{"id":1004366339,"date":"2019-11-06T08:50:26","date_gmt":"2019-11-06T16:50:26","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004366339"},"modified":"2020-02-14T08:14:09","modified_gmt":"2020-02-14T16:14:09","slug":"reimbursement-changes-to-benefit-reits-invested-in-skilled-nursing","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/reimbursement-changes-to-benefit-reits-invested-in-skilled-nursing\/","title":{"rendered":"Reimbursement Changes to Benefit Skilled Nursing REITs"},"content":{"rendered":"
\"\"

Lori Marks  Image courtesy of Moodys<\/p><\/div>\n

The Centers for Medicare & Medicaid Services in October implemented changes to Medicare reimbursement for skilled nursing facilities that Moody\u2019s sees as credit positive for operators and their real estate investment trust landlords. These changes include a favorable rate increase for the upcoming fiscal year, as well as the transition to the Patient Driven Payment Model, which offers the opportunity for cost savings.<\/p>\n

In Moody\u2019s view, these reimbursement changes will provide relief to the SNF industry, which has been contending with occupancy pressures as evolving payment models have emphasized shorter lengths of stay. Increased labor costs have been an added challenge for operators. Even as Moody\u2019s expects these headwinds to persist, the improved reimbursement environment will offer operators the opportunity to boost margins and cash flow.<\/p>\n

Moody\u2019s believes the potential for SNF cash flows to stabilize, and even increase modestly, is credit positive for REITs with significant investments in the sector, including Omega Healthcare Investors Inc. (Baa3 stable), Sabra Health Care REIT (Ba1 stable), and CareTrust REIT Inc. (Ba2 stable). These REIT\u2019s SNF investments are mostly in the form of long-term, triple-net leases and stronger property cash flows will enhance the security of their rent payments.<\/p>\n

Medicare rate increase to boost property revenues <\/strong><\/h2>\n

CMS has implemented a 2.4 percent net increase in Medicare payments for SNFs in fiscal 2020, consisting of a 2.8 percent market basket increase less a 0.4 percent reduction for multifactor productivity, an adjustment required by the Affordable Care Act based on productivity gains across the entire economy. This is the highest rate increase SNF operators have experienced in the past three years, following 1.8 percent and 1.0 percent net increases for fiscal 2019 and fiscal 2018, respectively. While the 2.4 percent increase is still modest, barely keeping pace with growth in operating expenses, Moody\u2019s believes it will still enhance prospects for cash flow stability this year.<\/p>\n

PDPM will offer the opportunity for margin improvement <\/strong><\/h2>\n

The transition to PDPM will have a more enduring impact on the SNF industry, changing the way in which facilities are reimbursed for Medicare patients, which represent about 30\u201335 percent of a typical facility\u2019s revenue. Payments will now be based on a refined assessment of a patient\u2019s clinical condition, incorporating five case-mix adjusted components, including physical therapy, occupational therapy, speech language pathology, nursing and non-therapy ancillary utilization. PDPM represents another step in the industry\u2019s evolution towards value-based care and replaces the fourth iteration of the volume-based resource-utilization group framework, which used therapy minutes as the primary driver of rates.<\/p>\n

Moody\u2019s expects PDPM to have a neutral impact on revenues but still benefit operators by enabling them to provide care more efficiently and to reduce therapy costs. Operators will also have more flexibility in how they provide therapy, with PDPM allowing group and concurrent therapy to account for up to 25 percent of a patient\u2019s treatments. This will allow a therapist to more efficiently treat an increased number of patients within a given time frame. CMS also reduced the frequency of assessment requirements, providing further opportunity for margin improvement.<\/p>\n

Operators ability to profit from PDPM will vary and carries execution risks<\/strong><\/h2>\n

Despite the potential benefits, Moody\u2019s believes the movement to PDPM still carries risks. Operators will need to adapt their systems and business models to effectively make the transition in how they assess and care for patients. They have had time to prepare for the changes, as PDPM details were finalized more than a year prior to implementation. However, the opportunity for missteps among some weaker operators still exists and could have implications for REIT rents.<\/p>\n

\u00a9 Moody\u2019s Investors Service Inc.<\/a> and\/or its affiliates. Reprinted with permission. All Rights Reserved. The full terms and conditions applicable to this article are available at the following <\/em><\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Moody\u2019s believes the potential for skilled nursing facility cash flows to stabilize, and even increase modestly, is credit positive for REITs with significant investments in the sector, according to Senior Credit Officer Lori Marks.<\/p>\n","protected":false},"author":1160,"featured_media":1004344535,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21684],"tags":[33033],"class_list":["post-1004366339","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-viewpoint","tag-moodys-investors-service"],"acf":[],"yoast_head":"\nReimbursement Changes to Benefit Skilled Nursing REITs - Commercial Property Executive<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/reimbursement-changes-to-benefit-reits-invested-in-skilled-nursing\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Reimbursement Changes to Benefit Skilled Nursing REITs\" \/>\n<meta property=\"og:description\" content=\"Moody\u2019s believes the potential for skilled nursing facility cash flows to stabilize, and even increase modestly, is credit positive for REITs with significant investments in the sector, according to Senior Credit Officer Lori Marks.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/reimbursement-changes-to-benefit-reits-invested-in-skilled-nursing\/\" \/>\n<meta property=\"og:site_name\" content=\"Commercial Property Executive\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/CPExecutive\" \/>\n<meta property=\"article:published_time\" content=\"2019-11-06T16:50:26+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2020-02-14T16:14:09+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2019\/08\/Marks_Lori_06_14_JPG.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"800\" \/>\n\t<meta property=\"og:image:height\" content=\"620\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Lori Marks\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@cpexecutive\" \/>\n<meta name=\"twitter:site\" content=\"@cpexecutive\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/reimbursement-changes-to-benefit-reits-invested-in-skilled-nursing\/\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/reimbursement-changes-to-benefit-reits-invested-in-skilled-nursing\/\",\"name\":\"Reimbursement Changes to Benefit Skilled Nursing REITs - 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