LTC Bullet: NIC's Mixed Message on Seniors Housing

Thursday  January 24, 2002


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CLTCF Comment: A primary benefit of paying privately for long-term care--either from savings or private insurance--is access to quality care in the private marketplace at the most appropriate level. For that statement to remain true, however, capital financing for home care, assisted living, and nursing facilities must be ample and fluid. Unfortunately, low government reimbursements for long-term care have choked the seniors housing financial markets. We think public policy to target scarce public resources to the needy and to encourage private financing for everyone else could breathe financial oxygen into the seniors housing and long-term care capital markets. But something needs to be done soon to encourage that outcome or investment in long-term care projects will continue to wither, as our report, which follows, indicates.

Report on a National Investment Center (NIC) conference

A few years ago, seniors housing investment was the aging demographic equivalent of the stock frenzy. Market analysts were actually convinced long-term care was a "growth" industry. Then came the Balanced Budget Act of 1997 (BBA '97), a new prospective payment system (PPS) for government financing, and stingier-than-ever Medicaid/Medicare reimbursements for nursing homes and home health care. Long before the internet stocks took their plunge, Wall Street lost interest in seniors housing and long-term care stocks, sending that sector of the market into a nose dive from which it has not yet recovered.

Under these circumstances, it's hard to be optimistic, even though industry experts keep searching for hopeful signs. Unfortunately, their "silver linings" usually turn out to be just more lightning in the storm. As a consequence, we keep getting a mixed message from the financiers of long-term care. For example:

The National Investment Center's (see mission is to attract investment capital--both debt and equity--into the seniors housing marketplace by encouraging research and networking. At NIC's December 2001 conference in Washington, DC, Board Chairman Ray Lewis (Executive Vice President of GE Capital Healthcare) reported this year's score: skilled nursing facilities up, assisted living facilities down. His assessment was exactly the opposite of last year's. Nothing stays the same for long in this messy marketplace.

Supposedly, there is a glimmer of hope for nursing homes as billions of dollars of debt is restructured through widespread bankruptcies. Furthermore, everyone seems to assume that Medicaid and Medicare will have to open the spigots of reimbursement again soon. Good luck. No one appears to have noticed that the U.S. economy has gone into recession, welfare rolls are up, tax receipts are down, and Medicaid is once more skyrocketing in cost at double-digit rates. Increased strains on Medicare can't be far behind. The long-term care financiers are in danger of being blindsided yet again by government reimbursement cuts, instead of getting help from the public coffers as they expect.

In the meantime, according to Chairman Lewis, the picture for Assisted Living--the private-pay market alternative to government-financed nursing home care--is not as positive as it used to be either. Lease-ups are slower than expected; rents are flat; labor and insurance costs are rising; public and private equity markets are nonexistent; most assisted living companies are over-leveraged with debt; and the industry faces a growing specter of regulatory oversight. No indeed, not a pretty picture. With more and more talk of expanded Medicaid payments for assisted living, the shadow of inadequate reimbursement and "strangulation by regulation" continues to spread from nursing homes toward assisted living.

Nevertheless, the National Investment Center struggles to keep hope alive. NIC released "The Case for Investing in Seniors Housing and Long-Term Care Properties" on December 13, 2001. (NIC sells this 73-page report at for $195.) This updated version of a landmark 1997 study concludes that "more than $5 billion in capital will be needed for new development and construction of seniors housing, despite the current 'oversupply' of assisted living and skilled nursing communities in some markets." Furthermore, "By 2010, the demand for capital for new seniors properties of all types--not only independent living properties, but also assisted living and nursing homes--is expected to grow to almost $25 million. This will occur as the nation's seniors continue to age, the Baby Boom population grows older and overall consumer demand for seniors housing continues."

So, maybe if you look out far enough, the horizon brightens. But short term, look out! According to December's "Provider" magazine, NIC's mid-year survey of lenders found that "Rising liability costs, labor shortages, mandated staffing levels, and a continuing spate of bankruptcy filings are causing lenders to look elsewhere--toward seniors housing projects that don't include health care or personal care services. And many lenders are simply backing off from long term care projects. . . Nearly 87 percent of respondents said a saturated or overbuilt market was the leading cause for denying financing to seniors housing."

It's time to take off the rose-colored glasses, stop hoping against hope that the government will begin paying adequately for seniors housing and long-term care, and tackle the public policy changes that must be made. We recommend a solution called "LTC Choice" as described in the Center for Long-Term Care Financing's report "LTC Choice: A Simple, Cost-Free Solution to the Long-Term Care Financing Puzzle" (see the full report at But any set of public policies will help that encourages consumers to take the risk of long-term care seriously early, so they can save, invest or insure in time. The more people who can afford to pay for their long-term care privately, the more money will flow into the long-term care system, and the more capital will be available for investment to provide quality facilities across the full continuum of housing and care alternatives.