Medicare just announced that it will − temporarily − reimburse for telehealth-provided services, opening an opportunity for seniors housing providers to provide residents with access to vital health services without exposing them to pathogens circulating at hospitals and clinics as a result of the coronavirus outbreak.

A very timely panel discussion at the NIC Spring Conference on “Telehealth: Boon or Threat to Senior Care?” offered an overview of telehealth options, as well as concrete suggestions for seniors housing companies wanting to get started.

Panel moderator Kelsey Mellard, CEO of Sitka, laid the groundwork by clarifying that the general concept of “Telehealth” includes very different services.  Many people assume that telehealth describes remote monitoring of patient vitals, with smart devices transmitting health data to providers automatically and securely for analysis. The NIC panel, however, focused on another service category getting a lot of attention recently: virtual consultations by medical professionals, whether RNs, primary care doctors, or specialists; via phone, secure messaging, and/or video conferencing. Sitka and Doctor On Demand, whose president and chief commercial officer Robin Glass was also represented on the panel, both fall into this category.

Panelist Michael Kurliand, director of telehealth and process improvement at West Health, a non-profit focused on lowering health care costs for seniors, pointed out that telehealth is not new – it has been around since the 1960s – and that peer-reviewed and anecdotal evidence show up to a 40% reduction in hospital admissions with the deployment of telehealth practices in post-acute care settings.

Glass described the services of Doctor On Demand, where people consult via video and online chat with their care team. They can develop a relationship with a specific doctor, scheduling appointments in advance with him or her, or get help at any time from any doctor available. Doctor On Demand also supports multi-party calls so family members can join the conversation.

Sitka facilitates secure consultations with specialists, if the primary care physician needs a second opinion from an expert, and creates video messages from the specialist with specific instructions for patients, said Mellard.

Seniors housing staff members can assist residents with appointment scheduling online, or with using conference calling or messaging technology, keeping frail seniors from being exposed to dangerous viruses in doctors’ waiting rooms. Plus, as Kurliand points out, virtual visits can reduce the chance of a staff member getting infected.

During the question period, several operators asked about using telehealth for remote patient monitoring. Kurliand said this can be problematic because as soon as you get involved, you incur responsibility and liability.

For seniors housing operators wanting to explore telehealth, Kurliand said his team at West Health offers a free guide to getting started, available on the West Health website. Kurliand also suggests engaging with your regional Telehealth Resource Center. These government-funded centers offer connections and state-specific advice to organizations wanting to explore telehealth. You can find your local center at telehealthresourcecenter.org.

While the current CMS ruling applies only until the end of the healthcare emergency that the U.S. Department of Health declared on January 31, legislation pending in Congress could extend some or all of the provisions of the bill into the future. For more information, see the Medicare Telemedicine Health Care Provider Fact Sheet available on CMS.gov.

“There are a lot of good things in this ruling, and I commend Seema Verma and her team. It will give people a running start in implementing telehealth services, but it doesn’t really go far enough and will probably get revised,” Kurliand commented after the CMS ruling was announced.

Of the 99 NIC MAP^® primary and secondary metropolitan markets that the NIC MAP^® Data Service reports on across the nation, 11 are in California.¹ Within these metropolitan markets, NIC tracks 937 seniors housing properties with 107,500 units, or nearly 12% of the seniors housing properties within the 99 markets. By coincidence, this share is comparable to California’s 12% share of the total U.S. population (39.6 million people live in California versus 327 million in the U.S. as of 2018). Within the state, performance measurements vary considerably.

California Markets – Seniors Housing | 4Q2019

No Two Metropolitan Markets are the Same.  Of the 11 California metropolitan markets in the NIC MAP 99 markets, 6 ranked in the top 22 best performing markets for occupancy as of the fourth quarter of 2019. These include top ranking San Jose, with an occupancy rate of 95.7%, the highest in the nation, Ventura at 92.2% (seventh of 99 markets), Modesto at 91.2% and San Francisco, San Diego and Fresno, all with occupancy rates above 90%. Three of the 11 had occupancy rates below the national average of 87.9% in the fourth quarter: Bakersfield and Riverside both at 87.3% and Stockton at 87.1%. Los Angeles and Stockton were in the middle of the pack.

