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Selling Your Senior Housing Facility? Want a Fast Close? Be Prepared!

In this hot seller’s market a seller must be prepared for an increasingly rigorous due diligence process by prospective buyers.  Healthcare legislation uncertainty coupled with increased competition for quality assets has led to heightened diligence by buyers whose aim is to evaluate, mitigate and price the perceived risk attendant to health care transactions.

The following will help Sellers be prepared:

  1. Be prepared to provide 3 years financial statements and year to date financial statement. Your senior housing broker should request a list of all benefits of ownership that might be added back to the facility’s earnings before interest, taxes, depreciation and amortization (EBITDA).  Banks will also look for an industry average 5% management fee for underwriting.
  2. Tax Returns. Be prepared to provide 3 years tax returns and current years extension if filed.
  3. Be prepared to provide 3 years census by payor.
  4. Payor information. Identify and produce all provider agreements, demonstrate compliance with billing and reimbursement and payment regulations, or show what remedial steps will be taken to resolve any issues prior to closing.
  5. Regulatory compliance. Be prepared to provide the facility’s last two years State and Federal surveys along with all plans of correction (POC).
  6. Be prepared to provide the last 2 payroll runs.
  7. Be prepared to provide copies of all collective bargaining agreements.
  8. Real Property. Be prepared to provide evidence of ownership and a survey.  Disclose any environmental issues if they exist.
  9. Licenses & Waivers. Provide all information relating to licenses and certifications relevant to the operation, including healthcare licenses, certificates of need, and local business licenses.
  10. Confirm that all ongoing litigation is covered by insurance and that anticipated liability is within policy limits.
  11. Compile a detailed schedule of fixed assets and inventory.   Identify whether any assets are leased or subject to liens and if so provide the underlying lease or debt instruments.  Identify which assets may not be transferred to the buyer because they are owned by other parties.

The due diligence period in a transaction can make or break a transaction. Not being prepared will cost sellers money and could prevent the close.   Well organized data is essential and is evidence of the seller’s professionalism which instills buyer confidence.  It demonstrates pride of ownership and value and results in a smooth transaction and a fast close.

Skilled Nursing, Assisted Living, CCRC & Healthcare Providers Face “The Culture Change”

A number of my other Blogs addressed the impact that the Skilled Nursing industry has been experiencing with HISP, (self-insurance), dual eligibility and early hospital readmission penalties. This blog explores the brighter side.  There are many positive steps being taken by Nursing Home Providers and all healthcare providers that reflect the shift from the historically operated and regulated institutionalized medical/residential facilities to person-centered care based on the belief that values and wishes of residents should be honored by those working directly with the residents,   and those individual values and wishes are of prime importance.  By the 21st century most providers were aware that the nursing home and healthcare providers of the past no longer met the needs or the demands of the generation seeking transitional care or long term care.  The following reflects examples of how some providers have met the challenge of Culture Change:

Village Care in New York became aware that they needed to distinguish between the residents that were looking for short term care and those that required long term care.  They found that most of their residents were interested in getting quality care and returning home.   Village care responded by creating a plan that would build a unique, new short-stay plan program that would help people heal and recover faster and therefore return home sooner.   The needs and desires of the individual became the paramount concern of Doctors, nurses and care givers and all employees of Village Care.  The consideration of the needs of today’s patient, and the demand in the community for high-quality post-hospital rehab, shaped the plan and design for the Village Care Rehabilitation and Nursing Center, defining its role in New York City healthcare.

The Green House Model was developed by Dr. William Thomas which is a radical departure from the traditional nursing home’s institutional setting and mindset.    The Green House model by design and philosophy encourages small groups of residents and staff to become a community which together promote high quality care respectful of each resident’s individual wishes.  The change in emphasis necessitates a different approach to facility size, interior design, staffing patterns and methods of delivering skilled professional services.  The project is active in 32 states with 134 homes open and 106 homes in development since May 2012.

Some of the changes on the road to a more person- centered, homelike resident experience are untested and their outcomes are therefore uncertain.  To improve life quality of residents in nursing homes, assisted living and continuing care residential communities, regulations and courts must accommodate necessary innovation and its uncertain consequences in ways that reward and encourage rather than punish culture change.  The healthcare industry is on a move.  The healthcare industry, like all of us, are struggling to adjust to the new 21st century demands of a fast changing technological age.  Trial and error persists, mistakes are made and it seems like we are all slow learners.  However, the intentions   of the majority are good, even though sometimes the outcome is disappointing, but out of the struggle comes the progress in the healthcare industry, as well as in all of our lives.

There are many notable trends in the nursing home marketing for 2014. Find out what the top five are and why they changed.

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Top 5 Trends of 2014 to Watch for in Nursing Homes for Sale

When you are looking for nursing homes for sale, it is important to pay attention to the latest trends. These ensure the property you want is up-to-date with the technology, design, and needs of its residents. In short, it makes it easier to create a profit. Along with this, it can also help adjust the pricing before purchasing. If, for example, the home does not meet these trends, you may consider negotiating to a lower price. Though there are many appearing, these are the top five to look for.

