The problems nursing homes now face are beginning to resemble a game of whack-a-mole. President Biden has introduced a sweeping reform package. The pandemic is still a health threat to residents and workers. Inflation has soared. Interest rates are going to rise multiple times in 2022. And staffing is still a major challenge. Experts explain here how nursing homes can best navigate choppy financial waters ahead.
1. Seek bankers’ ideas about staffing. They may surprise you. Mark Myers, managing director, investment sales at Walker & Dunlop, for example, has a plethora of “no-brainers.”
“Offer tremendous benefit programs, not all of which need to be costly,” says Myers.
Consider more frequent paydays — an easily overlooked benefit among low-wage employees. Look into concierge services providing free or discounted services.
And if you’re looking to win back former nursing home professionals, demonstrate a high-visibilty commitment to infection control.
“Most of them haven’t left healthcare,” Myers says. “They’ve just left nursing homes.”
2. Triage your priorities. Not long ago, facilities were supported by extra government stimulus funding, much of which went to critical things like PPE and overtime pay.
“Cash preservation and cash flow is a priority right now,” advises Bill Kauffman, senior principal at the National Investment Center for Seniors Housing & Care (NIC). “If you’re an operator with negative cash flow you absolutely have to prioritize spending on upgrades or technology upgrades. Focus on quality care.”
That’s not to say ignore an ailing boiler or A/C unit.
“Given the age of the majority of the industry’s physical plants, upgrades to patient care areas have become essential to converting referrals increasingly being diverted directly to the community, attracting high quality staff and creating an optimal environment for care,” says Barbara Hauswald, co-head of healthcare services at Greystone.
3. Diversify now. An operator can no longer expect to survive without specialty services such as rehab, dementia care or substance abuse care, Myers says.
Behavioral services, on-site dialysis, and memory care are all much-needed services in markets around the country, asserts Paul Bach, co-head of healthcare services at Greystone. There’s a high demand for beds to refer patients to, “so operators should do everything possible to align their services profile to match the needs of their referring hospital partners and health plans.”
But do your homework.
“Generally, we do not believe times of acute operating or financial stress are the best to explore such a different set of services,” cautions David Oberdorf, CFA, a senior analyst with the Investment Research Group at Capital One Healthcare.
Imran Javaid, managing director, from BMO’s Healthcare Finance group, advises enterprising owner-operators to proceed with caution.
“I would stay away from projects that don’t have a clear ROI,” he says. “Spend money on projects that help demonstrate a value proposition and higher quality outcomes.”
4. Gird yourself against inflation. It’s here and expected to get worse.
“From a cash planning perspective, it may be worthwhile to investigate securing an operating line of credit with a fixed rate, or convert existing adjustable rate debt, prior to interest rates increasing through 2022,” says Jeff Binder, managing director at Senior Living Investment Brokerage. “It may also be a good time to review contracts and lock in your suppliers with long-term fixed pricing.”
Also look into purchasing groups for bulk items like food and supplies.
5. Finally, keep a healthy balance sheet. Bankers agree this is the best way to feel stable in these financially tumultuous times.
“Be cognizant of the balance between census, staffing and the bottom-line to materialize cash flow and further maintain a healthy balance sheet/cash position,” says Brady Richardson, assistant vice president, investment banking for HJ Sims.
“We cannot negate the government’s move-in interest rates, or world conflict, or change the public’s mind about our industry,” Myers says. “But we can change insurance brokers, our financing structures, wages and benefit packages … and deliver the highest and broadest care at the lowest cost to attract referrals, retain residents and staff, and maintain good cash flows.”
