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  • Juanita Schwartzkopf

Industry Sectors 2.5 Years After the Pandemic Lockdowns: Skilled Nursing Facilities (SNFs)

It is almost shocking to think that two and a half years have passed since the initial Covid-19 lockdowns. Businesses have been confronted with tremendous challenges and opportunities – shutdowns, work from home, hybrid work environments, testing requirements, plant restructuring requirements, labor shortages, PPP loans, other government stimulus programs, changing consumer preferences, supply chain issues, ongoing labor issues, and inflation.

Different companies and industry sectors have responded differently to the challenges and opportunities. Many companies used the stimulus money to correct problems and reimagine themselves, while other companies squandered the liquidity and suffered once the stimulus funds were consumed.

Let’s consider the skilled nursing health care industry. This is an industry that experienced a tremendous amount of bad press during the pandemic lockdowns. Residents died. Family members were unable to visit loved ones. Some state governments were accused of mishandling patient care and Covid-19 risks. When thinking about SNFs during the pandemic the State of New York comes to mind. As of May 9, 2022 NY state reported 17,425 nursing home deaths. The bad press nursing homes received has impacted the industry.

Risk Management Association (“RMA”) members periodically report information on their loan portfolios to RMA, and Automated Financial Systems, Inc. (“afs©”) compiles that data for members, with more detailed information available to subscribers. The July 2022 information shows that health care loans have a higher than average number of nonaccrual commercial real estate loans.

SNFs are typically operated by an operating company (“Opco”), real estate is held by a real estate company (“Propco”) and a management company provides support across multiple owned facilities. The trends RMA and afs© noted in the chart show that there is increased pressure on the Propco entities, which trickles down from the Opco financial performance results.

Areas to consider when evaluating financial performance of the SNF facility


Occupancy rate of nursing facilities from 2019 to 2022 in the US have dropped and are not back to the pre-pandemic levels.

2019: 81%

2020: 80%

2021: 67%

2022: 72%

Out of 48 states, none are reporting occupancy over 80%. New York has the highest occupancy at 79% and Texas has the lowest occupancy at 56%. Southern states have seen the lowest occupancy rate with all-time lows. Texas and Oklahoma had a median occupancy rate of 55.8%, and Arkansas had a median occupancy of 58.4%.

Operating Expenses

Surprisingly, labor expenses as a percent of revenue have not increased.

Wages as a % of Revenues per Year

2019: 44.3%

2020: 43.2%

2021: 42.2%

2022: 42.0%

The labor issues SNFs are confronting may be more focused on supply of labor. While the July unemployment rate was 3.5% overall, the unemployment rates by state ranged from under 3.0% to over 4.5%. Depending on the location of the SNF, the availability and the cost of the labor may vary dramatically.

Inflationary pressures are impacting food and energy. For example, the August PPI and CPI reported year over year price changes in categories of interest to SNF financial performance. Several important categories are noted below.

Inflationary Pressures

August 2022 PPI for Food: 13.1%

August 2022 PPI for Energy: 25.9%

August 2022 CPI for Electricity: 15.8%

August 2022 CPI for Natural Gas: 33.0%

Trends to Watch For

Industry experts have identified these trends as ones to watch for.

  • Shifting consumer preferences have placed pressure on nursing care facilities.

  • Demand for nursing care facilities is expected to rise along with an aging population.

  • Uncertainty surrounding healthcare legislation is expected to present challenges to nursing facilities.

  • The average industry profit margin is expected to decline slightly over the next five years.

Let’s consider the first trend – shifting consumer preferences.

Patients that would have otherwise gone to SNFs are being lost to:

  • Home health care.

  • Long-term acute care hospitals (LTACHs).

  • Inpatient rehabilitation facilities (IRFs).

    • IRFs have seen a 16.3% increase in adjusted EBITDA growth.

Stakeholders are expected to divert away from SNFs to IRF wards and home health care options. Adult day care is an appealing option for many individuals. The use of this type of service is gaining interest because of these trends.

  • Competitive advantages over other long-term care providers resulted in industry growth.

  • The prevalence of physical and mental diseases will increase, increasing demand for industry services.

  • The projected growth in government healthcare funding will benefit industry operators.

  • Aging baby boomers will increase demand for adult daycare services.

Depending on the state, adult day care availability changes.

  • The Southeast region accounts for 21.0% of adult daycare centers.

  • The West region accounts for 16.5% of adult daycare centers.

  • The Mid-Atlantic accounts for 16.4% of adult daycare centers.

These state-by-state trends are further amplifying costs and labor issues by geographic market. Additionally, the malpractice environment varies by state.

What should lenders consider?

In addition to the traditional financial statement reporting requirements, for SNFs it is important to track key performance indicators (“KPIs”) such as occupancy rates, payor mix, and cost structure changes, specifically related to food, energy and labor based on the current economic climate. These KPIs can provide advance warning of cash flow problems and may assist the lender and the borrower in working out of difficult situations.

Adding loan agreement conditions surrounding payments to real estate companies, management companies and ancillary service providers that are related to the operating company should be considered. Possibilities include reducing or pausing payments if the operating company’s performance is below a certain level.

The sale process for a SNF is complicated by licensing requirements, change of ownership (CHOW) approvals, and MAC (Medicare Administrative Contractor) number assignment by CMS (Centers for Medicare & Medicaid Services). Patient care is also a serious concern during a sale process. Negotiating the asset purchase agreement and transition services agreement are challenging.

The Future

The pandemic has left a lasting mark on the SNF market. New types of competitors have emerged, and cost structures are changing. While the population will require availability of long-term care providers, there is continued pressure on profitability and occupancy. Those stresses will not be eliminated.


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