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A stable, high-quality workforce enhances a provider's eligibility for capital.
A stable, high-quality workforce enhances a provider's eligibility for capital.

Questionable long-term care staffing practices aren't just making attention-grabbing headlines these days. They're also making lenders stand up and take notice, and, increasingly, impacting facilities' ability to secure loans.

This should come as little surprise, considering staffing has been directly linked to care quality. Results of a recent state-by-state study by Families for Better Care, for example, assert that adequate staffing translates to better care and outcomes. 

These factors typically play a key role in a facility's financial performance, too, lenders point out.

“We take a lot of factors into consideration, but we definitely look at staffing. Quantitatively, we examine staff hours per resident per day across RNs, LPNs and CNAs, and compare that to state and national averages,” says Jeff Gardner, senior vice president at BMO Harris Bank N.A. When data is available, regional comparisons are also made, he says. “We want to see operators adhere pretty closely to those averages.”

Some lenders are pushing past state staffing minimums and averages and are looking for a healthy balance between staffing levels and resident acuity. Providers should take appropriate long-term steps to prepare for such scrutiny.

“At minimum, during our facility site visits we'll inquire about the staffing ratios and expect that they exceed state minimums,” notes Imran Javaid, managing director, Commercial and Specialty Finance at Capital One Bank. 

“The higher the acuity, the higher the staffing ratio. If the two don't go in tandem, that will lead to additional questions [from us] about the quality of care.”

Digging deeper

More than ever, long-term care operators must demonstrate there's enough staff on hand to provide sufficient care, and lenders are relying on hard data to back up operators' numbers.

“Staffing levels should be within the market range for expenses,” explains Tim Schurmann, vice president and founding member of Healthcare Realty Brokerage Inc. 

Operators also should be cautious about staffing according to charges for care, cautions Bill Southerland, director of senior housing at Yardi Systems Inc., and general manager of the company's clinical development office in Boise, ID. “This can be a nightmare if you do not have software that tracks care provided and the time the care takes.”

Adequate staffing ratios aren't enough to make lenders feel satisfied, however. Staff stability is equally important — and in some cases, even more so.

“A stable workforce leads to better outcomes. We know this and the research supports it,” stresses Mark Woodka, CEO of staffing software provider OnShift. “High turnover, unfortunately, impacts the quality of care and service that residents received.”

Stability is viewed as a key contributor to survey scores and Medicare star ratings, two quality measurements lenders eye closely. Lending experts agree that excessive agency use is a red flag.

“Relying heavily on contract labor is a frequently seen error that plays havoc with operating expenses,” says William Kauffman, managing director of seniors housing for Oak Grove Capital. 

Above all, excessive agency use can diminish care quality. As Javaid explains, long-term care is a people-first business and good nursing care requires nurses to develop relationships with residents. This includes keeping enough full-time staff, and practicing consistent assignment.

“While agency nursing can be a good short-term fix, agency nurses cannot be expected to provide the same level of quality care as long-term staff members who really get to know residents,” he says.

Overtime hours also can be indicative of staffing shortages, and increase the risk for poor employee satisfaction and high turnover. 

Despite the importance of a stable nursing staff, frontline caregivers aren't the only ones under lenders' microscopes.

A well-qualified team also will include a financial expert, a successful human resources leader, a quality operations point person, and an experienced CEO with a handle on leadership and future opportunities, Southerland says. 

An insurance broker who knows long-term care also is critical to a successful operation, as is an experienced legal team that knows long-term care and understands risk, contract negotiations and compliance issues, he adds.

Individual staff members who wear too many hats — and operators who don't budget for a designated person in a key role — can concern lenders. 

“A common mistake is operating without a marketing director,” says Schurmann.

This is especially problematic in rural communities where the role is assumed by a multi-tasking administrator. Facilities operating at or near full capacity also may mistakenly assume there's no need for a full-time marketing director. Such complacency or inertia, can be a recipe that creates many types of problems farther down the road.

“Admitting residents with the appropriate acuity level for the facility's staff is important, and striving for a waiting list of those people is equally important,” Schurmann says.

Adequate compensation for staff in charge of maintaining high occupancy is another must. 

“All must be incentivized to utilize the beds available for providing care,” Schurmann adds.

Lenders also want to be confident the operator is hiring the right staff for all the various positions. As Gardner points out, when BMO Harris Bank looks at a new client, the lender wants to meet with the director of nursing and find an individual in this role who prioritizes quality care and promotes a team environment.

