Background
Like most issues about which I post, the topic of “Finding A Good Death” arose from a personal connection. In this case when a neighbor consulted me about his sister who was being referred to hospice care after battling cancer. While not an expert in hospice care, I have long studied seniors housing and care and, for a time, I followed the publicly traded hospice companies as a stock analyst. I also have some personal experience with hospice care. My older brother (only four years my senior) utilized hospice care before his death in late 2014 from a degenerative neurological condition. To supplement my own knowledge for this blog post, I interviewed a friend and neighbor who is a long-time bereavement counselor volunteer at a large not-for-profit hospice in Baltimore and researched the topic on line.
John McCain’s death, which appeared to come quickly surrounded by friends and family after the Senator elected hospice care, also makes the subject of Finding A Good Death very relevant.
Even though we all die eventually, talking about death and planning for death, beyond making funeral arrangements, are taboo subjects for most Americans. We are culturally geared to want to live as long as possible and most physicians and patients have a strong bias toward utilizing the most expensive, invasive and technologically advanced medical procedures to prolong life, viewing death as failure rather than an inevitable part of the life cycle.
According to data from the Social Security Administration:
- A man age 65 today can expect to live, on average, until age 84.3.
- A woman age 65 today can expect to live, on average, until age 86.7.
About one out of every four 65-year-olds today will live past age 90, one out of 10 will live past age 95; and longevity estimates for 65 year olds continue to rise. Also, these statistics are averages for the entire population, so healthy non-smokers and those with better health plans and medical care should expect to live longer. Once you reach 65, I would argue you already have a very good chance of living a long life and you and your family should be more concerned with the quality rather than quantity of the remaining life you lead, and with the quality of your death, the focus of this post.
A good death is generally understood to be one that comes quickly and peacefully and with minimal pain and suffering, ideally at home and with an opportunity for loved ones to say their goodbyes.
Understanding Hospice
English physician Dame Cicely Saunders first applied the term “hospice” to specialized care for dying patients in the UK in 1948. Hospice care was introduced to the U.S, in the mid-60s and did not become a Medicare eligible benefit until 1982. History of hospice care
As defined by Medicare, hospice is a program of care and support for people who are terminally ill (with a life expectancy of 6 months or less if the illness runs its normal course) and their families. Hospice helps people who are terminally ill live comfortably.
- The focus is on comfort (palliative care), not on curing an illness.
- A specially trained team of professionals and caregivers provide care for the “whole person,” including physical, emotional, social, and spiritual needs.
- Services typically include physical care, counseling, medications for relief of pain and suffering, medical equipment, and supplies for the terminal illness and related conditions. Things like diapers are not covered by Medicare although catheters are. Patients and their families should not expect 24/7 physical care from hospice unless the patient is receiving inpatient care. Home health aides can be provided for bathing, etc. but cannot provide total care.
- Care is generally given in the home.
- Family caregivers can get support.
In order to qualify for Medicare’s hospice benefit, you must participate in Medicare Part A and
- Your hospice doctor and your regular doctor (if you have one) certify that you’re terminally ill (you’re expected to live 6 months or less).
- You accept palliative care (for comfort) instead of care to cure your illness.
- You sign a statement choosing hospice care instead of other Medicare-covered treatments for your terminal illness and related conditions.
Medicare will cover the cost of a one-time hospice consultation even if you decide not to elect hospice care. Once you elect hospice care, the first step in the process is development of an individualized care plan. Original Medicare will cover everything you need related to your terminal illness, but the care you get must be from a Medicare-approved hospice provider.
