's fundamentals amid the coronavirus pandemic are stark. As of mid-January 2021, COVID-19 has killed more than 136,000 residents and staff of U.S. nursing homes and other long-term care facilities, according to AARP and the Scripps Gerontology Center at Miami University in Ohio.
Occupancies at nursing homes and assisted living facilities are down nationwide as few people move in, and many facilities are losing money. Residents are now being vaccinated against the disease, but the question remains: Has the catastrophe done long-term damage to the industry?
In the long run, the industry will recover, experts say. The pandemic will wane and the same forces driving its growth, namely demographic trends and the fact that such care is need-based, will come back into play.
"The industry isn't going to rebound fast, but it is going to rebound," American Healthcare Investors founding partner Danny Prosky said. "Health care is a demographic story because we have an aging population. That's going to happen. It's already happening."
The lives lost to the pandemic have brought pain to the families and friends of those affected and significant economic dislocation, but the loss hasn't been enough to change fundamental U.S. demographics. The number of Americans age 65 and older will grow from 56 million now (15% of the population) to 81 million by 2040 (22%).
Even if 1 million senior citizens die from COVID-19 — and there is no indication that will happen — the size of the elderly demographic group will remain roughly the same, wrote Jack Goldstone, a senior research fellow at the Mercatus Center at George Mason University.
While those factors point to the industry's long-term rebound, for now, the nursing home sector is hurting. Some 90% of the 953 facilities surveyed in a study released in December by the American Health Care Association and National Center for Assisted Living are currently operating at a profit margin of 3% or less. For most, conditions are worse than that, with 65% of nursing homes operating at a loss.
More than two-thirds (70%) of nursing homes say they have hired additional staff during the pandemic, and 9 out of 10 have asked current staff to work overtime and provided hero pay. More than half (58%) of respondents said additional staff pay and hiring new staff were their top costs incurred due to COVID-19.
The CARES Act created the $175B Provider Relief Fund, which provided assistance to health care facilities for expenses or lost revenue due to COVID-19. By the end of last year, most of those funds had already been distributed. In December, the second stimulus provided a much smaller additional infusion for the fund of $3B.
Fewer people have been moving into long-term care as well. Senior housing occupancy overall decreased 1.3 percentage points to 80.7% in Q4 2020, a record low, according to the National Investment Center for Seniors Housing & Care, or NIC. Since the first quarter of 2020, occupancy has fallen by 6.8 percentage points.
"It's hard to move into a facility when you can't tour it," Prosky said. "If you can delay moving in and perhaps stay with your adult child who happens to be working from home, then you're going to try to do that. That's completely understandable."
Much of the larger industry's drop in vacancy is attributable to assisted living facilities, whose occupancies were down 1.3 percentage points to 77.7% in the fourth quarter compared with the previous quarter and down 7.4 percentage points since the beginning of 2020.
"The industry can assure potential future residents and their families that nursing homes and assisted living communities are safe places to live, especially now that staffers and residents are getting the vaccine," said Ben Swett, editor of The SeniorCare Investor, published by Irving Levin Associates.
"Average skilled nursing occupancy plummeted during the pandemic, but federal relief has stabilized many facilities' bottom lines," Swett said. "Also, both residents and staff have been among the first to receive the vaccine."
Reputational damage to the long-term care industry will be a short-term issue that should subside as it sinks in that the elderly and infirm are the most susceptible wherever they live, Swett said.
"If 10-year-olds were living in skilled nursing facilities, they would not be dying," Swett said. "Mask-wearing has been universal among the health care workers in these facilities, and staff-caused outbreaks are way more under control now than in April or May because the industry better understands COVID-19 and its risks. Reputational issues should pass when people realize that the facilities can do a better job taking care of mom than the family can.
"Those individual skilled nursing facilities, like the one in New Jersey that had 17 bodies piled up in storage room, will have a tough time, and should," Swett said. "But they will also probably just change their name."
Long-term care owners and managers have spent the last year or so trying to contain the outbreak at their facilities, with varying results. Even as vaccinations begin, those efforts aren't over yet.
