Faced with growing pressures from payors, rising costs, the need to replace old buildings, increased competition from other forms of residential care, and shrinking demand from older adults who prefer to age at home, nursing homes are shutting their doors at a rapid pace.
There still are more than 15,000 nursing facilities in the US—more, in fact, than McDonald’s franchises. Still, 4 percent of nursing facilities closed from 2015 to 2019, a decline that raises real questions about their future.
A new study by the senior services trade group Leading Age reports that more than 550 nursing homes closed over the past four years, and that the trend is accelerating. More than half occurred in nine states–Texas, Illinois, California, Ohio, Massachusetts, Wisconsin, Kansas, Nebraska, and Oklahoma. The Leading Age report was primarily based on government data. It measures closures but does not count new facilities that opened over the period.
A separate study by the National Investment Center for Seniors Housing & Care (NIC) —-based on an ongoing industry survey– helps explain the trend: Occupancy rates in skilled nursing facilities have been falling since 2015, though they stabilized over the past year. Medicaid, which pays the lowest average rates, represents a growing share of residents, while relatively fewer patients are covered by traditional Medicare—the most generous payor.
Increasingly, Medicare patients are members of managed care plans that pay far less, and generate much less revenue per day, than traditional fee-for-service Medicare. NIC reports that in the third quarter of 2019 (the most recent data available), nursing facilities were paid an average of about $215 per patient day by Medicaid, about $620 by Medicare, and about $435 by Medicare Advantage and other managed care plans.
Fewer beds being filled
At the same time, Medicaid residents grew from about 60 percent of volume in 2015 to 68 percent last year, traditional Medicare fell from about 18 percent to 11 percent, and managed Medicare grew slightly to about 6.5 percent. The share of lucrative private pay residents dropped from about 11 percent to 8 percent.
While many facilities are closing, the number of nursing home beds has been relatively flat. But fewer of those beds are being filled. NIC found occupancy rates have fallen from a peak of about 89 percent in 2015 to about 84 percent today. Leading Age reported the number of occupied beds fell by 16,000 over the same period, to about 1.325 million.
The closures have been especially severe in rural states. For example, from 2015 to 2019, nearly 14 percent of Montana nursing homes closed, as did more than 11 percent of Nebraska’s.
Even so, occupancy rates in some states remain uncomfortably low, suggesting more closures may be in store. For example, even though Illinois lost nearly 4,000 beds its June, 2019 occupancy rate still was only 73 percent—far below the national average.
Post-acute v. long-stay
The Leading Age study found that high quality facilities were as likely to shutter as those with poor quality ratings. It also found little difference in closure rates between for-profit and non-profit facilities.
Keep in mind that “nursing homes” are two very different kinds of facilities, though they often share a building or campus.
Skilled nursing provides short-term post-acute care, such as wound care or rehab after an accident, surgery, or serious illness. It increasingly substitutes for hospital-based care (because it is less expensive). And it usually is paid by Medicare or private health insurance, and sometimes by patients out of pocket.
Long-term, or long-stay care, is different. In contrast to short-term patients, long-stay residents generally suffer from serious chronic conditions, have significant functional and cognitive limitations, and live in these facilities until they die. Their stays are paid mostly by Medicaid and less frequently by families themselves (sometimes with long-term care insurance benefits). Medicare does not pay for long-term care.
For years, the financial model of nursing facilities has been built on a system of government cross-subsidies. The facilities lost money on their Medicaid long-stay beds but made a healthy profit on their Medicare post-acute business. But as Medicaid payments fall further behind costs and Medicare managed care continues to squeeze margins, that business model is at risk.
Some advocates would like nursing facilities to disappear. But, like it or not, some people need them. Well run facilities can provide post-acute care in an equally effective but less costly way than hospitals. And some people, with complex care needs and no family caregivers at home, may be safest living in a nursing facility.
Aging at home is a good choice for many older adults. But not everyone can do it. And, especially in rural areas, the nursing facility option is slowly, but steadily, disappearing. And often there is nothing to replace it.