Private Capital Investments May Help Sustain Skilled Nursing Facilities

Skilled nursing facilities need private capital investments to support innovation that will allow them to continue providing care to older adults, according to an ATI Advisory analysis commissioned by the National Investment Center for Seniors Housing & Care (NIC).

When skilled nursing facilities go without the necessary funding to further modernization, organizations may experience barriers that limit their ability to provide care for seniors and other residents, such as outdated buildings and scarce innovation.

According to researchers, the root cause of these inefficiencies is the public-private partnerships that attract private businesses to own skilled nursing facility real estate rather than investing in innovation that would modernize the facilities.

“When the root cause of a problem is bypassed, only the symptoms are treated,” Brian Jurutka, president and chief executive officer of NIC, said in the press release. “Skilled nursing facilities have well-documented challenges that need to be addressed. Solutions start with aligning incentives of owners and operators to improve facilities and operations, invest in the workforce, and most importantly, innovate to improve resident care and quality of life.”

Skilled nursing facilities have historically relied on public-private partnerships to stay afloat. While private investment provided capital to build the facilities, state and federal governments determined reimbursement policies.

However, the public side of the collaboration has not been able to keep up with the increased needs of the aging population, the analysis stated. The industry has seen payment policy changes across the uncoordinated Medicare and Medicaid programs that have generated an unpredictable reimbursement system.

Current Medicaid reimbursement rates in most states are not high enough to cover the cost of care, leading nursing homes to charge higher reimbursement rates to Medicare patients. In addition, many patients have moved from Medicare to Medicare Advantage, which reimburses 20 percent less, according to researchers.

In the midst of these federal and state challenges, private capital is critical to help maintain skilled nursing facilities.

“The past few decades have shown that the status quo isn’t meeting the needs of the frail, elderly adults who are served by skilled nursing facilities,” Kurt Read, chair of NIC’s board of directors, stated in the press release. “Government can be part of the solution by encouraging renewed partnerships with the private sector to modernize buildings, boost technology, enact state-of-the-art infection prevention, and support the skilled nursing workforce.”

Researchers offered four recommendations for federal policymakers on how they can improve skilled nursing facilities.

First, policymakers should implement measures that improve the recruitment and retainment of staff. As staffing shortages plague nursing homes, supporting educational institutions and prospective students could help promote a flow of individuals into long-term care professions.

Second, leaders could develop a more coordinated and predictable reimbursement model for skilled nursing facilities. This, combined with HUD financing policies that encourage modernization and innovation, could attract long-term capital to support long-term investments, the analysis said.

Adopting new quality measures could also help support skilled nursing facilities as the measures could promote transparency, incentivize private capital to invest in the industry, and support more predictability in a heavily regulated market.

Finally, policymakers should support access to capital as the federal government cannot sustain nursing homes alone. Private funding is a critical aspect of ensuring Medicare and Medicaid beneficiaries have access to skilled nursing facilities, researchers stressed.

Industry leaders are not all on the same page about private capital and private equity involvement in healthcare. For example, regarding private equity acquisitions of healthcare facilities, some leaders have questioned whether they adversely impact healthcare spending and quality of care due to these finance-driven intentions.

However, a Health Affairs study revealed that some hospitals saw higher operating margins, decreased costs per adjusted discharge, and increased inpatient utilization following private equity acquisitions.