Skilled nursing facility bonds come at a higher risk as a result of the debt mark and government payment risk, which in turn have produced increased borrowing costs.
The future lifeline of skilled nursing facilities is plagued with uncertainty according to a recent report that revealed that one-third of operators had a zero total margin or net loss, even before sequestration occurred.
Net income margin for skilled nursing facilities was sliced in half between 2010 and 2012 to 0.99%, according to a report from consulting firm van der Walde & Co., released by the Partnership for Quality Nursing Home Care.
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“This new examination of SNF total margin performance and access to capital is as worrisome as it is insightful to helping define the growing threat to SNFs and, by extension, their patients and their workforce,” said Alan G. Rosenbloom, president of the Alliance.
Three factors including low profitability, stricter access to capital, and constriction of Medicare and Medicaid payment rates hint that skilled nursing facilities won’t be able to make key infrastructure investments necessary to treat increasingly older, higher acuity patients under the current environment.
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“If profits are low, and little cash flow is generated to reinvest in the enterprise, the business will have difficulty providing its service and may not survive,” said Lamber van der Walde, the report’s author and president of the van der Walde.
If low profitability and limited access to capital weren’t enough, the report additionally finds that skilled nursing facilities capital is expensive and limited to certain types of debt financing, despite interest rates receding to levels last seen before the 2008 financial crisis.
Skilled nursing facility bonds come at a higher risk as a result of the debt mark and government payment risk, which in turn have produced increased borrowing costs.
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According to van der Walde the rain continues to pour on skilled nursing facilities, as current margin pressures are likely to deteriorate by continued federal cuts from the Medicare program in 2013 and beyond.
An abundance of financial pressures could force skilled nursing facilities to cut labor to reduce expenses, in addition to limiting technology investments, and make cutbacks to facility renovations and new equipment.
“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,” said Rosenbloom.
Rosenbloom does offer a silver lining in the report’s ability to sustain focus on devising a proactive, rational Medicare acute payment system to replace more cuts, more staffing and decrease greater threat to elder patients.