1. Increased Marketing for Not-for-Profit Nursing Homes

Not-for-profit assisted living homes for sale and established will be changing their marketing strategies in 2014. Currently, most non-profits rely on the good will of others such as support groups, religious organizations, or other donations. As the debate over not-for-profit and profit homes grows, non-profits will need to add capitalized marketing strategies such as radio, TV, and print advertisement. It may even be necessary to utilize social media and other Internet marketing tools. The marketing will increase as the debate between the two types of homes does as well.

2. Efficiency in Technology

Smart technology like tablets and phones is now utilized everywhere including nursing homes. Health monitors now connect to the Internet as well for easy access to data. This means all nursing homes are going to need efficiency data collecting and sorting technology. Some properties have the data collected, however, it is not shared and remains separated from other important information. An efficient nursing home utilizes a shared wifi and data collection point so all information is shared across the network. This allows for open communication through any technology, creating an effective operating system. If you are looking to buy healthcare property, ask what type of technology it has.

3. Interest Rates Rise on Nursing Homes for Sale

With the improving economy come higher interest rates for all property types including nursing homes for sale. This makes the homes harder to finance as other costs rise along with the interest such as those necessary for improvements. There is a smaller margin for error since your monthly mortgage payment is going to increase. To offset this, you will notice that the rents and rates given to its residents need to go up as well. While it helps cover your bottom line, it may make it harder to fill vacancies.

4. Customize the Space

Rather than being constrained in the property’s first design, many assisted living homes for sale can now be customized. This means changing finishes on hardware, paint colors, or countertop material. While it may seem simple, residents are going to demand flexibility and quick results. The property that allows customization is going to win the resident.

5.  Increase in Lawyer Needs

If your best friend is not a lawyer, you may want to find one who is. Lawyer needs are going to go up in 2014 and with this so will your budget. Any assisted living brokerage professional will recommend to significantly increase how much money you plan to spend. Lawyers are needed to ensure state and federal regulations are met on a daily basis.

Other trends to watch for include

  • Higher Media Influence
  • Increased Staffing Need
  • Familiarity with Brands
  • Continued Caps on High End Real Estate
  • Older residents

Though nursing homes for sale increased in price with the real estate market, now is the time to buy if you want to get in. The prices are going to only continue in their rise. If you follow these trends, you may find it easier to stay current in the market.

Factors Leading to Skilled Nursing Facility Bankruptcies

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The skilled nursing facility industry has been dealt several successive blows in recent years, leaving many SNF owners with few options to keep struggling facilities afloat. As a result, SNF bankruptcy is becoming increasingly commonplace.

Financial Realities Lead to Tough Circumstances

The economic downturn seems to have impacted everyone, but a series of laws, amendments, and shifts in the market have been especially difficult for those in the skilled nursing industry. Here’s a brief list of what has occurred:

  • 1997 – Balanced Budget Amendment Act allows states to mandate managed care plans for individuals wanting Medicaid coverage for nursing home services, resulting in extremely low negotiated reimbursement rates
  • 1999 – Health Care Financing Administration changes Medicare reimbursement, almost immediately triggering a round of SNF bankruptcies
  • 2008 – Economic downturn and official “bursting” of the housing bubble guts many retirement savings accounts, negates home equity, and makes selling a home difficult for seniors
  • 2010 – Patient Protection and Affordable Care Act increases benefits for in-home care, reducing overall demand for SNFs and effectively ensuring that those who are in SNFs will be frailer and in need of more care
  • 2011 – Centers for Medicare & Medicaid Services announced an 11.1% reduction in reimbursement rates, which was twice as bad as what had been predicted
  • 2011 – As a direct result of this announcement, stock prices for publicly traded SNFs plummet
  • 2012 – Medicare Payment Advisory Commission recommended an additional 4% cut in reimbursement to SNFs that will go into effect in 2014 and recommended no cost of living adjustment for 2013

Debt and expenses remains high among SNFs. This is particularly difficult to manage as the majority of unpaid Medicare co-payments are owned by state governments, and states lack the financial resources and the will to reimburse SNFs for the money owed. Some nursing home brokerage firms have been able to help clients buy a skilled nursing facility when it’s in distress, saving their clients money and helping the previous owners avoid a messy financial conclusion.

The Bankruptcy Process

When a skilled nursing facility is no longer financially solvent, bankruptcy may be the only route. Working with financial and legal experts, the SNF will choose between two types of bankruptcy: Chapter 7 (liquidation) and Chapter 11 (reorganization). With a Chapter 7 bankruptcy, a trustee is appointed to assess the company’s debts and assets and to collect and reduce property to raise cash, which is then distributed to those who are owed money. A trustee is also appointed to ensure patients are responsibly transferred before the SNF closes. In Chapter 11, the owner acts in lieu of a trustee, and works with a committee of creditors. They find ways to work with vendors and pay employees while continuing to operate, with the ultimate goal being to regain firm financial footing – usually by restructuring the business and selling off some of the company’s property.

Bankruptcy can provide an opportunity for those who plan to buy nursing homes. They may find a SNF for sale at a substantially reduced price, which can enable them to make improvements or operate in the black that much more quickly.