The Stratification Of The Skilled Nursing Facility Market

March 16, 2017, Steve Monroe, Senior Care Investor - We have talked a lot of skilled nursing prices reaching an unprecedented peak in 2016, at $99,200 per bed, per our just-released 2017 Senior Care Acquisition Report. But even though the average price per bed has risen to extremely high levels, there remains a large difference between those newly built skilled nursing facilities, as well as those with a very strong Medicare census, compared with lower-quality and older properties. In 2015, the upper quartile for skilled nursing pricing was $123,000 per bed, meaning that 25% of the skilled nursing properties sold were transacted above this price level. The upper quartile jumped again in 2016, this time by 15% to $143,300 per bed. Just five years ago, sales above $100,000 per bed were uncommon, but this appears to be a new normal in the market, at least for majority-Medicare, transitional care/short-term rehab facilities.

The lower quartile also increased significantly in 2016, jumping 43% to $63,150 per bed. This means that 25% of the skilled nursing facilities sold below this price level. The increase is a little exaggerated because there was a drop in the lower quartile in 2015 from $51,900 per bed in 2014. What we believe is happening is that as competition for Medicare patients has increased, and as the referral patterns have changed, buyers have been less interested in the lower end of the market, so there are fewer of these properties being sold. Hospitals, managed care companies and accountable care organizations are all looking for the best providers to partner with, and the 40-year-old, 85% Medicaid facility is not going to be high on their list.