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Data show skilled nursing facilities need to reinvent themselves

April 1, 2008
by Michael Hargrave
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Skilled nursing operators who think that “holding pat” is the best way to operate their businesses for the long term, should think again. Data show that a dramatic shift is under way for the sector. Those who don't plan for this change now, may see their margins continue to erode.

Challenges facing skilled nursing

It's no secret that many skilled nursing operators are struggling. Many facilities are operating on thin margins in the face of inadequate Medicaid reimbursement, declining private-pay census, and negative general public perception. In addition, it's getting harder to attract and retain staff and most facilities are outdated, (30+ years old). It is clear that the industry needs to reinvigorate its brand. But change requires investment; many operators think they cannot afford to invest or feel it is too risky to invest. As a result, many feel it best to just hold the line.

From the industry's point of view, we cannot afford to let that happen. Data from the National Investment Center for the Seniors Housing & Care Industry's Market Area Profiles™ (NIC MAP) show that there are significant challenges developing for the sector. They suggest that the ability of skilled nursing to reinvent itself will be critical to its survival. First, data has shown that the number of occupied units (the number of residents) is currently decreasing at a rate of 1% per year for skilled nursing. In contrast, demand for independent living, assisted living, and dementia care is growing faster than the annual growth rate in 75+ households, which was 1.8% over the past several years. Independent living demand (the number of residents) is growing annually by 6.5%, assisted living by 3.4%, and dementia care by 8.5%. Equally disheartening, nursing care is losing inventory at a rate of 1.4% per year change in inventory, while inventory for the other three sectors is growing (see table 1, p. 50). Ironically, this comes at a time when the seniors housing industry is facing unprecedented demand due to demographics and acceptability. It is quite alarming that the skilled nursing industry is reducing inventory now.

Projected Inventory in Top 31 Metros

Type of Facility*





* IL=Independent Living

AL=Assisted Living


NC=Nursing Care

This table shows the dramatic shift of market share occurring in our industry. While nursing care still holds the dominant position in the industry, it is rapidly losing market share to IL, AL, and DEM properties. The NC industry is faced with declining inventory at a time when the industry is facing unprecedented demand (demographics and acceptability). Nursing care is also losing private paying residents at an alarming rate. These prospective residents are often choosing AL/DEM in lieu of a skilled nursing facility. At this pace, IL will be the dominant provider of seniors housing within the next 12 years. Credit: NIC MAP.

Net Change in Inventory





Change in Units/Beds





Market Share (3Q07)





Market Share (3Q22)





Using NIC MAP data to project future inventory by sector supports the dramatic shift taking place. While nursing care currently holds the dominant position in the industry insofar as inventory, it is rapidly losing market share to independent living, assisted living, and dementia care. In the third quarter of 2007, nursing care comprised 54.9% of all seniors housing and care units. This compared to 24.3% for independent living, 17.2% for assisted living, and 3.5% for dementia care. If current supply trends hold, the market share of nursing care will dwindle to 34.4% by 2022…a -22.6% net change in inventory. In fact, within the next 12 years, independent living is projected to become the dominant choice for seniors housing and care (see table 2, p. 52).

Penetration Growth

Independent Living

Q1, 2005

Q3, 2007

Annual Growth

The above table shows that usage of private-pay seniors housing is growing at a rate faster than both the rate at which private-pay seniors housing units are being built and faster than the rate at which demongraphics (75+ households) are growing. *75+ households is the common demographic seniors housing companies use in their analysis of potential customers. Credit: NIC MAP.

75+ Households*








Average Occupancy




Occupied Units




Assisted Living

Q1, 2005

Q3, 2007