Similarly, there is wide variation among penetration rates within California’s largest metropolitan markets. NIC defines the penetration rate as total inventory divided by the number of households older than 75 years of age. On average, the penetration rate among these Californian metropolitan areas is lower than the 99 Primary and Secondary markets average: 9.8% versus 11.2%, respectively. Within these 11 metropolitan markets, Bakersfield, Riverside and Los Angeles had penetration rates below 8% in the fourth quarter of 2019, while Stockton and San Diego exceeded 12%.

Construction Ebbs and Flows.  Three of California’s 11 markets have relatively much construction underway—Riverside, Sacramento, and Ventura. Construction as a share of inventory stood at 14.1%, 18.3% and 10.2%, respectively, in the fourth quarter, above the 99 Primary and Secondary markets pace of 6.2%. On the other hand, six of these California markets have virtually no construction underway—parts of the Central Valley (Bakersfield, Fresno, Modesto and Stockton) and the Bay Area (San Francisco and San Jose). Los Angeles and San Diego have 6.4% and 5.9% shares of inventory under construction as of the fourth quarter 2019, respectively.

Difficult zoning regulations and entitlement rules, and the subsequent barriers to entry imposed on new development, often mean that California’s construction activity remains relatively low for many of its metropolitan markets. While this is bad news for those trying to get into the market, it is decidedly good news for incumbents in those markets as well as those developers and operators that currently have projects underway.  

Asking Rents.  Coastal California’s higher cost of living and of doing business, as well as higher home prices, means asking rents for seniors housing in these markets (Los Angeles, San Diego, San Francisco, San Jose, and Ventura) were 30% higher, on average, than the 99 Primary and Secondary markets average asking rent, with San Francisco a full 43% higher and San Jose 36% higher as of Q4 2019. However, except for Sacramento which was 11% higher, the more centrally located Central Valley metropolitan markets in California (Bakersfield, Fresno, Modesto, Riverside and Stockton) had asking rents that were 8% less than the national average.   

What’s Ahead?  Looking ahead, it’s likely that San Jose will retain its title as among the highest occupied markets for some time. Construction as a share of inventory remains low at 3.3% (200 units). While more projects may be in the pipeline at this time, they have not yet broken ground. Given that the time from groundbreaking to opening has lengthened and assuming California’s construction cycle is similar to that of the nation, it will likely be two years or later for new competition to significantly affect incumbent operators. In addition, San Jose is a high-barrier-to-entry market which will limit the threat of new competition. 

In contrast, construction as a share of inventory totaled 18.3% (1,916 units) in Sacramento in the fourth quarter, the highest share in the nation. The completion and opening of these units will put downward pressure on Sacramento’s occupancy rate which has already been pushed lower by the completion of more than 1,000 units since 2016. Since then, the occupancy rate has fallen more than three percentage points from an all-time high of 94.0% in the third quarter of 2016 to 90.3% in the fourth quarter of 2019. For perspective, it has taken the market since mid-2012 to absorb on a net basis the equivalent 1,930 units. 

In summary, California is a big state. If it were a stand-alone nation, it would rank fifth in the world, with a “GDP” of more than $2.7 trillion. It is a state of multiple dynamics in terms of development and growth opportunities, population and demographic subtleties and lastly, consumer preferences. This is perhaps nowhere as evident as in the performance of its myriad seniors housing properties.

¹ Note that NIC MAP also tracks seven additional smaller California markets that are not included here. The data time series for these additional markets is not as long.

More than 1500 industry leaders gathered in San Diego last week for the 2020 NIC Spring Conference. Under calm blue skies, attendees engaged in three days of active networking, deal making, thought-leadership, and discussion of critical trends. A focus on disruption and new partnerships in senior care augmented the annual event’s established focus on real estate debt, equity capital flow, valuations, market trends, and investments.

