For decades, some states have found ways to meet the care needs of seniors and the disabled using Medicaid without sending them to skilled nursing facilities (SNF). This led to a drop in the number of people in SNFs over the past decade, even though the number of seniors in the U.S. grew significantly during that time. Now, a new rule from the Department of Health and Human Services (HHS) could reverse this trend and increase occupancy for skilled nursing facilities. As the rule is implemented over the next few years, senior housing providers and investors should monitor its effect on the industry to see if it causes demand to shift toward skilled nursing facilities or any other senior housing asset class. If it does, they should incorporate this information into their development and investment plans. Also, senior housing participants who are interested in obtaining capital to invest in senior housing assets or for other reasons should contact Cambridge Realty Capital to learn more about the various financing options it offers for senior housing transactions.

The Rule’s Effect

Under HHS’s new rule, states will need to make sure that alternatives to skilled nursing facilities, like continuing care retirement communities and assisted living facilities, develop individual care plans for their residents that include the type of setting and kinds of services that each resident wants. HHS’s goal with this rule is to create a “home-type” atmosphere for residents instead of an institutional one. Disability groups lobbied heavily for the rule because they felt that younger people with some physical and mental disabilities, but who were also fairly independent, were sometimes encouraged to go to facilities that made it hard for them to maintain their independence and a sense of dignity. However, although elderly and disability groups like the rule’s goal of creating a better atmosphere for residents, some of them are concerned that it will create harmful unintended consequences as well.

For example, under the rule, an assisted living facility that houses seniors with dementia cannot use constraints like locked exits unless a resident is at risk of wandering or elopement. However, if a resident who is not at risk for these things shares space with a resident who is, it will be hard for the community to allow total freedom of movement for the resident who is not at risk because that could make it easier for the resident who is at risk to wander and leave the building without authorization. Ultimately, this could create challenges for assisted living facilities with dementia units.

Another part of the rule subjects any facility or service that is located near a hospital or nursing home to “heightened scrutiny,” because HHS believes that could automatically give that facility an “institutional feel.” Unfortunately, this could make it harder to build assisted living facilities and continuing care retirement communities close to hospitals, even though proximity to a hospital can serve as an asset for elderly residents if they experience a sudden medical problem that requires extensive medical treatment.

Although HHS has already begun implementing the rule, states and long-term care facilities that receive Medicaid reimbursements will have until 2019 to fully comply with it. The rule’s supporters and opponents are optimistic that any kinks can be worked out before the compliance period begins.

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