Of costs and caregivers: Analyzing the impact of staffing recommendations. (Finance).LATELY, NURSING HOME COSTS, AND PARTICULARLY COSTS OF nursing labor, have been hot issues. Most recently, the Center for Medicaid and Medicare Services released its Phase Two report that outlined its minimum staffing recommendations, though not mandating them at this point. The government study said 3.55 to 4.1 hours of nursing care is needed per day for each resident to avoid common health care problems such as bedsores Bedsores Definition Bedsores are also called decubitus ulcers, pressure ulcers, or pressure sores. These tender or inflamed patches develop when skin covering a weight-bearing part of the body is squeezed between bone and another body part, or a bed, , weight loss, and loss of bodily functions Bodily Functions See also body, human. deglutition the process or act of swallowing. desquamation the shedding of the superficial epithelium, as of skin, the mucous membranes, etc. . The daily recommended composition of these hours per resident is 2.4 for certified nursing assistants (CNAs), 1.15 for licensed nurses (LPNs or RNs), with 0.55 for registered nurses (RNs). The report also listed "preferred" daily minimums of 2.8 hours of care by CNAs, 1.3 hours by LPNs, with 0.75 hours by RNs for each resident. Another analysis in the same report found that it takes CNAs a minimum of 2.8 to 3.2 hours a day to help each resident with activities of daily living. But according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the report, more than 91 percent of facilities "do not have enough nursing assistants to provide these amounts of service." So what could these recommended minimum staffing requirements mean for nursing home providers? How could they affect an operator's profitability and, in turn, his ability to pay back debt? Using sensitivity analyses By running the incremental costs Costs which are additional costs to the Service appropriations that would not have been incurred absent support of the contingency operation. See also financial management. through financial models (pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma income statements) in a "sensitivity analysis," lenders (and providers) can estimate the likely effect of increased staffing ratios on costs and, therefore, profits, cash flows, and debt or lease coverage. Potential results in such an analysis are shown in the chart. (See "Staffing model sensitivity analysis," right.) For this model, a Base Case using operational and financial assumptions as to the occupancy, payor mix, margins, etc. drawn from industry research was created, (1,2) From this base, and assuming no change in revenues or other expenses, the roughly 10 percent increase in staffing hours to Scenario 1 would result in an approximate 5 percent increase in total operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. . That would translate to a 23 percent decrease in net operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. (NOI NOI Net Operating Income NOI Notice of Intent NOI Nation of Islam NOI Notice of Inquiry NOI Neuro Orthopaedic Institute NOI New Organizing Institute NOI Notice of Interest NOI No Offense Intended NOI National Olympiad in Informatics ), a 4 percentage point decrease in NOT margin, and a 42 basis-point decrease in debt-service coverage. Ramping up to the recommended staffing levels (Scenario 2) or preferred staffing levels (Scenario 3) would have even more drastic impacts on total expenses, resulting income, and debt coverage. How operators can respond "Because an increase in staffing requirements would increase operational expenses and deteriorate margins and loan/lease coverages," says Raymond Braun, executive vice president of Health Care REIT REIT See: Real Estate Investment Trust REIT See real estate investment trust (REIT). Inc., "operators would need to offset this impact with improvements elsewhere to maintain existing profitability and coverage levels." He suggests that operators could seek to improve operational efficiencies and reduce or eliminate other operating expenses. They could also increase their private-pay resident mix and/or increase private-pay rates. Braun also suggests that providers continue to monitor the progress of potential legislation and plan ahead to ensure compliance. "Borrowers should review their existing financing structures to determine the likely impact and which, if any, facilities could be refinanced," he says. "They could seek lower-cost refinancing sources. And they could actively support lobbying efforts for increased Medicare and Medicaid Medicare and Medicaid U.S. government programs in effect since 1966. Medicare covers most people 65 or older and those with long-term disabilities. Part A, a hospital insurance plan, also pays for home health visits and hospice care. reimbursement rates." Providers need to analyze their financial structure to determine the impact the recommended staffing levels will have on their operations. Without a realistic cost analysis, the recommended staffing levels could have implications for margins and financing beyond just additional salaries.
Staffing model sensitivity analysis
(by staffing ratio recommendations)
BASE CASE SCENARIO 1 SCENARIO 2 SCENARIO 3
CNA hours 2.00 2.00 2.40 2.80
LPN hours 0.73 1.00 1.15 1.30
RN hours 0.51 0.55 0.55 0.75
DCG hours (*) 3.24 3.55 4.10 4.85
NOI $ impact - (190,738) (423,564) (808,839)
NOI Margin 18.00% 13.84% 8.76% 0.36%
Debt 1.30 0.88 0.38 (0.46)
coverage (+)
(*)Direct care giver (total hours)
(+)Coverage after management fees
CHART COURTESY OF HEALTH CARE REIT INC.
References (1.) Facts & Trends: The 2001 Nursing Facility Sourcebook. Washington, D.C., AHCA AHCA Agency for Health Care Administration AHCA American Health Care Association AHCA American Hockey Coaches Association AHCA American Highland Cattle Association AHCA Australian Health Care Agreement AHCA Austin Healey Club of America , 2001. (2.) 2001 Lender Survey Results, sponsored by valuation Counselors and NIC (1) (Network Interface Card) See network adapter. See also InterNIC. (2) (New Internet Computer) An earlier Linux-based computer from The New Internet Computer Company (NICC), Palo Alto, CA. . Annapolis, Md., NIC, 2001. Robert G. Kramer is executive director of the National Investment Center for the Seniors Housing & Care Industries (NIC). Founded in 1991, this nonprofit organization Nonprofit Organization An association that is given tax-free status. Donations to a non-profit organization are often tax deductible as well. Notes: Examples of non-profit organizations are charities, hospitals and schools. uses proceeds from its annual conference to fund original research, particularly dealing with business strategy and capital formation for the industry. For more information, visit www.NIC.org. |
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