LTC Bullet: False Spring in Long-Term Care Winter
January 3, 2007
Comment: Despite current
optimism, LTC financiers and providers should worry about dwindling
private payers, increasing dependency on government revenue, and lack of
funding from private insurance or reverse mortgages.
Details after the ***news.***
CHECK OUT this unusually good article on the risks and costs of
long-term care in last Saturday's New York Times.
"Elder-Care Costs Deplete Savings of a Generation," by
Jane Gross, December 30, 2006, here
. Do it today while access
to the online piece is still free. ***
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BULLET: FALSE SPRING IN
LONG-TERM CARE WINTER
LTC Comment: Steve
Moses's article on the misguided optimism of long-term care financiers
and providers is republished below with permission from Health Care
News. Health Care News is The Heartland Institute's national monthly outreach
publication for free-market health care reform. The Heartland Institute is a 501c3 charitable, nonprofit
organization devoted to discovering and promoting free-market solutions
to social and economic problems. Visit
Heartland at www.heartland.org.
Read Health Care News at http://www.heartland.org/Publications.cfm?pblId=2.
Find Steve's article in the January 2007 issue at http://www.heartland.org/Article.cfm?artId=20382.
After I wrote "False Spring in Long-Term Care
Winter," the article republished below, the following item appeared
in the December 2006 issue of The NIC Insider, an e-newsletter of
the National Investment Center (NIC):
It underscores the reason for alarm that I raised in the article.
Private payers in nursing homes are in free fall!
"Percentage of Private Pay Residents in
Nursing Homes Shows Significant Decline.
Over the two-year period from Q3, 2004 to Q3, 2006, the
percentage of private pay residents (residents in beds where the
majority of payment comes from private sources as opposed to Medicaid,
Medicare, insurance companies or other government/charity programs) in
freestanding nursing homes has declined considerably.
In the third quarter of 2004, 14.2% of all residents in
freestanding nursing homes were paid primarily by private sources.
By the end of the third quarter of 2006, only 10.8% of all
residents in freestanding nursing homes were paid primarily from private
sources. This is a 24% reduction in the private pay percentage, or
over 15,000 occupied private pay beds in the 30 largest Metro
Spring in Long-Term Care Winter"
By: Stephen A. Moses
public policymakers know that funding long-term care (LTC) will be a
long, cold slog.
if they weather the perfect storm of impending Medicare and Social
Security insolvencies, Medicaid--especially its LTC component--threatens
to sink the ship of state when Boomers need expensive care.
knows the scary demographics and Medicaid's frightening budget impact.
No need to repeat that here.
given the foreboding future of an industry heavily dependent on
government financing, why are long-term care providers and the capital
markets that support them thriving again? After a turn-of-the-millennium
slump that sent eight nursing home chains into bankruptcy, left the
assisted living industry overbuilt and under-occupied, and nearly choked
off capital for all sectors of seniors housing, long-term care providers
and financiers are cheerful and optimistic again.
find out what's going on, I attended the annual conventions of two
long-term care industry associations. What I learned should give
policymakers, taxpayers, and investors an icy chill.
National Investment Center (NIC) met in late September in Chicago for
its sold-out 16th annual conference. NIC is a research organization that
describes its mission as serving long-term care" lenders,
investors, developers/operators, and others interested in meeting the
housing and health care needs of America's seniors" by
"facilitating informed investment decision-making and providing
excellence in networking, professional education, and research."
who is anybody in the long-term care investment class was there.
was the buzz at NIC?
seniors housing and care industry has never been hotter," enthused
an NIC flyer.
is one of the healthiest periods of time for all sectors of the seniors
housing industry. Everyone is doing well, even skilled nursing
facilities," summarized David Schless, executive director of the
American Seniors Housing Association.
