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The future is now

March 1, 2007
by root
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I read last December's cover story in Nursing Homes/Long Term Care Management with great interest (see “What Does Long-Term Care Think of Itself?” p. 16). It's always fascinating to focus on the issues facing long-term care through the eyes of those in the trenches—those doing the heavy lifting, those who actually operate long-term care facilities. I find that perspective to be highly beneficial, especially for one who teaches the theory of long-term care unencumbered by the burden of actually having to practice what he preaches.

That said, I couldn’t help noticing that the issues surfaced by those responding to The Marlin Company survey were largely oriented to the “here and now.” The top problem facing respondents was reimbursement. The primary hope for the future had to do with regulations. And why should it be otherwise? Sure, it's always nice to deal with the “big picture,” with systemic issues that ultimately will determine the future of long-term care. Yet, failure to deal with the “here and now” might mean that few of us will be around to even see the future. For so many in long-term care, the future is, indeed, now.

Another reason for a contemporary focus might well be that the future doesn’t look all that auspicious. Indeed, this magazine's editor-in-chief suggested that even focusing on contemporary issues could make one “dizzy” (see “A Head-Spinning Peek Into the Future,” December 2006, p. 6). Well, gazing into the future sure won’t do much to restore one's equilibrium. The news is anything but encouraging. At least not to those of us paid to look beyond the superficial.

In the third quarter of 2004, for example, the care of 14.2% of all residents in freestanding nursing homes was paid for primarily by private sources. By the end of the third quarter of 2006, only 10.8% of all residents in freestanding nursing homes had their care paid for by private sources (as opposed to Medicaid, Medicare, insurance companies, or other public programs). This is a 24% reduction in the private-pay percentage—and just over a brief two-year period. It's not been that long since private-pay constituted close to 50% of all nursing home revenues. How many of us remember those days? Savvy public policymakers know that funding long-term care will become increasingly problematic, short-term peaks notwithstanding.

But that's only part of the story. Accompanying reductions in a facility's “quality mix” is an impending free fall in occupancy—stimulated in part by reduced demand. And that reduction is systemic, not episodic. Yes, I know occupancy in nursing facilities is currently hovering around 94%. And I know that just thrills Wall Street. The recent annual meetings of both the American Health Care Association (AHCA) and the National Investment Center for the Seniors Housing & Care Industries (NIC) were replete with optimistic statements about the industry's present and future. “The seniors housing and care industry has never been hotter,” enthused an NIC flyer. “This is one of the healthiest periods of time for all sectors of the seniors housing industry. Everyone is doing well, even skilled nursing facilities,” proclaimed David Schless, executive director of the American Seniors Housing Association. And, continued NIC Board Chair Sarah Sumner Duggan, “Seniors housing is producing very attractive returns. Investors in Emeritus Assisted Living [for example] enjoyed a 403 percent return in a year.”

A similar euphoria was evident at the annual AHCA convention. “The state of our industry is healthy,” stated AHCA President and CEO Bruce Yarwood. Michael Hargrave, an expert on seniors housing, confirmed Yarwood's optimism with his own statistics. Median nursing facility occupancy, he pointed out, increased from 92.7% to 94.1% over the past year, and revenue per occupied bed, over the same period, shot up from $165 to $175. That's fantastic news for nursing homes. Their occupancy rates were in the mid-80s only four years ago.

But Wall Street (and, apparently, some of those who follow its lead) is well known for its tendency to ignore the long term and focus almost exclusively on this month's quarterly statement. And the long term will almost certainly come back to haunt it.

Indeed, one of the most fascinating reports I have read in a lifetime of fascinating reports was one recently published by The Lewin Group. The bad news, at least for the nursing home industry, was contained in an analysis conducted by Lisa Alecxih, vice-president of The Lewin Group. “In the last two decades,” she pointed out, “the way we support frail older adults in the United States [has] changed significantly with a large shift away from nursing homes, particularly among the oldest old. Consistent with the expressed desire of most older adults to continue to live in the community, this change in the mix of supports suggests continued change as the baby boom generation begins to need long term care. It also cautions policymakers and providers regarding their assumptions about the demand and supply for long term [care]….”