“When this is present, it seems [operators] produce better financial outcomes, as well,” he says.  If concerns exist about contract nursing or high staff turnover, the lender will ask the DON for an explanation, he says.

Operators also should be aware of so-called “secret shopper” evaluations, whereby lenders call or visit communities to evaluate how employees interact with prospective customers. As Gardner notes, it could involve something as simple as seeing how the person at the front desk tries to solicit new business. There are many ways secret shoppers can evaluate a facility.

Transparency matters

Lenders understand that staffing turnover — and even shortages — can't always be prevented, especially in markets where lesser-compensated staff might earn more in other hourly jobs, or in less-populated areas that face smaller employee pools. Still, they want existing and prospective customers to be forthcoming with these and any other obstacles, including survey deficiencies.

“For any loan, it's best to share any and all bad news early in the process of obtaining a loan,” stresses John Kalmar, senior vice president, Portfolio & Underwriting Manager at Healthcare Finance Group. “Pointing out difficult topics gives the lender more time to address the issue internally and gives the borrower more time to explain the background.” 

Staffing problems are just one example. Even more importantly, operators should share with lenders how they plan to remedy a situation. 

“Explain recent and upcoming reductions in force and make sure the lender is aware of any retention mechanisms that might have been put in place,” Kalmar notes.

It's prudent that providers also have a succession plan in place and a willingness to share those details with lenders. This is especially essential for smaller providers where employees often juggle more than one role and are more directly involved in a facility's day-to-day operations. 

Operators also should show lenders action plans they would take during crisis situations, adds Kauffman. 

“Frequent training using thorough policies and procedures is a must,” he says. Demonstrating that frequent employee training, mentoring and competency-based assessments are a priority is another way to keep lenders happy. He explains, “This should result in a resident-friendly, engaged staff.” 

Keeping lenders apprised of the positives is just as prudent.

Schurmann recommends tracking and noting successes of the operating team, such as increased occupancy, improved census mix, zero-deficiency surveys, improved star ratings, local awards, and so on. When a change is made with a key position that has led to operational improvement, Schurmann says that, too, should be spelled out to the lender,

“This will give the lender increased comfort without the effort of digging for the information,” he says.  

Best Bets for Netting a Loan

Staffing levels and employee stability are just two operational aspects lenders look at when deciding whether to issue a long-term care operator a loan. Lending experts note there are other key areas operators can't afford to ignore:

Both qualitative and quantitative data. Lenders always look for quantitative criteria, such as Net Operating Income and Loan-to-Value as the primary benchmarks for lending. However, lenders also evaluate qualitative criteria, including readmission rates back to the acute care setting; the facility's acuity mix; staff longevity; number of wounds/pressure sores being treated at the facility; and average resident age and diagnosis, according to Imran Javaid, managing director, Commercial and Specialty Finance at Capital One Bank. “Specialty programs are good but should be used with discretion.” 

Positive outcomes, even in the face of challenges. “Lenders are interested in financing providers that have achieved healthy facility performance while weathering a variety of ups and downs,” notes William Kauffman, managing director of seniors housing for Oak Grove Capital. “Aside from reviewing financial data, lenders also evaluate Medicare Five-Star Quality Ratings, state surveys and provider policies and procedures.” 

Look for lenders to evaluate the types and severity of deficiencies, too — and compare them to state averages, adds Jeff Gardner, senior vice president at BMO Harris Bank.

Overall operational stability. Stabilized occupancy is important to lenders, as is the ability to explain during the preliminary loan analysis period the difference between licensed and operating beds, according to Tim Schurmann, vice president at Healthcare Realty Brokerage Inc. Additionally, lenders remain focused on the trailing 12 months financial measurement, which uses data such as interim, quarterly or annual reports to calculate a company's financial health for the prior 12-month period. “The longer the period of stability in operations, the more predictable the value and the proposed financing will be.”  

An operator's revenue cycle and its ability to provide good accounts receivable reports helps lenders feel confident about granting an operating loan to a facility, confirms Senior Vice President John Kalmar, Portfolio & Underwriting Manager at Healthcare Finance Group. 

“Of course, we also need detailed financing reports delivered on a timely basis,” he explains. 

Stay accountable. “Keep lenders informed with a good accounting system,” urges Bill Southerland, director of senior housing at Yardi Systems Inc. Letting the lender know what's being done to mitigate risk and how family members are being informed is also wise. 

“Always question what you can be doing better and get feedback from family members, residents and staff,” he says.


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