Board Chair Sarah Sumner Duggan said, "Seniors housing is producing
very attractive returns. Investors in Emeritus Assisted Living enjoyed a
403 percent return in a year."
similar tone of optimism prevailed at the other industry meeting I
attended, early in October at San Antonio's cavernous conference
center--the 57th annual convention and exposition of the American Health
Care Association (AHCA), which represents skilled nursing facilities,
and the National Center for Assisted Living.
state of our industry is healthy," said AHCA President and CEO
Bruce Yarwood, even as he contrasted today's conditions with the deep
funk his association and the industry it represents faced only a year
Hargrave, an expert on seniors housing metrics, backed up Yarwood's
optimism with hard numbers. Median nursing facility occupancy surged
from 92.7 percent to 94.1 percent in the latest four calendar quarters,
and revenue per occupied bed over the past four quarters jumped from
$165 to $175.
according to Hargrave, median occupancy of assisted living facilities
rose from 94.0 percent in Q2 2005 to 95.8 percent in Q2 2006, delivering
an increase in revenue per occupied unit from $2,931 to $3,100 within a
fantastic news for nursing homes and assisted living facilities--their
percentage occupancy rates were in the mid-80s only four years ago. Both
sectors' profitability and stock prices also have spiked up.
what can we conclude from this rosy scenario? Long-term care providers
and financiers are making money hand over fist, so public policymakers
should cut their Medicaid and Medicare reimbursements even further?
Whoa, don't jump to that conclusion. Here's what I think is going on.
bottom fell out of seniors housing a few years ago when the industry
disappointed Wall Street by over-promising and under-delivering. The
pipeline of new construction and capital to finance building and
operation dried up. Now, to compensate, as one speaker said at the NIC
conference: "There is too much capital chasing too few deals."
this could be a very risky time for investors in seniors housing. The
industry is in danger of repeating the mistakes it made only a few years
Simple. Aging demographics (the oncoming Age Wave) suggest seniors
housing is a lucrative field for the future. Investors get stars in
their eyes thinking about the tremendous potential.
it is as evident today as it was when the industry hit the skids six
years ago that the financiers of long-term care--the people and
institutions that provide the debt and equity capital to fund the
industry--don't see the big picture.
continue to ignore the deteriorating condition of public financing
through Medicaid and Medicare. They see privately financed sectors of
the industry, such as independent living and assisted living, are
thriving, and they rejoice. They see conditions improving in the
publicly financed sector of the industry, especially skilled nursing,
and feel hopeful.
they fail to see the handwriting on the wall.
potential of private financing for seniors housing is severely limited
by the low market penetration of private long-term care insurance and
the virtual lack of a long-term care financing source from home equity
addition, Medicare and Medicaid are in a long, slow process of decline
as funding sources for long-term care. Yet, most of the NIC speakers and
attendees seemed oblivious to these trends.
AHCA/NCAL presenters were much more concerned. They warned Medicaid's
reimbursements to nursing homes are currently $4.5 billion short of
breaking even; that Congress is under pressure to cut relatively
generous Medicare reimbursements that now help make up for Medicaid's
shortfall; that popular policies to de-institutionalize Medicaid
recipients and take care of them in home- and community-based settings
will mean shorter stays of higher acuity residents who require more
expensive care even as the floor under government reimbursements sags
times are good now. The economy is booming, welfare rolls are down, and
tax receipts are up. On October 10 the Kaiser Family Foundation
reported, "State revenues increased faster than Medicaid spending
for the first time since 1998," and, "While cost control
remains a priority, state Medicaid officials appear to have moved away
from a primary focus on cost containment to a range of priorities
including expansions or restorations of eligibility and benefits,
improving quality, and changing the delivery of long-term care
is only a matter of time, however, before another fiscal downturn
occurs. With the economy in recession, Social Security, Medicare, and
Medicaid languishing, public financing of long-term care declining, and
private financing sources strained, the seniors housing industry will
once again struggle to perform at levels of investment return sufficient
to attract adequate capital.
more careless public officials are with their spending and the less
cautious investors are with their capital, the sooner the next crisis
will come and the more devastating it will be.
prediction is that the financiers of seniors housing and long-term care
are slowly moving toward another day of reckoning that will plunge their
business into another economic funk similar to the one from which it has
will tell, but the warning signs of a false spring in the long-term care
winter are already clearly evident.
Moses (email@example.com) is president of the Seattle-based Center
for Long-Term Care Reform.