Operators have had a rough couple of years navigating through a pandemic and the costly staffing and workforce challenges that have followed. There are plenty of reasons for financial instability. There are also mounds of sound advice from experts, who provide equal doses of “tough love” and supportive pep talks to help nursing homes come through it all stronger and wiser than ever before.
1. A leading tip from one finance executive couldn’t be simpler:
Take a long view of the past and the future to get maximum perspective.
“One of the biggest mistakes we see is not sufficiently focusing on year-over-year financial ratios,” said Justin Elshire, a managing director at Lument. “It’s prudent to compare revenue versus operating costs prior to COVID, during COVID, and for the last 24 months. You can then identify the biggest increases and think creatively regarding solutions.”
Often, financial mistakes are tied to bad intuition or inside advice. Don’t get locked in or be afraid to reevaluate whether conditions have changed, experts emphasize.
“For the past 12 months or so, I’ve seen SNF owners predict macroeconomic factors and … interest rates that have not come to fruition,” said Kevin Guisti, senior managing director-FHA Finance, Walker & Dunlop.
“Focus on managing your current capital structure with the known information at hand,” he added.
2. Be smarter about funding and acquiring capital.
It’s easier than it might seem, some believe.
Elshire advises talking to industry leaders who invest heavily in nursing home properties. There’s plenty of expertise at national conferences and in specialty publications.
Consider working with bankers who have strong relationships with major lenders, added Mark Myers, managing director-investment sales at Walker
& Dunlop.
And strike while the iron’s hot.
“If you are good at turnarounds [and] have a financing package off-the-shelf and ready to go for lenders, you may approach with a value-add acquisition,” said David Young, Greystone managing director. “If you can demonstrate that you took facilities from a specific census and operating income at acquisition to a year after acquisition, and those case studies are analogous to the next acquisition you are pursuing, that’s worth its weight in gold.”
3. Be a better money and asset manager.
“Get some real results from the bank that has your deposits,” advised Young. “This should be a relationship where this lender may give you superior acquisition financing on those value-add deals where you are preserving the upside by either seeking higher leverage, a well-tuned AR line of credit
or both.”
Learn how to capitalize on inflation.
“Medicaid rates have increased in virtually every state,” said Myers. “These increases have greatly helped the industry and are much needed and appreciated by operators. Many states are moving to PDPM- or CMI-based systems and leaving behind the cost-based systems. This allows operators who provide the care to get paid for it.”
4. Don’t allow staffing issues and workforce shortages to get the upper hand.
“In isolation, SNF staffing shortages are the biggest problem in the short and long term, but the efficiency associated with staff may also be a strength,” said Brian Jurutka, vice president, IMA Financial Group. “Ensure funding mechanisms are appropriate to allow your facility to pay wages necessary to recruit and retain appropriate staff and provide the required level of services.”
5. It’s not for every operator, but perhaps it’s time to consider diversifying revenue streams.
“This is the key to operations today,” said Myers. “You cannot be a plain vanilla nursing home with low tech, basic care and no relationships with ACOs, MCOs and health systems and hope to survive, let alone thrive. You need wound care programs, dialysis, chemo care, psyche, dementia care, OT/PT/ST and all sorts of other functionalities to satisfy the needs of health systems and patients.”
He also advises joining a group purchasing organization to save money on
routine supplies.
Young advises conducting thorough research and culling expert advice.
“Consider providing on-site, bedside dialysis or creating a small vent wing and respiratory program,” he said. “Perhaps there is demand for a secured behavioral wing? Maybe you can partner with the local hospital to set aside beds on a contract basis for a certain patient population.”
From the April/May 2024 Issue of McKnight's Long-Term Care News
