Labor, behavioral health and the regulatory agenda are among the key 2022 trends that continue causing operational and financial challenges for senior living and other long-term care providers.
In a CliftonLarsonAllen LLP webinar on Thursday, financial experts laid out ways the senior living and care industry can position itself for the future.
Labor costs challenging
Although the long-term care industry as a whole was hit hard by turnover, early retirements and net job losses during the pandemic, the senior living and care industry saw an 11.8% employment decrease compared with hospitals (1.9% decrease) and all ambulatory settings (which saw a 2.8% increase in total employment).
Those employment trends, CLA Senior Living & Care Segment Leader Stephen Taylor said, are continuing today, and even worsening in some areas.
Compounding the challenges associated with available workforce is the cost of the labor that is available. The nursing and residential care sector saw an 18.3% increase in wage rates during the pandemic, compared with a 13.8% increase for hospitals and 9.9% for ambulatory settings.
The double-digit increases in hourly wage rates, along with a lack of available labor, signal “devastating” downward pressures on operating margins for the industry as a whole, Taylor said.
M&A, antitrust are areas of focus
Mergers, acquisitions and antitrust enforcement are other areas to which operators should pay attention, Taylor said.
About a year ago, President Biden issued an executive order addressing enforcement of antitrust legislation. Healthcare was singled out within that July 2021 order as a focus area.
Later that year, a Federal Trade Commission memo outlined addressing consolidation through mergers and acquisitions across the market. The FTC, Taylor said, is actively updating its policies and regulations that affect various business practices, including M&A transactions. Policies are expected to be implemented over the next two years.
Private equity big driver
As healthcare in general and long-term care in particular continues to transition to providing care in lower-cost settings — primarily via fragmented specialties, home-based care and behavioral health — private equity investments will be one of the biggest drivers of transformation, Taylor said.
“They will be forcing competitors to evolve and adjust how they are doing business to be competitive,” he said, calling 2021 a “gangbuster year” for deal flow.
Senior living and care is seeing high levels of deal flow, Taylor said. Healthcare in general, he added, has many attractive qualities, demographics, innovation and reach to consumers through multiple channels.
“Private equity will have a significant influence in healthcare and investing in healthcare organizations,” Taylor said.
Behavioral and mental health an opportunity
The mental health effects of the pandemic were significant, with rates of anxiety, depression and burnout on the rise, Taylor said. Although the emotional toll on those aged 18 to 49 was the most significant, adults aged 65 or more years experienced a 29.3% increase in mental and behavioral health symptoms, he said.
The significant increase and widespread effects signal a potential opportunity for providers, however, Taylor said. The demand for services, coupled with reimbursement changes by the Centers for Medicare & Medicaid Services to allow certain services to be provided via telehealth, could be a window of opportunity for private equity.
Private equity deals related to behavioral health picked up “significantly” in volume and deal value in 2020 and 2021, he said, adding that real estate investment trusts also have been wading into the deal pool. Among them are Sabra Health Care REIT and CareTrust REIT.
Changes on Capitol Hill
Taylor said he was “disappointed” with the lack of continued Provider Relief Fund support, especially to senior living and care providers.
“The big question is over how much longer will the public health emergency be extended,” Taylor said. “The impact there is there are a lot of operational and financial components that do go along with that, such as certain states having Medicaid reimbursement addons associated with the public health emergency.”
Many regulatory changes are “floating around” Capitol Hill that will affect long-term care and other healthcare providers, including changes to reimbursement and stepped up enforcement of existing regulations, he said.
