Nursing homes are experiencing troubling times. Challenges include low Medicaid reimbursement rates and changes to Medicare reimbursement, excess beds and low occupancy, higher cost of labor, labor shortages, regulatory pressures and more. And while those issues are significant, administrators know that many other factors are also playing a part.
Some organizations can turn things around and respond to the needs of a changing market. But doing so will take fast action, fresh perspective on their role in the market and, perhaps, implementing uncomfortable and unfamiliar strategies. Meanwhile, those organizations that are still stable will also need to make sure they’re positioning their organization for a reforming senior care market. For instance, closures in your region/market could signal trouble ahead while simultaneously opening a window to absorb demand and create opportunities.
Nursing Home Management Under Pressure
A whole host of market pressures are impacting the nursing home industry. Changing consumer preferences, rising staff costs, shifting demographics, new competitive models and reimbursement hurdles are all driving shift in this essential care industry. Key forces include:
- Competition: If there is a new nursing home in your area, it’s probably absorbing a high percentage of the good payors (i.e., private pay and Medicare). Consumers with the greatest choice will typically gravitate toward the newest facilities offering greater comfort and convenience.
- Lack of demand: Consumers prefer assisted living options for long-term care and will stay in those settings as long as they are able. Care models have evolved so that long-term care is now being provided relatively effectively in assisted living facilities.
- Excess capacity: Too few nursing homes have downsized to a right-size, and there is excess capacity spreading the private pay and Medicare payors too thin to cover Medicaid shortfalls.
- Staffing:With the significant shortfall in Medicaid reimbursement, historically low unemployment levels and an overall shrinking labor pool compared to the dramatic increases to the aging population, staffing is a significant issue.
Nursing home patients are arriving older and frailer, at a much higher acuity, and the average length of stay is declining. Coinciding with this trend, some nursing homes are focusing on providing more intensive therapy for short-stay patients rather than the traditional long-term stay resident that was once their norm.
Balancing Short-Term Survival With Long-Term Demand
Nursing homes will continue to play an important role in the continuum of care for the foreseeable future. But nursing home leaders will have to be proactive and strategic to make sure their organization survives the current market stress.
In 2031, the first baby boomers turn 85 and demand for nursing home beds will be at a much higher rate than today. The sheer number of aging boomers suggests, in the future, there will be a lack of beds in many areas. But nursing homes need to take action now, with the current senior population in mind, to ensure their organization will still be around in another decade.
The tactics you use to put out today’s emergency (e.g., reimbursement or staffing shortages) might not build the foundation you need for future success. To survive, nursing homes are going to have to think more holistically and strategically to balance short-term needs with long-term market opportunities.
Strategy Needs Creativity, Information and Courage
If you don’t already have a strategic plan, it’s time to get one. Work with your board, management or owner to develop a roadmap that focuses your efforts on resolving your key issues affecting financial performance and market position.
As part of that plan, you should have in-depth knowledge of your local market. Know your market position, the bed demand, the opportunities, the aging demographics of your specific area and market factors that could affect your ability to meet occupancy goals.
If you find potential demand, consider investing in significant renovations to compete with the newer nursing homes and assisted living facilities in your area. But if projected demand is insufficient, you need to communicate with leadership and consider shedding the excess capacity.
Next, look at alternative uses and revenue-generating options for underutilized space in your facility. New service lines may be the differentiator that attract private pay clients to your facility and encourage them to spend more time with your organization.
Finally, if you believe there is unmet demand, evaluate further expansion of your senior living community to grow the continuum of care.
As you craft your plan, assess your operating model. Are you tracking the right benchmarks? Do you have a budget? Are you operating to the budget? Do you have good management staff? Do you need to make basic changes to personnel? Optimizing your operation is just as important as optimizing facility and service lines.
Nursing home management is more complex today than ever, both operationally and financially. Wipfli can help. We work with nursing homes administrators to understand their market, uncover new opportunities and claim their value for the years ahead. Contact us to get started.