Skilled Nursing Care Investments: The Silver Tsunami and Other Market Trends

The Silver Tsunami

A “Silver Tsunami” when the oldest baby boomers turn 80 will hit the United States in 2025, according to Mark Parkinson, president and CEO of the American Health Care Association. He explained there was a drastic drop in the skilled nursing patients from 2010 through 2017 when the number of people between the ages of 80 to 85 domestically dropped.

But now, “The demographics have turned in our favor,” he added. Parkinson predicted in the 2020s there would be access issues with too few skilled nursing facility rooms to meet the demands.

What’s behind the ebb and flow of this trend?

“It was because of the dramatic decline in the birth rate after the Great Depression. People just quit having babies during the Great Depression. Those babies would have turned 80 in the year 2010. They did not exist,” said Parkinson. Thus, occupancy rates decreased.

“But folks started having babies again in 1935.They thought the Depression was behind them. They weren’t quite right but the birth rate went back up and continued to go back up,” Parkinson explained. Thus, in 2017 for the first year and growing exponentially in the years the followed, there was an uptick in the number of people between 82 and 86.

However, Dave Sedgwick, COO of CareTrust, opined that senior facilities cannot simply rely upon rising with the tide of the Silver Tsunami.

Sedgwick was a fellow speaker at the National Investment Center for Senior Housing & Care (NIC) Fall 2019 conference in Chicago serving on the panel addressing market trends for skilled nursing facilities for seniors. He voiced the opinion that facilities are not dependent on demographics but start and stop with the operator.

The Importance of Local Talent

With operators in the sector, when the numbers of elderly people requiring care were declining, there were still winners and losers, he said. Although tougher times saw bankruptcies, there were also tremendous success stories. Sedgwick predicted operators who could thrive in the more difficult environments would do very well.

There are many levers to pull on the top line and with operating expenses, and success depends on the leadership, Sedgwick said. He described one trend of adaptive innovation, with some facilities becoming their own insurers.

Consistent with the other two panelists, Dava Ashley, president of Covenant Care, agreed that demographic trends would help the industry. She underscored the importance of executive directors and directors of nursing. These roles included ensuring stable staffing, a critical component for skilled nursing facilities. Ashley emphasized the importance at the local level in understanding facilities’ costs and capabilities, and in working with the local community, hospitals and health plans.

“Healthcare is a very, very local business,” she said.

Senior Healthcare and Housing Means Jobs

Sedgwick pointed out that senior healthcare and housing is attracting top talent in management beyond rank-and-file industry employees. Sedgwick previously worked at Ensign, which CareTrust spun off of in 2014. At Ensign, his roles included serving as chief human capital officer. This involved recruiting and training. He described how Ensign lured MBA student recruits with an opportunity to eventually become the CEO of a multi-million dollar business, to manage 10 department heads, and to receive compensation based on performance—including getting paid for a billion dollar idea. Instead of selecting Fortune 500 companies, such as Intel or Ford, competitive candidates would come to work at a nursing home every day, Sedgwick said. He added, “It was an easy sell.”

For skilled nursing facilities, some states are more challenging than others that have higher governmental reimbursement rates. However, the panelists unanimously agreed that for skilled nursing facilities, a focus on leadership was a critical factor.

“They understand what leadership is all about. They have a definite strategy,” said Parkinson. “They have a deep understanding of the markets they are in and their relationships with the payors and the markets they are in. They live, breathe and will die over this stuff.”