Educational Program

Building on the conference theme of Investing in Seniors Housing and Healthcare Collaboration, speakers and sessions highlighted the increasing role of healthcare in the seniors housing value proposition.

The first of two general sessions, “Join the Disruption: Convergence of Healthcare and Seniors Housing,” provided real-world examples of healthcare and seniors housing disrupting current models in an increasingly value-based world. The presentation focused on the opportunities that now exist to break down old silos, adapt, and partner to improve outcomes. NIC’s Bob Kramer noted that “In the future, a system focused on prevention and wellness will keep people out of hospital and acute care settings. We are moving from a curative model to a preventative model.”

Growth strategist Andy Waldeck presented a thought-provoking luncheon keynote titled, “Positioning for the Long Term: The Opportunity for Integrating Senior Care.” Waldeck argued that the unsustainable cost of the U.S. healthcare system has left it ripe for disruption, and that the seniors housing and care industry has an opportunity to reframe its role in the healthcare continuum, saying, “We are in the early innings of the industry transitioning to a new vision.”

With educational programming organized along three tracks − Real Estate Strategies, Healthcare Strategies in Real Estate, and Senior Care Collaboration − attendees could easily find sessions aligned with their interests.

Real Estate Strategies

Sessions in the Real Estate Strategies track offered insights on deal structuring and what to look for in a partner, managing margin compression across property types, rising costs of labor, cap rate drivers, capital flow into the sector and more − with all discussions run by leading operators, debt providers, and investors in the field.

Healthcare Strategies in Real Estate

In the Healthcare Strategies in Real Estate track, attendees heard how PDPM is working five months in, learned about care integration models, explored real-world vertical integration strategies, and were updated on key drivers for valuation. One session featured newly released data by ATI Advisory indicating that integrating healthcare services, such as primary care and nurse practitioners, into seniors housing can reduce costly ER visits and hospital stays by as much as 50%.

Senior Care Collaboration

Kicking off the conference, a panel of experts weighed in on the unsustainable cost of healthcare and trends impacting the senior living industry. Sessions offered thought-provoking evidence of the looming changes in the way healthcare is accessed and delivered. Attendees walked away understanding that changes in healthcare delivery, from telehealth to new models of risk sharing and new partnerships with healthcare providers are likely to have a lasting impact on their industry.

Other News

During the conference, NIC announced the certification of its fourth Actual Rates Software Partner. Clients of Medtelligent, the maker of ALIS software for assisted living, memory care, and behavioral health communities, can now use the software for automated, efficient participation in NIC’s powerful Actual Rates Initiative.

Stay Tuned

2020 NIC Spring Conference highlights will be available on nic.org in the coming weeks. In addition, video and audio recordings for most of the sessions will be made available to conference attendees.

Join us for the 2020 NIC Fall Conference, October 7-9 in Washington, DC.  

The Labor Department reported that there were 273,000 jobs added in February.  This was more than the consensus estimate of 175,000 and marked the 113th consecutive month of job gains. For all of 2019, average monthly gains were less at 178,000. For 2018, monthly gains averaged 193,000 and for 2017, monthly gains averaged 176,000.  The latter data points were revised from prior estimates.   

Revisions also added several jobs to the prior two months.  The change in total nonfarm payroll employment for December was revised up by 37,000 from 147,000 to 184,000 and the change for January was revised up by 48,000 from 225,000 to 273,000.  Combined, 85,000 jobs were added to the original estimates.   Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.  After revisions, job gains have averaged 243,000 over the last three months. 

Health care added 32,000 jobs in February and has added 368,000 jobs in the past twelve months.

The January unemployment slipped back to 3.5% in February from 3.6% in January. The underemployment rate was 6.9% from 6.7%.

Average hourly earnings for all employees on private nonfarm payrolls rose in February by nine cents to $28.52. Over the past 12 months, average hourly earnings have increased by 3.0%. For 2018, the year over year pace was 3.0% and in 2017 it was 2.6%. Reasons why wages are not growing faster include the retirement of highly paid baby boomers and relatively weak productivity growth.

