Alexandria, Va. — Those practicing in and for skilled-nursing facilities (SNFs) reasonably expected failure and death at rates greater than other health care settings because of what an article in the September ABI Journal deemed the “pre-existing conditions” of the industry. “The skilled nursing industry’s pre-existing conditions have multiple causes, the most impactful being the unique financial model found in the SNF industry,” Jerry Seelig of Seelig+Cussigh HCO LLC (Los Angeles), David Hoffman of David Hoffman & Associates (Philadelphia) and Louis J. Cisz III of Nixon Peabody LLP (San Francisco) write in their article, “Painful Impact of COVID-19 on the Troubled Skilled-Nursing Industry.”

An SNF is a nursing home that a friend or family member moved to when that individual’s care and safety demanded supervision, and nursing care was not available at home or in the current assisted living facility, according to the authors. This nursing home is also a skilled-nursing provider in that it provides post-acute and/or surgery care that is far more cost- and clinically effective in an SNF setting.

The authors identified three pre-existing conditions of the skilled nursing industry that have been exacerbated by the COVID-19 pandemic:

1. An SNF can (and often does) have one party that owns the building, another that owns the license to operate and yet another that is hired to be the operator.
2.  SNFs are now more than 50 percent for-profit and are heavily dependent on REITs, equity investors and lenders of all sorts.
3. The industry has failed to adequately prepare for the COVID-19 coronavirus.

“These factors have set the stage for both industry-wide restructurings and bankruptcy filings for many facilities and management companies,” Seelig, Hoffman and Cisz write.

The authors highlighted that the debtors and/or restructuring clients in question are health care providers, meaning that they must yield to (1) lives that are in danger; (2) the conflicts among Bankruptcy Rules, regulations and practices, and health care rules, regulations, reimbursements and even culture; (3) the profound lack of understanding of health care settings, in particular skilled nursing; and (4) a limited tool set to assess, manage and improve health care providers. “Many facilities and multi-facility owners entered the pandemic without cash reserves and with cash flow burdened by large payments to REITs, equity funds and lenders,” Seelig, Hoffman and Cisz write. “Therefore, the for-profit SNFs will face the greater challenges of having enough money to pay the bills and to support their investors and landlords.”

The authors said that the Coronavirus Aid, Relief, and Economic Security (CARES) Act saved many from immediate collapse, yet it did not slow the financially and quality-challenged facilities’ rapid descent toward restructuring. “Going forward, there will be a large number of new and potential skilled-nursing debtors and restructuring clients with extraordinary financial and operating challenges,” they write.

Seelig, Hoffman and Cisz fear that these challenges cannot be met if those tasked with restructuring can only monitor without enforcement, enforce without mandated quality improvement, and, if the interim manager lacks the resources to rebuild, then maintain quality care and safety. “It is imperative that additional interventions such as the Temporary Management program bring public funding to the restructuring effort and concurrently create hybrids of the TM [temporary managers] and other interim-management programs to ensure resident safety, reduced likelihood of harm and set the foundation for needed facilities’ long-term financial viability,” they concluded.

To obtain your copy of “Painful Impact of COVID-19 on the Troubled Skilled-Nursing Industry,” please contact ABI Public Affairs Officer John Hartgen at 703-894-5935 or [email protected].

To stay up to date on the COVID-19 pandemic, be sure to bookmark ABI’s Coronavirus Resources for Bankruptcy Professionals website (abi.org/covid19).

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ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes nearly 11,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abi.org/education-events.