Hospice care is usually given in your home, but it also may be covered in a senior housing community, a nursing home or a specialized hospice inpatient facility. Depending on your terminal illness and related conditions, the plan of care your hospice team creates can include any or all of these services:
- Doctor services
- Nursing care
- Medical equipment (like wheelchairs or walkers)
- Medical supplies (like bandages and catheters)
- Prescription drugs
- Hospice aide and limited homemaker services. At Gilchrist, a large not-for-profit Baltimore area hospice, a volunteer may do light housekeeping but that is all
- Physical and occupational therapy
- Speech-language pathology services
- Social worker services
- Dietary counseling
- Grief and loss counseling for you and your family
- Short-term inpatient care (for pain and symptom management)
- Short-term respite care
- Any other Medicare-covered services needed to manage your terminal illness and related conditions, as recommended by your hospice team.
Note that the above list does not include the cost of room and board in a seniors housing or skilled nursing facility, so the patient or their family may have to cover this cost if routine hospice care cannot be provided at home.
If your usual caregiver (a family member or other caregiver) needs rest, a hospice patient can get inpatient respite care in a Medicare-approved facility (such as a hospice inpatient facility, hospital, or nursing home). Your hospice provider will arrange this for you. You can stay up to 5 days each time you get respite care. You can get respite care more than once, but only on an occasional basis.
Medicare pays the hospice provider for your hospice care. There’s no deductible. You’ll pay:
- Your monthly Medicare Part A (Hospital Insurance) and Medicare Part B (Medical Insurance) premiums.
- A copayment of up to $5 per prescription for outpatient prescription drugs for pain and symptom management.
- 5% of the Medicare-approved amount for inpatient respite care if used.
Medicare won’t cover any of these once your hospice benefit starts:
- Treatment intended to cure your terminal illness and/or related conditions. Talk with your doctor if you’re thinking about getting treatment to cure your illness. You always have the right to stop hospice care at any time.
- Prescription drugs (except for symptom control or pain relief).
- Care from any provider that wasn’t set up by the hospice medical team. You must get hospice care from the hospice provider you chose. All care that you get for your terminal illness and related conditions must be given by or arranged by the hospice team. You can’t get the same type of hospice care from a different hospice, unless you change your hospice provider. However, you can still see your regular doctor or nurse practitioner if you’ve chosen him or her to be the attending medical professional who helps supervise your hospice care.
- Room and board. Medicare doesn’t cover room and board. However, if the hospice team determines that you need short-term inpatient or respite care services that they arrange, Medicare will cover your stay in the facility. You may have to pay a small copayment for the respite stay.
- Care you get as a hospital outpatient (such as in an emergency room), care you get as a hospital inpatient, or ambulance transportation, unless it’s either arranged by your hospice team or is unrelated to your terminal illness and related condition.
The Medicare hospice benefit is paid by original fee-for-service Medicare. To understand how the hospice benefit relates to Medicare Advantage plan, Part B or D coverage speak with Medicare or your hospice provider and you might consult the publication Medicare Hospice Benefits – Medicare Hospice Benefits
A Popular Benefit
Hospice care enjoys wide support from patients and patient advocates who are supportive of patients dying with dignity and having control over the final chapter of their lives. It is supported by policy makers who believe hospice can save Medicare funds by having terminally ill patients avoid expensive procedures at the end of life that often provide little lasting benefit. Mean medical spending during the last 12 months of life is reaching $80,000 in the U.S., with 44.2% spending for hospital care (57.6% is hospital spending during the final three months of life). To the extent hospice care can reduce expensive end of life hospital care it has the potential to reduce growth in Medicare spending. Hospice Impact On Medical Spending
Hospice care is also viewed favorably by investors and for-profit healthcare companies who see it offering stable reimbursement, attractive margins and very attractive growth prospects as Baby Boomers age. Because hospice reimbursement is designed to adequately fund small not-for-profit hospice providers, not-for-profit and for-profit operators with scale can generate an excess revenue/profits from spreading their overhead costs over a large number of patients, thereby generating reasonable margins from hospice reimbursement.
