A rash of seemingly positive economic indicators issued in recent days might lead nursing home operators and owners to think the incredible operating and financial pressures of the past 18 months are finally easing.
In the last week, Fitch Ratings reported through its labor dashboard that skilled nursing facility shortages of nurses and aides were averaging just above the 17% mark, down from a high of about 29% in January 2022.
Wage pressures have also been greatly reduced, with growth slowing among skilled nursing facility employees to 4.90% as of February vs. 11.54% a year ago.
While that still makes for tough staffing conditions, those look like sure bright spots after what the last several quarters have wrought. Add in a Bureau of Labor report that found 8,000 added jobs for nursing and residential care facilities in April, and things might even be seen as sunny.
But for individual operators and the investors needed to keep the skilled nursing sector industry, it could still be a very different picture, experts who work regularly with those in the field told McKnight’s last week.
“There are reports and federal employment data out there, and then there are the realities of the people with boots on the ground,” said Lisa McCracken, director of senior living research and development for Ziegler.
“We are absolutely still hearing that workforce is the provider’s No. 1 challenge. For those who perhaps are starting to see some improvement, for many of them, it has been because they’ve made some hard decisions to scale back certain services or shut down units because of staffing shortages.”
“I would say that we still have a ways to go before most in the sector will be feeling some relief from staffing challenges,” McCracken added. “I would observe, however, that hopefully we’ve hit the bottom. We are generally hearing providers say that the staffing has not gotten progressively worse in recent months, but that level of stability is unfortunately at a difficult state.”
Fitch Ratings Director Richard Park said an improving labor picture also extends to nursing facilities, which have been plagued by severe staff shortages the last several months. While still high, nursing facilities reported shortages of 17.3% and 17.7% of nurses and aides, respectively, through the end of February. These figures are well below the peak in January 2022, when 28.3% and 29.8% of nursing facilities reported shortages of nurses and aides, respectively. “Sustained staffing improvements at nursing homes should help improve length of stay/discharge challenges at hospitals,” said Park.
That said, quit rates are still high. The number of quits in the healthcare and social assistance sector were at 2.7% as of February 2023, compared with the 1.6% average from 2010 to 2019, said Park.
Fitch’s latest “Hospitals and Healthcare Systems Labor Dashboard: April 2023” is available at www.fitchratings.com.
Silver linings
Slowing inflation rates and tightening labor markets in the US could be good signs for skilled nursing operators, said Bill Kauffman, a senior principle with the National Investment Center for Seniors Housing & Care. By fall, there should be a better indication whether the Federal Reserve’s moves have set a solid course for the long-term, he indicated.
“Wage inflation has been trending down for skilled nursing operators. It’s still elevated but trending down, so perhaps that’s a positive,” he told McKnight’s on Friday.
He added that recessionary pressures also eventually could be helpful.
“Expectations are (a possible future recession) will be shallow, but nobody has a crystal ball,” Kauffman explained. “Of course, nobody wants to cheer for that, but it could potentially open up the labor market. There’s always going to be uncertainty, but right now we all feel there are quite a few variables within the economy. Perhaps these are more uncertain times than usual.”
He reminded that one constant positive skilled nursing operators have going for them is that they supply a needs-based service.
That said, he added that capital gathering could become more difficult in the near future. The Fed is expected to raise interest rates another 25 basis points when they meet next month, which would indicate continued less-aggressive action.
“I can’t remember a time in the last 20 years that every day, every week takes on such weight because of inflation,” Kauffman said.
He said that ongoing concerns about regional banks could extend a dark cloud for some nursing operators. The full shakeout of recent collapses of the Silicon Valley and Signature banks is not known yet, he pointed out.
“Some think there will be other failures. That’s a concern potentially for skilled nursing owners and operators if they’re trying to expand or make acquisitions or refinance. Not only is one variable increased interest rates, but now you actually have more of a concern about tightening credit and availability,” he explained. “If you have a strong bank, and they seem to be doing well for now, it might decide to tighten credit standards and underwriting standards and then lend less money because of the current turmoil.”
He added, however, that even that scenario could have a silver lining.
“If you’re banking with certain relationships in place and they are having — and maybe rightly so from a business perspective — to tighten standards or pull back on their lending activity, there are other banks who see that as an opportunity to expand. Some banks, and even non-banks, want to expand during challenging times because they have capital and ability.”