The labor force participation rate, which is a measure of the share of working age people who are employed or looking for work inched up to 63.4% in January from 63.2% in December, which had been the highest since August 2013.

Combined, the significant upward revision to the December and January jobs figures plus the strong February employment gains place the economy in a position of strength ahead of the potential and likely negative economic impacts associated with the Coronavirus. Despite the relatively good news on the job front, the market paid little attention to the report, with all eyes on the spread of illness across the globe. The Federal Reserve is expected to lower rates again as it shores up the economy, after the surprise 50 basis point decline announced earlier in the week. The timing is uncertain, but some expect another cut prior to the next FOMC meeting scheduled for March 17 – 18, 2020.

Las Vegas ranks 31st of the NIC MAP^® 31 Primary Markets in size, with roughly 4,400 units situated in 36 properties. In the fourth quarter of 2019, it had a seniors housing occupancy rate of 84.1%, fourth lowest among the 31 markets (Phoenix, Atlanta and Houston were lower). Stabilized occupancy was considerably higher at 88.9%, pushing its rank to 20th among the Primary Markets, and Las Vegas’ median occupancy rate was even higher at 91.3%, giving it a rank of 18th among the Primary Markets. The wide disparity in occupancy rates reflects both the large number of units recently opened but that remain empty and some properties with very low occupancy rates that are dragging down the average.

The distribution chart below highlights some of these points. In the fourth quarter of 2019, 11 of 36 Las Vegas properties had occupancy rates between 95% and 100% while 10 properties had occupancy rates between 90% and 95%; this helped pull the median occupancy higher. On the other end of the spectrum, 7 properties had occupancy rates less than 80%, which pulled the average lower. For benchmarking purposes, some investors and operators prefer to measure themselves against the median occupancy rate, assuming that the properties that support a higher median rate are of higher institutional quality.

It’s notable that the difference between the median occupancy rate and average occupancy rate is more than seven percentage points in Las Vegas, more than that of the nation and further underscoring the wide disparity in property performance in Las Vegas. In Las Vegas, it’s a tale of many properties with two distinctly different occupancy performances within the metropolitan market.

Occupancy Distribution Varies Widely Across Las Vegas

It’s also interesting to note that Las Vegas is a market that tends to have significant vacant inventory. Its average occupancy rate has only been 83.2% since NIC MAP began reporting the data. In contrast, the Primary Market average has been 89.0%. This is important in developing business plans or in establishing plans for development and may influence assumptions related to stabilized property occupancy rates for a property. Historical average stabilized occupancy rates were a bit higher at 84.8% for Las Vegas, which compares with 90.3% for the Primary Markets, and 87.4% for median occupancy, which compares with 92.5% for the Primary Markets.

4Q 2019 Median Occupancy in Las Vegas was More Than Seven Percentage Points Higher Than Total Average Occupancy

However, there is room for improvement in the occupancy trends, and some of that improvement is already evident today. Indeed, in the fourth quarter of 2019, the average occupancy rate in Las Vegas was 84.1%, stabilized occupancy was 88.9%, and median occupancy was 91.3% − all better than the historical long-term 14-year averages.

On the surface, Las Vegas is a market that an investor, operator or developer may shy away from. It ranks near the bottom of the pack for average occupancy rates from a historic perspective as well as from recent data. But digging deeper reveals some interesting observations regarding occupancy rates.

The stabilized occupancy rate in Las Vegas ranks higher than does the average occupancy rate, and the median occupancy rate ranks significantly higher than the average occupancy rate. The distribution of occupancy rate skews right and toward properties with higher occupancy rates.

Further, and not mentioned in this blog, is the fact that population growth is strong − more than double the national pace. And importantly, demographic data from NIC MAP’s Site Information Report shows robust growth in the 75-plus cohort through at least 2024. In addition, construction activity has recently stalled. Market penetration rates are low. Rent growth is relatively robust, especially for some properties. Some properties are hitting it out of the park, while others…well, less so.

This analysis suggests that further investigation into what factors create a successful property in Las Vegas may be in order.