Faced with Unprecedented Scrutiny, Skilled Nursing Facilities Need to Get Their Financial Houses in Order

Health care | Prager Metis | Sep 28, 2020

Every drama needs a bad guy, a villain. And few events in recent history have produced more drama than the COVID-19 crisis, certainly from a human standpoint given the death toll, not to mention what many have called the “politicizing” of the pandemic. With politics, of course, comes plenty of finger pointing. And many a politician’s finger was pointed to the nation’s nursing homes, or skilled nursing facilities (SNF), for supposedly producing a higher than normal COVID-19 death rate among their senior residents.

The implication was that this occurred because of poor facility management, or substandard medical and hygienic standards, or a staff poorly trained and ill equipped to do its job, or worse, staff simply not caring. In short, the story became: Nursing homes are broken. But the facts of the matter simply do not support the view that seniors, whether in or out of an SNF, accounted for a disproportionate number of COVID-19 fatalities.

  • At this writing, approximately 80% of the deaths from COVID-19 occurred among U.S. citizens 65 years of age or older. But…
  • Depending on the year, approximately 70% to 85% of seasonal flu-related deaths have occurred among people 65 and older. Last flu season it was 74.8%.

Point being, even in this compressed time span of approximately six months, if there had been a dramatic uptick in SNF virus victims, it would be reflected in the overall statistic. However, all of that said, the virus crisis has shone a not particularly flattering light on the whole community of SNFs, whether owned by a large corporation or owned and operated by a smaller business. Which means that SNFs need to sharpen their management, business and financial skills to meet increased attention from the government.

That’s where our firm comes in, of course, and we will offer here some council on how to strengthen SNF operations. But first, for those in the SNF community who think there is not increased “heat” on their operations, consider these recent actions by the Centers for Medicare & Medicaid Services, or CMS, the federal agency within the United States Department of Health and Human Services that provides health coverage to more than 100 million people through Medicare and Medicaid:

On June 19, 2020, CMS announced A 25-member Independent Coronavirus Commission on Safety and Quality in Nursing Homes populated by acknowledged experts in many fields.

More recently, on July 10, 2020, a press release announced: “CMS plans to deploy Quality Improvement Organizations (QIOs) across the country to provide immediate assistance to nursing homes in the hotspot areas as identified by the White House Coronavirus Task Force.” And a separate release explained, “The purpose of these efforts is to target facilities with known infection control issues by providing resources and support that will help them improve quality and safety and protect vulnerable Americans”

Even more recently, on July 22, 2020, CMS issued a lengthy detailed press release announcing that, “As part of the unprecedented efforts taken by the Trump Administration, President Trump today announced several new CMS initiatives designed to protect nursing home residents from coronavirus disease 2019 (COVID-19).”

And even more recently, on August 14, 2020, while CMS announced targeting facilities to provide “resources and support,” it issued another press release with this headline: “Trump Administration Has Issued More Than $15 Million in Fines to Nursing Homes.”

Of course, SNF owners and operators are already familiar with the existing CMS “Five Star” rating system for their facilities, which comprises three measures: Health Inspections, Staffing and 15 different Quality Measures. And, it seems likely, they know how many stars each of their facilities has earned. But, what has changed is this:

There is increased attention regarding how efficiently a facility is being run. And integral to that efficiency is proper management of a facility’s business. In short, sloppy business practices will most likely reverberate throughout an organization. And, again, that is where our firm can be of service, not just because we are a top-40 accounting firm, but because we made it our business to have a specialty in the SNF realm.

So, what do you, an owner or operator of an SNF need to do to avoid additional government heat? If we were working with you to improve your efficiency, we would implement a six-step plan.

  1. The very first question we would ask is, “Do you have a well-thought-out strategic business plan?” Never forgetting that an SNF is a business, step one is reviewing your current financial situation, both debt load and options, perhaps unexplored, for funding.
  2. We would consider each of your units—medical, shelter, food, etc.—as a separate program, like a business-within-a-business. Focusing on each separately will more readily reveal weaknesses.
  3. Next, we would exam each program’s financials and evaluate fiscal strengths and weaknesses. What is the P&L for each program? Is there a surplus of funding? Is there a debt because of underfunding, or lack of efficiency? And, can the success of one program be duplicated in another?
  4. With SNFs being labor intensive, employing both highly trained staff (doctors, nurses, top management) and general staff (kitchen workers, maintenance crews, etc.), we would look at staffing as a separate entity. If cuts in funding mean, or have meant, cuts in staff, how is/has that been accommodated—without affecting residents’ level of care?
  5. We would also examine and extrapolate from resident data, such as volume and flow, average lengths of residency, per patient revenue and how that is broken out in terms of private, Medicaid and/or Medicare.
  6. And finally, the strategic business plan that results would be put into an action-document, with specific recommendations and the timing of each action to be taken.

Of course, the main mission of an SNF is, and will continue be, delivering the best care possible to its residents. Here is a quick example:

This past February, a friend’s 87-year-old sister, saying “it was time,” sold her condo in Naples, Florida, and moved to an assisted living facility in Mansfield, Texas, to be near her son who is a Dallas attorney. In the early days of the pandemic, even before Texas became a COVID-19 “hot spot,” this sister and all other residents in her nursing home were confined to their apartments or rooms. Someone came and took her temperature twice a day. Meals were delivered.

At one point, the residents were allowed out of their rooms, could eat communal meals and congregate outside in a sort of enclosed garden area, all while staying six-feet apart. But when Texas got “hot” they were back in their rooms. At that point, during a phone call, my friend asked his sister how she and the other women were doing, and she said, “We are very accepting. We just figure this is the way things are now,” and then she added, “Actually, we feel we are very blessed.” And to this day, not a single resident has succumbed to COVID-19.

Without seeing this facility’s financials, we would guess that one reason this sister feels “blessed” is that, like everything else about the operation, they are tightly run and follow a strategic plan. Of course, this may not prevent a visit from the new cadre of entities keeping an eye on SNFs. But if they do visit, they’ll be ready.