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2023-10-24 Spotlight: REIT Nursing Homes Staffing

Only 6% of REIT Nursing Home Assets Meet Proposed Federal Staffing Mandate

Skilled Nursing News, October 20, 2023, By Amy Stulick

Only 6% of real estate investment trust (REIT) assets are in compliance with the federal minimum staffing proposal for nursing homes, compared to the industry average of 19%.

This difference is due at least in part to less nonprofit representation in REITs, BMO Capital Markets analysts said in a note on Thursday. The BMO analysts calculated the REITs’ staffing levels utilizing data from the Centers for Medicare & Medicaid Services (CMS).

Nonprofit SNFs tend to have higher average staffing levels, the analysts wrote, which “may be [weighing] on REIT results relative to the overall national average.”

If licensed practical nurses (LPNs) end up being included in the 3.0 hours per day of resident care (HPRD), BMO analysts said 51% of REITs would meet the staffing target – still less than the industry average at 60%.

Industry feedback suggests the proposal will be watered down in some capacity, they noted; it’s unclear if that will involve adding LPNs into the rule. Currently, only certified nursing assistants (CNAs) and registered nurses (RNs) may make up the 3.0 HPRD requirement.

Registered nurse HPRD coverage among REIT assets sits at 0.38, again lower than the national average of 0.42 according to BMO data. Combining RN and CNA HPRD, the REIT average is 2.23 compared to 2.44 as the industry average.

Outside of the fact that the proposal isn’t paid for with higher reimbursement levels, and finding nurses remains a challenge, BMO analysts said they’re hearing two main areas of pushback from those in the industry.

“First, the proposal would require 24-hour RN coverage and second, licensed practical nurses (LPNs) don’t count towards minimums, despite being included in state staffing mandates,” the analysts said. “We note LPNs have higher training than CNAs. So, excluding LPNs seems incongruous with the goal of improving patient care.”

BMO was unable to accurately assess 24-hour RN compliance with the proposal, since CMS data doesn’t indicate if RN hours in a facility are overlapping, or if there are two RNs on site at the same time. Data doesn’t include the number of RN full-time equivalents (FTEs).

Anecdotally, compliance levels are relatively low, with most facilities having 8- to 12-hour coverage, according to the BMO note.

CMS expects about 75% of nursing homes will need to bolster staffing levels under the proposal.

As of the first financial quarter of this year, BMO said REITs used agency staff for about 10.4% of total CNA and RN hours worked. But, REITs’ contract labor declines have outpaced the industry average.

BMO analysts expect further moderation in contract labor utilization, helping boost rent coverage further.

As a side note, analysts mentioned the minimum wage hikes for health care workers in California to $25 per hour; the market rate is about $21 to $22 per hour in the state, BMO said. “Stand alone SNFs aren’t specifically included, which we view as a negative given there wouldn’t be a commensurate reimbursement with market forces likely to drive up pay across healthcare regardless of the lack of SNF inclusion in the mandate,” analysts noted.