More reasons to worry

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John O'Connor
John O'Connor

There's a saying among basketball coaches: The best way to cover up problems is to score a lot of points.

And while nobody in the field is shouting it from the mountaintops, the sector has been enjoying more than its share of easy layups lately. 

Remarkably low interest rates are one of the most fortunate breaks operators have received. Facilities have been able to acquire capital at terms that would have been unthinkably low in the not-too-distant past. 

The beauty of this unplanned windfall is that borrowers have been able to pay back loans at a fraction of the cost than might have otherwise been the case. And every dollar not paid to lenders has been one more operators have been able to keep.

But as they say, nothing good lasts forever. Just how soon interest rates will rise is anybody's guess. As I heard American Health Care Association President and CEO Mark Parkinson urge an audience in December, get money now if you need it.

A second lucky break, at least for operators, is that wage inflation has been largely non-existent in recent years. Yes, the recession may have technically ended a while back, but many workers continue to feel like it's still in full swing. And who could blame them? At many facilities, raises have been harder to come by than domesticated zebras. 

Given that labor costs typically account for half to two-thirds of a facility's operating expense, I probably don't need to point out why an almost complete lack of wage inflation has been good for business. 

But this, too, may change. One reason is that as the economy continues to get better, more job opportunities are likely to come along. Moreover, many states and cities are now considering a hike to the federal minimum wage (which now stands at $7.25 an hour).  

Finally, there's this: We may be closer to the end of the current economic boom than many realize, if historical cycles hold. Although it does not feel like it, we have technically been out of a recession for more than five years.  

So what's going to happen when the stuff hits the fan? I'm no gambler, but even I would bet the results won't be good.