Electing Hospice Care
The key issue for patients and their families in electing hospice care is that doing so requires you to forgo additional curative treatment for the condition that is expected to lead to your death in order to receive funding for palliative care designed to give you a dignified death with minimal pain and suffering. As noted above, In order to qualify for hospice care a physician, typically your primary care doctor or a hospice doctor, certifies that you are expected to live no more than six months if your disease follows its typical progression. With this physician’s certification and your election to shift from curative to hospice/palliative care you will qualify for Medicare hospice benefits or hospice benefits from a private insurer. If you live more than six months in hospice care, the hospice benefit can be extended but Medicare manages this by penalizing operators that have average length of stays in hospice care.
Selecting A Hospice Provider
According to the National Hospice and Palliative Care Organization (NHPCO) Medicare paid about 4,200 different hospice providers for services in 2015. About 60% of these hospice providers were profit-making companies and 40% are not-for-profit (Long-Term Care Providers and Services Users in the United States: Data From the National Study of Long-Term Care Providers, 2013–2014 Department of Health and Human Services, Centers for Disease Control, Center for Health Statistics, February 2016 – CDC Report On Hospice Services
Hospice providers served approximately 1.3 million patients in 2013 with an average length of stay of 23 days – indicating an average daily census of about 14 patients per hospice.
The statistics above suggest two criteria for selecting a hospice provider 1) for-profit vs. not-for-profit and size. Many hospice providers are small not- for-profit operations. For-profit companies tend to be larger in size, as are some well established not-for-profit organizations, such as Gilchrist Hospice in Baltimore. Smaller operations may offer more personalized care options but larger operations may have their own specially designed dedicated inpatient hospice units and greater resources to Invest in family grief counseling, for example.
Your physician or a social worker/discharge planner at a hospital should be able to recommend or refer you to one or more hospice providers. A simple online search on “finding a hospice provider” results in links to larger for-profit and not-for-profit providers in your area (Heartland, Amedysis and Gilchrist in Baltimore) and links to referral services, such as A Place for Mom, an Internet focused senior housing and care referral company, and the National Hospice and Palliative Care Organization (NHPCO). Keep in mind that referral services will only refer you to organizations that are members of that organization or agree to pay a referral fee.
The Medicare.gov/hospice compare website provides ratings for hospice providers with percentage scores for a number of objective and subjective measures including results from user surveys. The site allows you to search for specific providers and provides near particular zip codes. See Medicare Hospice Compare. Some of this data is likely self-reported but still appears useful for comparing providers.
Before committing to a particular hospice provider a prospective patient and their family should ideally meet with the provider to assess the staff who will oversee and deliver care to your loved one, share information about your family’s situation and discuss options for delivering hospice care in a way that best meets your families needs. Care will most likely be delivered at home with family members engaged in the hospice care delivery process. It can also be provided in a seniors housing or skilled nursing facility but this may require the family to pay for the coast of board. If required, typically right at the end of life when 24/7 oversight is needed, the location of care may be shifted to an inpatient hospice care facility and you should understand when and how such a facility might be used. You may wish to check on the location and quality of the inpatient option.
I welcome comments and questions on this blog and hope it aids you finding a good death for you and your loved ones.
Archive for the ‘Post-Acute Care’ Category
Raw Cost of Care
The chart below shows the average monthly cost of care for skilled nursing (nursing home), memory care (dementia), assisted living and independent living facilities in the Baltimore/Washington region for 2015. It also shows the cost for 24 hour / 7 day a week home health aide care and 24/7 home health aide care supplemented by 7 hours each week of registered nursing (RN) and licensed practical nursing (LPN) care in an attempt to replicate the level of care an individual might receive in an assisted living or skilled nursing facility. 
The monthly cost in 2015 of facility-based care in the Baltimore/Washington region ranges from $2,912 in an independent living facility to $5,659 in a one bedroom unit in an assisted living facility to $6,234 in a memory care facility, and $9,990 to $11,270 for care in a skilled nursing facility (nursing home) in either a semi-private or private room. For a resident needing assistance with three or more activities of daily living (bathing, transferring, etc.), or with any significant degree of dementia, an independently living facility would probably not provide adequate care without supplemental home healthcare, so the effective range for the monthly cost of care for a senior needing a moderate to significant level of assistance in a specialized seniors housing and care facility in the Baltimore/Washington region in 2015 was $5,659 to $11,270.
