In long-term care, success can be bad for business

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John O'Connor
John O'Connor

To get an idea of why different fiscal rules seem to apply to the long-term care sector, look no further than Netflix.

The firm has made a killing in recent years by providing on-demand streaming video through the Internet. In fact, some analysts believe Netflix has become so successful that it might eventually put cable companies out of business.

But Netflix stock fell by 21% Thursday after it was revealed that subscriber growth in the past quarter failed to meet projections. It should be noted that the firm actually added 980,000 new members during the period in question, so all is hardly lost. But the company predicted in July that the figure might be closer to 1.3 million.

Had Netflix realized the 1.3 million uptick, Thursday would have been a much happier day in Los Gatos, CA, for its stock prices probably would have stayed around the same level. And in all likelihood, the price would have gone up. After all, success generally gets rewarded for most businesses.

At this point, you might be asking why this is so different from long-term care. And the answer is simple: Nursing homes don't get clean victories.

Consider what usually happens when a nursing home company's earnings meet or exceed expectations. The relatively small number of stockholders might quietly say thank you — and keep that company in their investment portfolio for the time being.

But that success is just as likely to trigger a more visceral reaction among the regulators who set Medicare payment rates. Their sentiment would likely translate to this: “If nursing homes are doing well, rates are too high or operators must be cheating.” And you can be fairly certain that indignant investigators would soon be sniffing around.

So it's highly unlikely operators were calling local newspaper editors to pass along results from a C-level survey released last week by Cleary Gull. The report shows operating margins among nonprofit operators were up 50% last year.

Nor were operators likely bragging much about Marcus & Millichap's recent report that the average per-day rate for a nursing home bed has hit $280

Instead, operators were content to let sleeping dogs lie. Not that you could blame them. After all, why invite trouble?

Of course, the same dynamic hardly holds if an operator's fiscal situation becomes dire. When long-term care organizations are struggling to make payroll, there's hardly a push from Washington to compensate for losses. In such cases, the general reaction among regulators is more likely to be that struggling long-term care operators must not know what they are doing.

So what are operators to do? Sadly, the best approach might be to keep one's mouth shut when times are good, and hope lobbyists can talk some sense into Congress when they are not.

John O'Connor is McKnight's Editorial Director.

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Daily Editors' Notes

McKnight's Daily Editors' Notes features commentary on the latest in long-term care news and issues. Entries are written by Editorial Director John O'Connor, Editor James M. Berklan, Senior Editor Elizabeth Newman and Staff Writer Marty Stempniak.

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