As the nursing home industry continues to navigate its way through today’s workforce and occupancy challenges, one of the nation’s largest skilled nursing home owners is closely monitoring how states extend or make permanent Medicaid funding increases related to the Covid-19 public health emergency (PHE).
The Omega Healthcare Investors (NYSE: OHI) leadership team highlighted a number of states, including Florida and Pennsylvania, that have already announced significant increases in Medicaid rates that reflect the need to fund higher costs, while balancing the desire for additional regulatory requirements.
Other states have also elected to continue providing Covid-related Federal Medical Assistance Percentage Rate (FMAP) increases after the PHE expires, either permanently or incrementally.
These kinds of “balanced state actions” are what Megan Krull, senior vice president of operations at Omega, hopes the federal government will keep in mind when proposing future mandates – as a federal requirement in personnel matters.
“Given that the long-term care industry is still deeply entrenched in the recovery phase of this pandemic, we hope the federal government will take note of some of these more balanced state actions and see the light to provide funding for all the mandates it could impose. “, Krull said Tuesday during the company’s second quarter 2022 earnings call.
Despite continued uncertainties and near-term headwinds, CEO Taylor Pickett remains optimistic about the long-term future of the skilled nursing industry.
Omega’s second-quarter revenue was approximately $245 million, compared to $257 million in the second quarter of 2021, with the year-over-year decline attributed to asset sales and restructuring operators.
Real Estate Investment Trust (REIT) adjusted funds from operations (FFO) of $0.76 per common share exceeded consensus estimate of $0.06, and Omega shares rose 0.61% at the end of the year. regular markets close on Thursday.
As of June 30, Omega had an operating asset portfolio of 939 facilities with approximately 92,000 operating beds.
Slowly increasing occupancy rate, improvement in the workforce
After seeing steady occupancy growth through 2021 for Omega’s core portfolio, the Census fell from 75.8% in December to 74.6% to start 2022 – largely in due to the surge of the omicron variant.
Omega is starting to see that number pick up, reporting occupancy as high as 77.7% in mid-July, according to preliminary results.
Specifically, 27% of Omega installations have fully recovered, and an additional 21% have recovered to within 5% of pre-Covid levels.
Pickett also noted an improvement in staff availability. He warned, however, that pay for full-time staff remains significantly higher than pre-pandemic levels, which he sees as a “permanent change” for operators.
The agency’s spend per patient day for Omega operators is still 6 times higher than in 2019, according to Krull.
Another factor that continues to impact staffing is the continued spread of Covid-19. Although clinical outcomes are much improved from what they were, any pressure on an already difficult staffing situation can delay recovery, she added.
Omega operators continue to offer pay raises and pursue other strategies to hire and retain staff, according to Kroll, even seeing some success in bringing in nurses from overseas.
Rent deferrals and restructurings
As Omega continues to address the challenges of operator restructuring, some progress has been made.
On April 8, Omega entered into a restructuring agreement with Guardian Healthcare where, under the plan, the REIT sold 12 facilities and vacated eight facilities. At that time, Guardian resumed paying rent and interest, according to COO Dan Booth.
Omega has also completed all restructuring work related to Gulf Coast Health Care. Last May, the REIT sold the majority of its facilities for over $300 million.
The real estate investment trust (REIT) sold 22 previously leased and operated facilities on the Gulf Coast for $318 million in cash, according to a news release. Net cash proceeds, including related costs, were $304 million, a net gain of approximately $113.5 million.
Discussions around a restructuring deal with Agemo Holdings, which accounts for about 6% of contract rent, are ongoing, according to Booth. The plan is expected to involve the sale of a “significant portion” of Agemo’s facilities within the Omega portfolio.
Two other anonymous operators were also unable to pay rents in the second quarter and in July.
Industry analysts noted that Omega having “a few more tenants paying rent and a few less not paying” can likely be attributed to the improving environment for the industry as a whole.
“Headwinds remain, including the effects of COVID on occupancy and high costs (particularly labor). But occupancy is growing and should improve further (assuming it does there is no COVID relapse) and labor costs appear to be rising at a slower rate,” Stifel analysts wrote in a note released on Monday.
Although not yet rated as “good”, according to Stifel, analysts expect CMS’s SNF final rule to improve the situation.
Medicare cuts come at the wrong time
Just days after the Centers for Medicare & Medicaid Services (CMS) released their final SNF rule, Krull, while acknowledging the improvement over what was originally proposed, expressed disappointment with the final result.
“So obviously it was great that they phased in that reduction, but we wish it hadn’t been taken at all this time around given the environment,” she said.
CMS said in its final rule that it would make phased reductions to the patient-based payment model (PDPM) over two years, which would result in a 2.3% reduction, or a $780 million reduction in 2023 and another reduction of 2.3% in 2024.
The agency, in its proposed rule, initially planned to adjust SNF payment rates by 4.6%, or $1.7 billion over one year, to achieve budget neutrality.
CMS had previously determined that the PDPM had resulted in an unintended increase in payments of approximately 5% per year since its implementation in October 2019.
Overall, the NFC Final Rule gives facilities a 2.7% increase in their payments for 2023. This reflects a $1.7 billion increase resulting from a 5.1% increase in rates of payment of NFCs. This includes a 3.9% increase in the FNS consumption basket, a consumption basket forecast error adjustment of 1.5 percentage points, and a productivity adjustment of less than 0.3 percentage points.