New Analysis of U.S. SNF Sector: Margins, Access to Capital Reaching Critical Condition

WASHINGTON, May 31, 2013 /PRNewswire/ -- A new analysis of the U.S. skilled nursing facility sector's (SNF) total margin performance and access to capital finds the nation's second largest health facility employer struggling under the growing weight of ever-lower profitability, tighter access to capital, a constriction of Medicare and Medicaid payment rates, and an overall environment that may place the sector's ongoing viability in question.

Significantly, the analysis finds SNFs' median net income margin (from all payors) was nearly cut in half between 2010 and 2012 to 0.99%, and one-third of the operators sampled had a zero total margin or net loss – even before the onset of sequestration cuts. 

The report, by Lambert van der Walde, of van der Walde & Co., details a rapidly deteriorating SNF economic climate, and helps make clear the sector will be unable under current trends to make the key infrastructure investments necessary to treat increasingly older, higher acuity patients. In explaining the importance of examining industry profit margins, van der Walde observes, "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."

"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 for Quality Nursing Home Care (AQNHC), which funded the study.

"Mr. van der Walde's experience as Capital Markets Advisor to the CMS Administrator in both the Bush and Obama Administrations, combined with his Wall Street investment banking background, allows for the type of objective, financial analysis that makes this study invaluable to understanding the nexus between SNF providers, the investment community, and health care policymakers," Rosenbloom stated.

In addition to the general finding that SNF providers are facing trends toward low profitability and limited access to capital, the report also details that:

• While interest rates are back down to levels seen before the 2008 financial crisis, SNF sector capital is expensive and is generally limited to certain types of debt financing;
• The debt market has priced significantly higher risk into SNF bonds due to government payment risk – raising borrowing costs;
• Real estate cap rates for SNF assets are roughly two percentage points worse than they are for senior housing assets;
• The cost of public equity capital has risen since the end of the financial crisis and is considerably more volatile than the broader market.

Complete Report Available at www.aqnhc.org

SOURCE Alliance for Quality Nursing Home Care