To see description of the various types of senior housing and care facilities see my page Senior Housing Options http://wp.me/P64zBK-w.
Home health aides cost $21.73 per hour in 2015, and would cost $14,603 monthly if provided on a 24/7 basis assuming no differential for night shifts. A licensed practical nurse was $53.94 per hour and a registered nursing was $77.88 per hour. In the above example, I assumed an hour a day of both LPN and RN care in addition to 24/7 home health aide care to estimate the monthly cost of care equivalent to that delivered in a skilled nursing facility to be approximately $18,294 per month. Many families care for seniors with a combination of care by family members supplemented with limited time by home health aides or other paid caregivers. While this type of arrangement can result in lower cost than facility-based care, it is clear that the cost to provide 24/7 aid and nursing care at home far exceeds the cost of obtaining such care in an assisted living, memory care or skilled nursing facility. Even when less than 24/7 paid care is provided the cost of facility-based vs. home care is often closer than families expect once the cost of utilies, home upkeep and forgone rent or sales proceeds are considered.
The other big advantage to facility-based care over 24/7 home care, even if you can afford it, that I believe many families overlook, is socialization. Seniors being treated at home, even by the most dedicated family caregivers and aides, spend a lot of time isolated from human interaction. At well-run senior housing and care facilities, interaction among the residents and between residents a diverse group of staff provide more interpersonal and intellectual interaction and stimulation than can be achieved at home, which can be very important for a seniors’ mental health and emotional well being.
Planning For The Future Cost of Care
If the raw cost of care and learning that the government will not help you pay for it (See prior post “The Government Will Not Pay For You Long Term Care”) are not sobering enough, seniors and families trying to plan for long term care need to understand the probability of needing such care, the likely duration of such care, and its future cost. I hope to explore these issues more fully in a future post on long term care insurance and other financing options. But to illustrate the future cost of care for planning purposes here, I have assumed an average length of stay (LOS) for skilled nursing and assisted living care of 24 month, 36 months in memory care and 39 months in independent living. I have then assumed 2.5% inflation for 35 years because the average entry age in to an assisted living or skilled nursing facility is about 85 and the time many people start seriously considering long term care insurance is age 50.
In the table above, the average monthly costs for 2015 in the Baltimore/Washington Region are mutiplied by an assumed LOS in months to get the cost for an expected episode of care. The future value of this expected episode of care is then calculated for 2050 assuming you are thinking about this today at age 50 and planning for costs when you are 85 and are more likely to enter an assisted living or skilled nursing facility. The LOS assumed above are averages and at two years probably a bit high for long-stay custodial skilled nursing care. The average LOS are about right for assisted living and independent living based on actual turnover rates in buildings today. I did not find good data on memory care facility LOS but it is widely recognized to be higher than assisted living because some residents enter at younger ages with early onset Alzheimers and are in better physical condition. When planning for an individual’s need to finance long term care it may be appropriate to plan for longer or shorter lengths of stays and look at the probabities of these but I believe these averages are useful to illustrate the order of magnitude of possible future long term care costs.
I assume 2.5% inflation to estimate the future cost of long term care. The 2.5% inflation factor is about where costs have been increasing in recent years but with increasing wage pressure and inflation expectations higher now that Donald Trump is President-elect, other higher inflation assumptions may be appropriate.
The bottom line is that a 50 year old today might reasonably plan for between $300,000 and $600,000 of long term care costs (an average of $516,483 for AL through private room skilled nursing) and expected to spend this amount over a two – three year period beginning around 2050.
