Ongoing and future challenges could stall recovery of skilled nursing facilities operating as part of life plan communities, which also face broader threats in 2023.
The Fitch Ratings sector outlook for 2023 is “deteriorating,” the company said in a report on nonprofit life plan communities released Monday. Skilled nursing units and their staff inside life plan communities suffer the same woes as their standalone brethren, Margaret Johnson, Fitch’s head of analytics for US life plan communities, told McKnight’s Long-Term Care News Tuesday.
“Most of the staffing challenges are in healthcare and social assistance positions, which are disproportionately concentrated in the assisted living/skilled nursing segment of the market,” Johnson said. “Despite an increase in average hourly earnings versus February 2020 and an increased job openings rate, nursing home staff shortages are remaining stubbornly flat.”
Fitch does not rate standalone skilled nursing facilities, Johnson said. But life plan communities operate skilled nursing beds, largely for the benefit of their own residents, and the majority of them are private pay. Yet Johnson said those skilled nursing units are facing ongoing issues with staffing, inflation and market fluctuations.
Other than future demographic-based demand for skilled nursing, Johnson said she sees optimism for the sector in interest rates.
“Ironically, the higher interest rate environment may benefit LPC balance sheets in the short term as it may delay borrowing plans, keeping leverage ratios stable,” she said. “That and an improved COVID environment with a high uptake of vaccines among LPC residents and staff lessening the risk of another pandemic surge/shock to the system.
“Other than that, demographics are really the bright spot and my sense is that most LPCs at some point are going to want to capitalize on these trends over the longer term, once the macroeconomic environment stabilizes.”
For now, though, many life plan communities have been shaving skilled beds to repurpose space for better performing resident populations and to strengthen balance sheets.
For the sector to return to a neutral rating, the report said, it needs “sustainable improvement in labor and supply availability, demonstrated efficacy of higher than average rate increases to counteract inflationary cost pressures and stabilization of real estate values and interest rates.”