“At the facility level, staff should be transparent about their infection prevention and control practices," the American Health Care Association/National Center for Assisted Living said in a statement emailed to Bisnow. "Sharing their policies and procedures, so everyone understands how the facility reacts to potential outbreaks, prevents social isolation, and keeps family members informed will go a long way in assuring those who may soon need long-term care services."
Another factor supporting the long-term prospects for long-term care is the recent dearth in development.
"Development, which had already been slowing down, really dropped precipitously in 2020," Prosky said. "As people start to move in again, that fact will improve the industry's fundamentals, though the impact will probably take a few years. Occupancies will be much tighter in 2022 or '23 or later."
Inventory growth for assisted living dropped sharply during Q4 2020, according to the NIC, with 1,626 units added in the country's primary senior housing markets, the fewest since the third quarter of 2013.
Investors don't seem perturbed about the long-term health of nursing homes and assisted living facilities. During the fourth quarter of 2020, senior housing and care acquisitions rose to 120 deals announced, according to data compiled by Irving Levin Associates. That is an increase from the 58 transactions in Q3 and also higher than the 114 deals made public during Q4 2019. Investors ponied up $2.52B on such deals during the fourth quarter of 2020, up from $1.49B during the previous quarter but still a significant decrease from $3.73B in investments during the fourth quarter of 2019.
Moreover, during Q4 2020, there were four senior care facilities deals topping $100M in publicly disclosed value, according to Irving Levin. Most notable in the nursing home space was Eagle Arc Partners' acquisition of 20 skilled nursing facilities for more than $300M, with 18 in Florida and one each in Mississippi and Georgia. In fact, nursing home deals represented a majority of Q4 M&A, both in terms of transactions (52%) and properties (more than 70%), according to Irving Levin.
The pandemic highlighted another problem for the industry that probably won't be as easy to address even after the disease is gone: racial disparity within the industry affecting the quality of care.
Racial disparities in the long-term care sector represent a chronic condition for the industry, rather than the sort of crisis posed by the pandemic. Studies in recent decades on the matter are clear: Black and Latinx residents tend to receive lower-quality care in nursing homes than White residents. The higher rates of pandemic-related deaths among minority nursing home residents put a spotlight on the problem.
As of September, more than 60% of nursing homes where at least a quarter of the residents are Black or Latinx have reported at least one coronavirus case, according to a New York Times analysis. That is twice the rate of facilities where Black and Latinx people make up less than 5% of the population.
"Given that so many deaths occur at nursing homes and given what we know about racial disparities in COVID-19 mortality, a critical strategy to bring down mortality rates for Black Americans may lie in focusing interventions at these locations," said Jamila Taylor, director of health care reform and a senior fellow at The Century Foundation, a think tank with offices in Washington, D.C., and New York City.
Majority Black and Latinx long-term care facilities may have been hit harder by the pandemic, but that was merely the latest problem for those properties, Taylor said.
"Aging Black Americans tend to not only be grappling with economic hardship, higher rates of chronic illness and retirement insecurity, but they also suffer from the cumulative effects of racism, which long-standing research shows has an impact on their health and well-being," Taylor said.
Dealing with the problem means operational challenges for long-term care facilities, which need to ensure that their facilities are properly resourced to operate under the highest safety standards for cleanliness and proper hygiene, offer COVID-19 testing and vaccinations to all staff and residents at no cost, and address the social determinants of health among the most vulnerable residents, Taylor said.
"The other side of it is that many of the people who are working in these facilities are underpaid and racial and ethnic minorities as well," said Ruqaiijah Yearby, a law professor at St. Louis University's Center for Health Law Studies who is also executive director and co-founder of the university's Institute for Healing Justice and Equity.
"Some nursing homes have been taken over by venture capitalists, and they've drained the money out of the facilities," Yearby said. "For example, we've seen a nursing home company in Illinois — the same owner — that spends more money on a predominantly White nursing home and less money on a predominantly Black one."
It remains to be seen whether the new presidential administration will put an emphasis on racial disparity within long-term care.
"The federal government and state governments certainly will have a role to play because they pay for a majority of the care that Blacks, Latinos and Native Americans get through Medicare and Medicaid," Yearby said.
Vaccinations will probably bring COVID-19 in long-term care settings under control — and with it, the industry's fundamentals. But addressing racial disparities will be much tougher for the industry, experts say. There is no vaccine for that.