Technical Notes
New York Life, which is a long term care insurance provider affiliated with AARP, has an online cost of care calculator that is updated annually. New York Life’s 2015 Cost of Care Survey was designed and implemented by Long-Term Care Group (LTCG), the nation’s leader in long-term care administration services. Each year LTCG surveys thousands of Skilled Nursing Home, Home Health Care and Assisted Living Facility providers to collect cost of care data. The cost of care averages are calculated from over 30,000 different providers at the national, state and metropolitan statistical area level. Other cost of care calculators, including one from Genworth Financial, are also available online.
The figures above are for the Washington / Baltimore Region and are somewhat higher than the national average. I supplemented and verified the LTCG survey data with information from the National Investment Center for the Seniors Housing and Care Industry’s NIC-MAP database, which surveys seniors housing and nursing care properties on a quarterly basis (see http://www.nic.org). I used NIC-MAP data for the Baltimore region, which shows the cost for skilled nursing facility care and care in an assisted living facility 7% – 8% lower than the LTCG survey but similar enough to confirm the LTCG survey data. NIC-MAP is also able to provide pricing data for independent living and memory care / dementia facilities, which I incorporated in my analysis.
The Fall conference of the National Investment Center for the Seniors Housing and Care Industry (NIC – www.nic.org) was held in Washington, DC from September 14 to September 16, 2016. This is the largest industry conference for seniors housing and care.
I moderated a panel entitled “Somewhere Over The Rainbow: Where Winning Post Acute Strategies Attract Investors. “ Panelists included: Benjamin Breier, President & CEO, Kindred Healthcare, Inc.; Larry Cohen, CEO, Capital Senior Living Corporation; George V. Hager, Jr., CEO, Genesis HealthCare, LLC and Andy Smith, President & CEO, Brookdale Senior Living.
When I served as an equity analyst I would spend almost my entire time at NIC conferences in private meetings with companies and investors. As a retired analyst, blogger on seniors housing and care and session moderator, I had many informal conversations with operators, industry organization staff, lenders and investors, a few scheduled meetings and attended more of the actual conference sessions.
My ten takeaways from the 2016 Fall NIC Conference are:
- Record Attendance – Guarded Optimism – NIC’s Fall Conference at the Marriott Marquis Hotel next to the Washington Convention Center had a record reported attendance of 2,700. Senior housing operators are guardedly optimistic, with asset prices still high, reasonably positive operating metrics and only spotty reports of rising labor costs. There is some caution about overbuilding but that threat may be receding (see below). Skilled nursing and post-acute care operators are struggling with top-line revenue pressure and big transition to value-based purchasing.
- Capital Plentiful But Diversifying – Capital for seniors housing property acquisitions and renovation remains readily available as does investment capital for experienced senior housing operators to grow their businesses. HUD financing is still very attractive for skilled nursing but, with the underperformance of some skilled nursing and post-acute care operators, REITs are diversifying to limit their exposure to these subsectors. Ventas led this charge with its CCP spinoff and new investments in hospitals and university-tied biotech. HCP has announced its intension to spin off its skilled nursing holdings into QCP and Welltower has also announced a desire to reduce its exposure to Genesis.
- Construction Lending Standards Tightening – NIC’s in-house economist Beth Mace and NIC’s bluebook featuring key industry trends note a tightening of lending standards for new seniors housing construction as reported by surveys of loan officers. If true, this may help limit widespread overbuilding of assisted living properties, about which I have expressed concern. Other conversations I had during the Conference seemed to support NIC’s view that underwriting standards for new seniors housing projects are tightening. Some finance types I spoke believe the cutback in senior housing construction lending is driven by a broader cutback in lending for multi-family construction projects rather than lenders making a specific determination that seniors housing is becoming overbuilt.
- Good and Some Less Good Development Continues – Despite the cutback in lending, many seasoned senior housing operator/builders are continuing to develop projects in markets in which is it is difficult to develop and for which the approval process may have been 3-5 years. There appear to be a smaller number of projects still being developed by inexperienced players with money from community banks and smaller equity investors and hopefully tightening lender standards will further weed out more of these types of projects in the future.
