SNF margins cut in half, Alliance report says

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With income margins decimated by Medicare and Medicaid cuts and access to capital strangled, skilled nursing facilities will be unable to care for the nation's booming senior population unless changes are made, according to a new report from the Alliance for Quality Nursing Home Care.

One-third of SNFs surveyed reported a zero total income margin or a net loss, without taking the current sequestration-related 2% Medicare reimbursement reduction into account. Considering all payors, skilled facilities' median net income margin was nearly halved between 2010 and 2012 and is now at 0.99%.

Reduced reimbursements from government insurance programs have not only shrunk margins, but have made investors leery of the sector, the report found. This uncertainty will be heightened as sequestration cuts are felt and healthcare reform is fully implemented, said report author Lambert van der Walde, president of consulting firm van der Walde & Co. He served as capital markets advisor to the CMS administrator in both the Bush and Obama administrations.*

As a result of the government payment risk, SNFs face high borrowing costs. Capital for SNFs is largely limited to debt financing, as the cost of public equity capital has risen following the financial crisis, the report stated.

All of this adds up to a very grim outlook for the sector and for seniors, said AQNHC President Alan Rosenbloom.

“When total margins recede to the levels they are today, staffing and investments in the new technology needed to sustain positive quality trends are the first key variables to be negatively impacted,” he said.

Rosenbloom's comments on the report echo those he recently made to McKnight's. The extreme threats to the sector led to the recent merger of the Alliance and the American Health Care Association, to form a more unified and powerful lobbying voice, he said.

Click here to access the full report.

*Editor's Note: The story originally identified van der Walde as a "White House official," and has been updated to reflect his specific role.


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