Staffing costs masked by COVID relief funds revealed in new study of nursing home finances

A new study confirms just how much COVID-era government funding buoyed America’s nursing homes — and just how little extra cash they have on hand two years later, ahead of a major staffing rule that threatens their financial viability.

An influx of COVID-19 public health emergency funding, including direct Provider Relief Fund and Paycheck Protection Program payments, allowed many nursing homes to remain profitable through 2021.

But researchers at Miami University in Ohio and Georgia Southern University found that after that pipeline shut off starting in late 2022, for-profit nursing homes saw their net incomes drop to $1.68 per resident day, while nonprofit providers were plunged into the negative at a rate of $31.18 per resident day.

Without public health emergency funds, for-profit and not-for-profit nursing homes would have had losses of $7.47 and $42.35 per resident day, respectively, in 2022, they reported in a Health Affairs study published Monday afternoon. It predicts the “long-term financial viability of nursing homes, especially not-for-profits, will be seriously challenged.”

“There’s a lot of people who look at the profitability of these nursing homes in 2020 and 2021 and say, look, they’re highly profitable,” John R. Bowblis, professor of economics at Miami University and research fellow with the Scripps Gerontology Center, told McKnight’s Long-Term Care News Monday.

“What we’re showing in the data is that’s true, but it’s all because of COVID relief funds,” he added. “What this was doing was masking an underlying trend, which was that costs were rising, mostly because the labor market was tight in 2018 and 2019, and Medicaid payment rates and Medicare payment rates were not rising enough to make up the difference.”

In late 2020, for-profit nursing homes earned a median rate of about $18 per patient day in COVID relief support; that landed at about $15 per patient day in nonprofit facilities. The following year, that flip-flopped to about $25 per patient day for nonprofits and nearly $20 per patient day for for-profit companies.

That temporary profitability has been used by many to justify the federal staffing mandate. But those views didn’t take into account inflation rates of 7.0% and 6.5% in 2021 and 2022, and its particular effect on labor, which already consumed 33.9% 2019, according to the study.

The belief that nursing homes can maintain margins under the strain of a mandate estimated by the Centers for Medicare & Medicaid Services to cost $43 billion over a decade is shown to be false when COVID dollars are stripped away, Bowblis and his co-authors illustrate.

“Once you start taking the COVID relief money away, they weren’t profitable. It turns out that the [industry] has deteriorated even more,” Bowblis said. 

While CMS has targeted the use of related-party transactions, common among for-profit chains, as a symbol of corporate greed, Bowblis noted that his team’s research did not bear out the idea that corporate entities were “siphoning off” revenues. 

“Whether you have related party transactions or not, we’re finding that those trends are basically parallel,” he said. “The related party transaction is a little bit of a red herring.”

What did affect the bottom line? Staffing.

In the study, not-for-profits “consistently” had higher registered nurse, nurse aide and total staffing levels compared with for-profits across the entire time period. For-profit providers “are trying to match the staffing levels to what the government payers are willing to pay for,” Bowblis said, while other research has shown nonprofits typically try to maintain higher-than-required staffing levels.

Between that and agency staff usage that substantially increased between 2018 and 2022, more nonprofits are being pushed to the brink.

“They are focused on keeping their staffing levels the same, and in a lot of cases, they have continuing care retirement communities, where they can use the independent or assisted living to supplement to subsidize the staffing cost or the losses they’re making in their nursing home,” Bowblis said.

More stand-alone nursing homes, which don’t have those offsets, will close as margins dip deeper into the negative, he predicted Monday. Who they sell to, or whether they will find a buyer at all, should be the focus of policymakers pressing for higher staffing levels without dedicated funding.

More closures predicted

“If you’re not making a fair rate of return, or if you’re losing money, those businesses are not going to stay in operation long,” Bowblis said. “There’s two things that you can do. You can close, or number two, you might be willing to sell to another operator who might be willing to cut staffing levels or other costs down to the bare bones.” 

As the study puts it: “Higher staffing levels observed in not-for-profits are a major contributor to operating losses and appear unsustainable under the current funding model. … Therefore, it is not surprising that in 2021, a disproportionate share of nursing homes that exited the market were not-for-profits.

“Although there may be ways for nursing homes to be more efficient, figuring out a sustainable long-term care financing system will be critical to achieving persistent solvency within the nursing home industry,” the authors wrote. “If policy makers do not address the current funding challenges, access to high-quality nursing home care could be severely restricted.”

Bowblis’ co-authors were Robert Applebaum, director of the Ohio Long-Term Care research project at Miami University and Scripps senior research scholar; and Christopher Brunt, economics professor at Georgia Southern.