- NIC Continues to Built Its Value For Skilled Nursing & Post-Acute Care – Since adding skilled nursing data to its NIC-MAP data service a number of years ago and adding a Spring conference with more skilled nursing focus, NIC continues to build its data and content for skilled nursing and post-acute care providers and is at the forefront of educating senior housing operators about the convergence of seniors housing and post-acute care. As post-acute care transitions from a fee-for-service to value-based purchasing, NIC appears well positioned to help educate investors and attract investment capital for this portion of the industry, as it has previously done for seniors housing.
- Post-Acute & Senior Housing Providers Have Opportunity to be “Strategic Aggregators” – Former HHS Secretary Michael Leavitt opened the NIC Conference by providing an overview of the broad changes occurring in the U.S. healthcare system with a focus on the shift to value-based purchasing. Mr. Leavitt believes the shift to value-based purchasing increases the risk that senior housing and post-acute care providers become commoditized fee-for-service price-takers. But Leavitt also believes that senior housing and post acute care companies that serve significant numbers of patients in their facilities and programs have the opportunity to aggregate patient lives and serve as general contractors making value-based purchases themselves rather than just being price-takers in a value-based payment world. While the shift to value-based payment is slow and fragmented, Mr. Leavitt quoted Bill Gates as saying, “Don’t overestimate what will happen in the next two years or underestimate what will happen in the next 10.” He foresees continued consolidation through both mergers and acquisitions and additional joint ventures among operators.
- Major Post-Acute Operators Generally Agree With Leavitt – The four publicly traded senior housing and post-acute care operators who participated in my panel are clearly frustrated as they function in a fee-for-service world (Only 1-2% of their revenue is now truly value-based) while pivoting their organizations to profit from value-based payments. These large operators are pursuing a wide range of strategies to provide post-acute care and adapt to value-based payments (from senior housing operators contracting out all post-acute services, to focusing on being the preferred provider for a few segments of post-acute care, to being a comprehensive provider of all services – LTACHs, IRFs, SNFs, home health, rehab therapy and even hospice – in select markets). Two common themes appear, however. Major post acute care providers are positioning themselves to be strategic aggregators and value-based purchasers and major senior housing operators believe offering post-acute services within their buildings themselves or through third parties will be key in continuing to attract and retain senior housing residents. Most operators are also looking to increase their concentration in select markets.
- Managed Medicare Rate Pressure Slowing – NIC reports that the downward pressure on Medicare managed care (Medicare MA) rates to skilled nursing operators slowed in 2Q16 and it will be interesting to see if relentless downward pressure on SNF rates and length of stay from Medicare managed care providers is really beginning to subside. This would be very good news for skilled nursing operators.
- Importance of Data/Information Systems Growing – Both post-acute care operators and senior housing operators providing, or contracting with others to provide, post-acute care within their facilities are seeing an increased need for data to measure outcomes in order to make the case to ACOs and other bundlers of post-acute patients and in order to take a more active role themselves in managing patient lives. Data to predict future performance of facilities in a value-based purchasing world is also key to underwriting future investments for sophisticated investors, like Formation Capital, since past performance alone of a skilled nursing or post-acute care facility may be a poor predictor of how it will perform in a broader value-based purchasing environment.
- NIC-Map Making Some Important Strides – NIC-MAP has expanded to an additional forty metro markets for its traditional data reporting and is adding two important products – actual monthly rent, occupancy and turnover information for a national sample of 250,000 senior housing properties and actual monthly rates by payer source and occupancy for a smaller but growing sample of skilled nursing properties. These are national surveys electronically reported from operator’s actual month end data and NIC hopes to grow these samples. This will allow NIC to be much more accurate and timing on rent and other key financial metrics on a national basis and provide benchmarking data to participating operators and other industry participants.
