Washington s Impact on SNF Financing. April 2017

Transcription

1 Washington s Impact on SNF Financing April 2017

2 TABLE OF CONTENTS Washington Update & Impact Financial Review & Outlook Financing Options Observations & Predictions

3 REPEAL & REPLACE DIES

4 WASHINGTON S IMPACT Graham-Cassidy Released AHCA Released BCRA Released 340 Presidential Election Source: Bank of America, U.S. Healthcare Facilities Index, Total Index Return

5 REFORM STILL LOOMS Congress CMS Other Presidential Budget ($650bn Medicaid cuts) Medicare provider payment reform (SNF in 2019) Insurance reform (interstate sales) Exchange funding (or lack thereof) Unified, post-acute Medicare payment Drug reform (Medicare negotiation authority) ACA tax provisions (repeal, delay taxes) Medicaid waivers (work requirements, fewer benefits, costs) Opioid funding

6 SNFs DIFFICULT PAST Deteriorating Patient Mix Medicaid Medicare Managed Medicare Private % 16% 5% 11% % 13% 6% 9% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: National Investment Center

7 SNFs DIFFICULT PAST Declining Revenue Mix Medicaid Mix Medicare Mix Managed Care Mix Private Mix % 26% 7% 11% % 23% 10% 9% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: National Investment Center

8 SNFs DIFFICULT PAST Stagnant / Declining Rate Growth $ $500 $400 $300 $200 $518 $515 $489 $440 $100 $190 $204 $236 $257 $0 Medicaid Medicare Managed Medicare Private Pay Source: National Investment Center

9 SNFs DIFFICULT PAST Contracting Medicare Profitability 60% Payment Cost 50% Cumulative % change 40% 30% 20% 10% 0% Source: MedPAC

10 SNFs DIFFICULT PAST Medicare Admissions (per 1,000 beneficiaries) Medicare Patient Days 1861 (per 1,000 beneficiaries) Length of Stay (in patient days) % 87.0% 86.0% 85.0% 84.0% 83.0% 82.0% 81.0% 80.0% Occupancy 86.8% 86.9% 86.2% 85.9% 84.4% 83.0% Source: National Investment Center, MedPAC

11 SNFs DIFFICULT PAST 25.0% 20.0% 15.0% 21.3% Medicare Margins 14.1% 13.2% 12.8% 12.8% 11.4% 10.0% 5.0% 0.0% % -0.5% Non-Medicare Margins % 3.5% 3.0% 3.8% Total Margins -1.0% 2.5% -1.5% -2.0% -2.5% -3.0% -2.6% -2.0% -1.9% -1.5% -2.1% -2.3% 2.0% 1.5% 1.0% 0.5% 0.0% 1.8% 1.9% 1.9% 1.6% 0.7% Source: MedPAC

12 AND CHALLENGING FUTURE Value-Based Healthcare Remains Pricing Volume Costs Medicare rate reform Home health / ALF competition Rising minimum wages Medicaid funding reform Length of stay pressure Rising liability costs Managed care growth Telehealth / remote monitor Refurbishment requirements

13 REIMBURSEMENT CHANGES PROPOSED PROBLEM PROPOSED SOLUTION 100% 2% 13% 80% 60% 37% 6% 14% 40% 26% 20% 0% -20% 10% 13% 28% -2% -7% -10% Source: MedPAC -40% % of Providers % Pmpts Chg 90%-100% 2% -10% 75%-90% 13% -7% 50%-75% 37% -2% 25%-50% 26% 6% 10%-25% 10% 14% 0-10% 13% 28% % Intensive Therapy Days Source: CMS

14 ROBUST INVESTMENT TRENDS $100,000 $80,000 Price-Per-Unit $75,324 $69,123 $71,320 $68,293 $90,181 $85, % 12.0% 10.0% Cap Rate 11.2% 11.5% 10.5% 10.1% 9.6% 10.0% $60,000 $40, % 6.0% 4.0% $20, % $ % Source: National Investment Center $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 $5,694 Sales Volume (in millions) $3,264 $3,777 $7,083 $7,205 $5,

15 IMPORTANCE OF CREDIT STRENGTH Given healthcare reform and SNF sector outlook, access to capital will become more important than ever Banks SNFs will need to build scale, vertically integrate, & invest to remain competitive Operating cash flow typically isn t sufficient need to access debt at reasonable costs/terms Cash from Operations Credit Strength Government (HUD/FHA) Credit strength (or lack thereof) will dictate available financing options/rate/structure Non-Banks Strong credit organizations will be industry consolidators & acquire weaker competitors

16 SNF FINANCING OPTIONS Banks HUD/FHA Flexible Short-Term Recourse Speedy Rigid Long-Term No Recourse Slow Rate?

17 BANK DEBT RATES % Bank Yield (%) Fed Funds (%) Source: Bank of America, U.S. Healthcare Facilities Index, Effective Yield; U.S. Government, Federal Funds Rate

18 BANK DEBT VS. HUD/FHA RATES % Bank Yield (%) HUD Rate (%) Fed Funds (%) Source: Bank of America, U.S. Healthcare Facilities Index, Effective Yield; HUD/FHA, Interest Rate on Final Endorsements, U.S. Government, Federal Funds Rate

19 OBSERVATIONS & PREDICTIONS Legislative & Regulatory Fool s game trying to predict major healthcare reform measurers Minor reform measurers will continue via Congress & CMS Value-based healthcare is here to stay Financial Outlook SNF financials will remain under pressure over near-term SNF pricing/volume/expense pressure will continue Credit metrics will tighten, especially with legislative uncertainty Financing Options Credit strength will remain important & dictate financing options HUD will remain active, but with stringent terms & conditions Bank loans will continue to offer high flexibility & attractive rates

20 APPENDIX Jason Almiro, CFA, CPA Director of Healthcare Research BOK Financial N.A. Top 30 U.S.-based bank holding company Leading healthcare & energy lender nationwide Healthcare Banking $2.3 billion total commitments $950 million SNF commitments National SNF/senior housing expertise BOK Financial Healthcare Banking Sector Distribution of Commitments Services 20% SNFs 41% Hospitals 23% ALFs 16%