The new staffing mandate and its impact on underwriting standards

The staffing mandate would require that facilities provide at least 3.48 nursing staff hours per resident per day. The care needs to be broken down into at least 0.55 hours of care from a registered nurse (RN) and 2.45 hours from nursing aides, with the remaining 0.48 hours coming from any combination of RNs, nursing aides or licensed nurses.

These mandates are not an average over the year but apply to each day. In addition, the mandate requires that every facility has an RN on-site 24 hours per day.

Only 6% of nursing homes currently meet all requirements of this new staffing mandate, according to the American Health Care Association Opens a new window.

The new staffing mandate is a simple rule in theory, but implementing it would likely be very complicated in practice. Enterprises attempt to staff their facilities to the acuity of their patients.

You may already be exceeding the staffing mandates for highly complex patients. Other lower acuity patients might require less care, but the mandate still requires 3.48 hours per resident daily regardless of whether the patients need it.

The mandate applies to both short-term care patients, where reimbursements tend to be higher from Medicare and insurance payors and long-term care patients, and where operators typically receive lower reimbursement rates from state Medicaid programs. However, the government expects operators to cover the significantly higher staffing costs without changing reimbursement rates.

Nursing homes nationwide would need to hire over 100,000 nurses to meet all requirements. Meanwhile, the industry is still 100,000 clinicians short of where it was pre-pandemic. Attracting new nurses likely would mean increasing wages, both for new hires and existing staff, to avoid discrepancies. It’s also fair to wonder whether the raw number of necessary clinicians even exists.

The mandate applies to every building, regardless of for-profit or non-profit tax status. You’ll need to adjust your forecasts and cost estimates for leases set up before the mandate.

In a CFO role, how can you pivot with finite dollars to meet this new hiring mandate and other pre-existing expenses?

Given the financial challenges and thin industry profit margins, we are hearing from our clients that this new rule, as written, is currently unimplementable. Still, operators should base their future business decisions as if the mandate will go into effect.

Even if the government changes or completely removes these regulations, the industry trend is pushing facilities to hire and retain more staff. Those realities aren’t going away.

So, how can you adjust to these shifting market conditions?

Invest in continual improvement

In this new environment, you must continually reinvest and improve every building you run. Determine how you can develop further operational efficiencies in your workflows, staffing and technology. Loan approvals will continue to be based on your overall financial position. The better you control costs, the more likely you are to maintain access to capital.

Consider your entire property portfolio

The portfolio impact of the staffing mandate will not be uniform. Some buildings will do better and some will do worse, depending on their current staffing, location and reimbursement rates. Focus on how you can improve struggling facilities. In the end, you’ll still have winners and losers from a financial perspective. Your goal is to limit losers and possible closures while creating as many winners as possible.

Work with lending partners

If an organization lends you money, it has a vested interest in ensuring your success. Reach out to discuss the financial challenges on the horizon and possible ways you could adjust your revenue and expense levers. Your lending partner relationships will become even more important as you both shift with the new requirements.

Ultimately, your top priority remains the same: ensure you have the capital necessary to continue maintaining and improving buildings, pay your staff fairly and provide quality patient care.

Capital is already at a premium due to high interest rates and industry underwriting standards, which have tightened dramatically over the past 24 months. And the threshold will only become more challenging under the new law. With so many unknowns, the nursing home industry will be challenged to pivot and address both the hiring and costs of this new mandate.

Still, lenders want to make good loans to good operators. We’re all trying to learn how to operate in this environment together in real time. Working with a lender that understands current industry challenges can also help you adjust to this new underwriting environment.

Our Healthcare group has been through multiple market cycles and can help you reevaluate your financing needs or find creative solutions that suit your specific business. To learn more, visit our Healthcare banking page. You can also call our team of professionals by contacting Jeff Steele at 312-564-1227 Opens your phone app..