Pivot Points In Seniors Housing/Post-Acute Care Create Investment Opportunities
by jdoctrow Posted: Monday, 6/6/2016On Tuesday, May 17, 2015 I was featured in a question and answer session over breakfast with subscribers of Senior Care Investor, moderated by its editor Steve Monroe. We covered a wide range of topics. I summarize below key takeaways from my Senior Care Investor interview and provide a link to the nearly one hour webcast.
Key Takeaways
The public markets are much less important for seniors housing and post-acute care than they were twenty years ago when there were as many as 30 public companies including operators and health care REITs. If you review the investment history of seniors housing and post-acute care there have been a number of “pivot points” where stocks in these sectors experienced significant sell offs and then rebounded strongly. These pivot point were driven by overbuilding and reimbursement and operating problems that in some cases led to operator bankruptcies. If you got the timing right, these pivot points provided very attractive investment opportunities in the stocks of private pay senior housing operators, post-acute care operators and health care REITs, with the stocks within each of these industry groups moving on somewhat different events and at somewhat different times.
I see current industry conditions again creating pivot points for investments in senior housing, post-acute care and health care real estate and believe it is the right time for investors to be studying these sectors and deciding when it makes sense to invest.
Private-Pay Seniors Housing – Overbuilding, few publicly traded investment options and operating issues at the largest publicly traded operator, Brookdale Senior Living, Inc. (BKD), have caused most public market institutional investors to flee the private-pay seniors housing space. I don’t see a quick pivot in private-pay seniors housing because capital remains plentiful for new construction, underlying demand from older seniors (80+) is slower than it was before 2010 (see Slow 80+ Pop Growth, Elevated Construction Spark Concern For Seniors Housing on this blog), and issues at Brookdale will take some time to resolve. I also believe private equity investors will await a more receptive market before bringing other quality operators public.
Post-Acute Care – Post-acute care currently has more publicly traded operators with scale than private-pay seniors housing, but deteriorating operating fundamentals and high leverage have also driven public market institutional investors away from publicly-traded post-acute care operators. Major REITs, such as Ventas (VTR) and HCP (HCP) spinning off skilled nursing assets has underlined the risks investors see in this space. Increased use of Medicare and Medicaid managed care and ever expanding use of bundled payments are reducing lengths of stay (LOS), pressuring post-acute care rates and volumes and eroding operator revenue and EBITDA. However, because baby boomers are now beginning to turn 70, the pool of post-acute care patients should grow dramatically over the next 5 – 10 years while the supply of post-acute care facilities and beds is flat or declining and quality operators should be able to attract higher volumes of patients from hospitals if they care demonstrate quality outcomes. A mild flu season and high operator leverage exacerbated poor 1Q16 financial performance. I anticipate pressures on rates and LOS stabilizing and volume growth providing upside for post-acute care operators over a 1 – 2 year period while operators are rationalizing their delivery systems and paying down debt. I believe these factors put post-acute care closer to a performance pivot point than private pay seniors housing.
Health Care REITs – Health care REIT share prices have been buffeted by some of the same issues affecting private pay seniors housing and post-acute care operators but health care REIT share price performance has been much more mixed than that of the operators. Many health care REITs are well diversified, have strong lease coverage and are less exposed to overbuilding and revenue pressures than the operators themselves. Health care REIT stock performance is also significantly influenced by investor’s views on interest rates and overall economic growth. Some healthcare REITs, with more significant exposure to seniors housing or post-acute care issues, such as HCP, presumably its future SpinCo, and CCP, have been more directly impacted by the industry and operator issues noted above. These REITs, and some others, offer larger cap, more liquid investment vehicles than seniors housing or post-acute care operators but likely also have potential for upside from the industry pivot points described above.
Having retired as an equity analyst who followed seniors housing, post-acute care and health care REITs for 15 years, I no longer make Buy, Sell, Hold recommendations. I do recognize that there are significant risks for private pay senior housing operators and particularly for highly leveraged post-acute care operators. However, experience in the 1999 – 2002 crash of private-pay seniors housing and post-acute care and other sell-offs driven by operating underperformance, reimbursement cuts and regulatory issues show that these sell-offs have often proven to be great investment opportunities and have absolutely been a time to look harder at these sectors and develop an investment strategy and timetable rather than to flee the space.
