Over the past five years, investments in the skilled nursing market have been complicated. There are so many asset classes in the seniors housing industry and the reimbursement climate is constantly fluctuating. Investment specialists and operators now finally have a clear answer to how to best navigate the marketplace.
Mom and Pop’s Struggle in the Skilled Nursing Industry
Mom-and-pop shops, or single asset operators, have struggled over the past several years in the skilled nursing sector. Most of them have exited or have considered leaving the industry. The reason why they have not found much success is because they are simply too small to compete with larger companies in the industry. They have been unable to win the profitable contracts that are needed to stay open. They are also unable to stay afloat during reimbursement or large lawsuits.
Skilled nursing facilities are a contracted reimbursement model. Seniors turn to skilled nursing facilities for specialized care and around-the-clock medical attention. In general, these seniors are given recommendations and placements from healthcare providers rather than seeking out these facilities themselves. These healthcare providers usually have contracts with certain facilities and operators at set rates.
For example, Kaiser is nationally recognized, providing medical services for hundreds of people all over the country. A large portion of their patients are senior citizens who require placement in a skilled nursing facility.
Kaiser needs to find skilled nursing facilities that meet its high standards by negotiating contracts that detail services, benefits, and payment. With all of this work, Kaiser is unlikely to be paying attention to any of the smaller skilled nursing operators. They are more likely to make a deal with a large skilled nursing operator who can offer 1,500 beds rather than just 60. Consequently, the small skilled nursing operators don’t get these large contracts and miss out on more patients.
Also, one bad lawsuit can ruin these small operators. Smaller skilled nursing operators do not have the financial resources that larger ones do, therefore finding it difficult to settle a lawsuit or fight back in any way. The odds are stacked against them in these one-to-two asset operators in the skilled nursing industry.
Large Operators Have Their Own Issues
On the other hand, large operators often show off their success which can lead to their demise. They are nationally recognized, employee thousands of specialists, nurses, and managers, and have huge payrolls. However, with too many facilities to operate, they can be spread too thin. This can potentially lead to inadequate performance.
Some large operators have even reached a point where they are no longer efficient because their portfolios are spread so far throughout the U.S. With every region having its own compliance regulations, marketing styles, and contract negotiation, it is difficult to keep up. While these large operators can win the big contracts with healthcare providers, they often lack resources to maintain the service quality if they grow too large.
Midsize Operators Win in the Seniors Housing Industry
Operators who fall somewhere in the middle find great success. Usually, these operators have 30 to 70 assets, giving them enough power to gain advantages contracts yet small enough to run efficiently. These midsize operators have allowed the skilled nursing sector to thrive and serve as a model for future operators to follow to maintain efficiency.
Restore Your Seniors Housing Investment with The Stahler Group
The Stahler Group is a top brokerage in the seniors housing industry, with an array of services for buyers and sellers of all types. We are your top resource if you’re looking for guidance in navigating the skilled nursing market.
Our team of expert investment specialists can help you determine strengths and weaknesses in your portfolio and help devise a plan that makes your investments outperform others. Contact The Stahler Group for answers to all of your questions.