Commercial real estate investors are backing off skilled nursing facilities amid a change in medical billing practices, reports The Wall Street Journal.
Here are four things to know about the issue.
1. Real estate investment trusts have seen large gains from senior housing, medical office buildings and hospitals in recent years, but REITs have focused less on skilled nursing facilities, according to the article. And a revenue crunch stemming from the move from fee-for-service to value-based care suggests skilled nursing facilities could continue to be squeezed financially, the report states.
2. The problem stems from the fact that most revenue for skilled nursing facilities comes from payments from Medicare and other government insurance programs, according to the report. Landlords said their tenants are challenged with shorter lengths of stay and lower rates as billing practices shift from fee-for-service to value-based care. Now, some large REITs that focus on healthcare are starting to trim their skilled nursing holdings, the report states.
3. For REITs, heavy exposure to skilled nursing operators that may struggle to pay rent adds a layer of risk, making it more expensive for them to raise funds, according to the report. Medical office buildings and hospitals, the report notes, are seen as better bets because they have steadier income and more control over billings.
4. Still, there is potential for growth in REITs specializing in skilled nursing facilities, due to rising demand from aging demographics and the position of skilled nursing facilities as a cheaper alternative to prolonged hospital stays, reports The Wall Street Journal.
For more on this story and a look at the actions of specific REITs, read Esther Fung's full report in The Wall Street Journal.