In 2019, the nursing home industry was relatively stable, generating $126 billion in net revenue, with a profit margin of about 9 percent. However, recent financial reports indicate a drastic shift in the sector’s financial health.
The latest data from the 2022 Medicare cost reports for 10,354 nursing homes show a gross revenue of $129 billion, but a net loss of $2.6 billion. This stark contrast raises significant concerns about the financial viability of nursing homes, especially in light of new federal regulations aimed at improving care quality.
The financial situation of nursing homes has clearly seen a rapid shift in recent years, partly due to inflation and changing economic conditions. Inflation has affected every sector of the economy, including healthcare. Rising costs for supplies, utilities, and staffing have significantly impacted the budgets of nursing homes. This increased cost of operation, coupled with declining revenue, has left many facilities struggling to stay afloat.
Additionally, the COVID-19 pandemic has had a substantial impact on the nursing home industry. The pandemic brought about increased costs for personal protective equipment (PPE), testing, and staffing. It also led to a decline in occupancy rates, as families chose to keep their elderly loved ones at home, or tragic losses occurred among residents. These factors have further strained the financial resources of nursing homes.
Amid this challenging financial climate, a new regulation has been introduced that requires facilities to provide a minimum of 3.48 hours per resident day (HPRD) of direct nursing care, of which at least 0.55 must be provided by registered nurses (RNs) and 2.45 by nurse aides. While this regulation aims to improve the quality of care for residents, it also presents significant challenges for nursing home operators.
Staffing costs are a major portion of any nursing home’s budget. The new regulation necessitates a higher staffing level, particularly of RNs and nurse aides, which could lead to increased labor costs. In a sector already struggling with financial difficulties, absorbing these additional costs may prove challenging.
The crux of the issue lies in balancing the need for high-quality care with financial sustainability. The new regulation emphasizes the importance of direct care staff in ensuring that residents receive the care they need, but implementing these standards may be untenable for many facilities without additional funding or support.
To address this issue, policymakers must consider ways to support the nursing home sector financially. This could involve increased Medicaid and Medicare reimbursements, grants, or subsidies aimed at helping facilities meet new care standards. Additionally, encouraging innovative solutions, such as telehealth services or partnerships with other healthcare providers, could help reduce costs and improve care delivery.
The financial health of the nursing home industry has taken a significant hit in recent years, with facilities collectively transitioning from a stable revenue stream in 2019 to a net loss in 2022. The new regulation requiring increased nursing care hours further challenges the sector’s sustainability.
For nursing homes to survive and continue providing quality care to their residents, a multifaceted approach is needed.
This approach should balance the need for high-quality care with financial stability, through measures such as increased funding, innovative solutions, and potential regulatory adjustments. In the end, the goal is to ensure that nursing homes can continue to offer essential services to the aging population while maintaining their financial health.
Timothy Powell is a nationally recognized expert on regulatory matters including the False Claims Act, Zone Program Integrity Contractor (ZPIC) audits, and U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) compliance. He is a member of the RACmonitor editorial board.
tpowell@tpowellcpa.com
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