For a more in depth discussion of these issues, listen to the Senior Care Investor webcast by clicking on the link below. Comments, including those with opposing viewpoints, welcome.
The National Investment Center for Seniors Housing and Care (NIC) http://www.nic.org held its 25th National Conference this week at the Gaylord National Harbor, just south of Washington. I attended the first NIC Conference, which was a much smaller affair at a hotel in Crystal City, also just south of Washington but on the Virginia side of the Potomac. Having spent much of my career in seniors housing and care as a real estate analyst, stock analyst, investment banker and now occasional consultant, it was very gratifying to see how much the industry has grown and matured in 25 years.
My only official role at the conference was to address the Future Leader’s Council (FLC), which is a carefully selected group that goes through three years of NIC leadership development activities before “graduating”, with a third of the group rotating each year. I was impressed with the FLC members with whom I interacted and with the thoughtful way NIC is helping talented professionals grow into leadership roles at their organizations and in the industry.
My address to the FLC group was entitled “Back To The Future” and focused on lessons learned about the impacts of overbuilding and higher interest rates in the severe 1999/2000 industry downturn. Most FLC members were still in primary or secondary school when this downturned occurred.
I would say the overall atmosphere of the industry at NIC’s 25th National Conference was “nervous optimism”.
The nervousness comes from:
- generally unsettled economic conditions in the U.S. and around the world that could lead to higher interest rates and growing wage pressures on an industry for which labor is 50% or more of costs,
- recent softness in private-pay senior housing occupancy,
- a increase in the number of units being developed (particularly assisted living and memory care) and signs of overbuilding in select markets,
- integration stumbles at the largest and largest publicly traded senior housing operator, Brookdale Senior Living (BKD),
- some signs of a plateau in senior housing property capitalization rates and pricing,
- a late summer sell off in healthcare REITs and generally unsettled conditions in the equity and debt markets, which appear to be driving the pause or potentially a backup in cap rate compression.
The optimism comes from:
- a 15 year rebound in fundamentals from the last major industry downturn,
- generally outperforming other real estate sectors through the Great Recession,
- still strong consumer acceptance of newly open properties, particularly in high barrier to entry markets,
- plentiful availability and still growing interest in the industry from both debt and equity capital providers, if perhaps at higher prices that were seen a year ago,
- knowing that the industry continues to get closer to the holy grail of 75M + Baby Boomers becoming seniors housing and care customers (although still 10 – 15 years away).
Unless you are concerned about substantial overbuilding in private-pay seniors housing, which most thoughtful insiders are not (there will be some), the recent pullback in both healthcare REIT and operator pricing is making me more interested in investing in publicly traded healthcare REITs and private pay operators but there are few publicly traded operators to buy. On the care side of seniors housing and care, there has also been a pull back that makes skilled nursing and post acute care company stocks attractive from a valuation standpoint. Here, however, the slow evolution of a more integrated healthcare delivery system and new value-base purchasing and an uncertain political situation through the next Presidential election may keep a lid on valuations for another year or two. Either way, it feels like a time to be considering investments in seniors housing and care for the long term investor. I will leave it to those still working as equity analysts in the space to recommend specific stocks.
There are also signs at the conference that innovations in technology, property location and design are alive and well. At least two efforts are underway to develop new senior housing properties in Manhattan. The most interesting new building model I saw at the conference is a mid-rise product located in an urban main street location that looks more like an upscale yuppie rental project or W hotel, with services delivered on demand by the likes of Uber, Amazon Fresh and online home health providers. This project is being developed by Smart Living 360 and Federal Realty Trust (FRT) in Rockville, MD and is scheduled to open in the Spring of 2016. See website http://www.thestories.com/ for more information.
