Those practicing in and for skilled-nursing facilities (SNFs) expected failure and death at rates greater than other healthcare settings because of “pre-existing conditions” of the industry, according to an article in the September issue of the ABI Journal.

“The skilled nursing industry’s preexisting conditions have multiple causes, the most impactful being the unique financial model found in the SNF industry,” Jerry Seelig of Seelig+Cussigh (Los Angeles), David Hoffman of David Hoffman & Associates (Philadelphia) and Louis J. Cisz III of Nixon Peabody (San Francisco) wrote in their article, “Painful Impact of COVID-19 on the Troubled Skilled-Nursing Industry.”

An SNF is a nursing home that a friend or family member moves to when that individual’s care and safety demands supervision and nursing care is not available at home or in their current assisted living facility, according to the authors. These nursing homes are also skilled-nursing providers in that they provide post-acute and/or surgery care that is more cost- and clinically effective in an SNF setting.

The authors identified three pre-existing conditions of the skilled nursing industry that have been exacerbated by the COVID-19 pandemic:

1. An SNF can (and often does) have one party that owns the building, another that owns the license to operate and yet another that is hired to be the operator.
2. SNFs are now more than 50% for-profit and are heavily dependent on REITs, equity investors and lenders of all sorts.
3. The industry has failed to adequately prepare for COVID-19.

“These factors have set the stage for both industry-wide restructurings and bankruptcy filings for many facilities and management companies,” Seelig, Hoffman and Cisz wrote.

The authors highlighted that the debtors and/or restructuring clients in question are healthcare providers, meaning that they must yield to (1) lives that are in danger; (2) the conflicts among bankruptcy rules, regulations and practices, and health care rules, regulations, reimbursements and even culture; (3) the profound lack of understanding of healthcare settings, in particular skilled nursing; and (4) a limited tool set to assess, manage and improve healthcare providers.

“Many facilities and multi-facility owners entered the pandemic without cash reserves and with cash flow burdened by large payments to REITs, equity funds and lenders,” Seelig, Hoffman and Cisz wrote. “Therefore, the for-profit SNFs will face the greater challenges of having enough money to pay the bills and to support their investors and landlords.”

The authors said that the Coronavirus Aid, Relief, and Economic Security (CARES) Act saved many from immediate collapse, yet it did not slow the financially and quality-challenged facilities’ rapid descent toward restructuring.

“Going forward, there will be a large number of new and potential skilled-nursing debtors and restructuring clients with extraordinary financial and operating challenges,” they wrote.

Seelig, Hoffman and Cisz said these challenges cannot be met if those tasked with restructuring can only monitor without enforcement, enforce without mandated quality improvement and, if the interim manager lacks the resources to rebuild, then maintain quality care and safety.

“It is imperative that additional interventions such as the temporary management program bring public funding to the restructuring effort and concurrently create hybrids of the TM [temporary managers] and other interim-management programs to ensure resident safety, reduced likelihood of harm and set the foundation for needed facilities’ long-term financial viability,” the authors wrote.