The Labor Department reported that there were 148,000 jobs created in the U.S. economy in December.   This was below the consensus expectation of 190,000 jobs.  This marked the 87^th consecutive month of positive job gains for the U.S. economy.  Revisions subtracted 9,000 jobs to the prior two months.  For all of 2017, the economy generated 2.1 million jobs and averaged 171,000 per month.  This marks the second time on record that the economy has created at least 2 million jobs a year for seven consecutive years (the first time was in the 1990s). The 2.1 million increase was the smallest since 2010, however.

Health care added 31,000 jobs in December. Health care added an average of 300,000 jobs in 2017, down from 379,000 in 2016.

The unemployment rate remained unchanged for the third consecutive month at a 17-year low of 4.1% in December. This is below the rate of what the Federal Reserve believes is the “natural rate of unemployment” and suggests that there should be upward pressure on wage rates.

Average hourly earnings for all employees on private nonfarm payrolls rose in November by nine cents to $26.63. Over the past 12 months, average hourly earnings have increased by 65 cents, or 2.5%. This is down from the 2.6% average in 2016.  In 2015 this figure was 2.3% and in 2014, it was 2.1%.

Over the course of the year, the jobless rate fell 0.6 percentage points.  The trend in monthly payroll employment gains would have to drop to less than 100,000 per month to stop the ongoing downward trend in the unemployment rate from continuing.  In annual revisions to data based on the household survey, the unemployment rate for June 2017 was lowered to 4.3% from 4.4%; rates for other months during the year were unrevised.

The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 1.5 million and accounted for 22.9% of the unemployed. Over the year, the number of long-term unemployed was down by 354,000.  A broader measure of unemployment, which includes those who are working part time but would prefer full-time jobs and those that they have given up searching—the U-6 unemployment rate—increased to 8.1% in December from 8.0% in November, but was down from 9.2% as recently as last December.

The labor force participation rate, which is a measure of the share of working age people who are employed or looking for work remained at 62.7%.  This measure has generally been very low by historic standards, at least partially reflecting the effects of retiring baby boomers.

Today’s report will support expected increases in interest rates through 2018 by the Federal Reserve, with the first 25 basis point increase likely happening in March 2018.  The Fed has raised rates by a quarter percentage point five times since late 2015, and most recently to a range between 1.25% and 1.50% in December 2017, after keeping them near zero for seven years.

A recent study conducted with financial support from the National Institute for Health Care Management, part of the National Institutes of Health (NIH), and published in the journal Production and Operations Management found that California nursing homes may be artificially inflating their self-reported data to the Centers for Medicare and Medicaid (CMS) for the five-star rating system on Nursing Home Compare, a website used by consumers, payors, and others to evaluate nursing homes. The five-star rating, discussed at length in a previous NIC blog post, is comprised of a health inspection, staffing levels, and quality metrics. The authors of the study argue that many California nursing homes inflate their self-reported quality metrics, which measure the quality of care patients and residents receive in skilled nursing properties. Their analysis considers the financial incentives that drive such false reporting, providing one of the first analyses of how five-star scores impact profitability. The study demonstrates the need for operators and investors to consider multiple data sources and follow quality metrics closely.

According to the study, the quality metric sub score steadily improved for all properties over the period of 2009 to 2013, while the health inspection and staffing sub scores remained stable. The authors argue this difference is not the result of improved quality across the industry and is instead a reflection of nursing homes’ improved ability to falsely self-report on the quality metrics sub score. They compared California properties with similar overall five-star scores to complaint data supplied by the California Department of Public Health.

The authors found that often properties with higher overall five-star scores as a result of improved quality metric sub scores within the study period did not have fewer customer complaints as compared to their peers whose scores did not increase over time because of the quality metrics component. In other words, one would expect to see complaints decrease over time for properties with overall scores that improved because of improved quality, but the researchers did not find that to be true in this case. Another finding was that improvements in quality metrics did not lead to improvements in the health inspection component of the overall score, which the authors believe to be a red flag regarding the sincerity of the quality metric reporting.

Using a California data set on profits reported by the Office of Statewide Health Planning and Development, the researchers were also able to demonstrate the importance to profitability of the CMS five-star score. In the five-year study period, they found properties with an overall score of five earned $19.80 in daily per patient profits, while those with a one-star score earned only $9.29. Three-star properties earned $10.79. They conclude that lower-rated properties have a financial incentive to improve their quality metrics, the only component of the five-star score over which they have significant control in how the data is reported. The financial incentive does not necessarily equate to falsely reported quality metrics on the part of properties just to get a bump in profitability, but it led the researchers to further analysis. When the complaint data and financial incentive data were combined, the researchers concluded that financial incentives drive some skilled nursing properties to falsely report quality metrics in an attempt to increase the overall five-star score.

This study is important to both operators and investors for a number of reasons. First, it underscores the importance of considering multiple data sources when evaluating a property’s performance. CMS data can be outdated and according to these researchers, easily manipulated and may not always be an accurate tool to evaluate a property’s quality of service delivery. Indeed, complaints from the industry about the accuracy and timeliness of CMS data led NIC to develop the Skilled Nursing Data Initiative, which does not address quality, but does speak to occupancy and revenue trends and serves as a valuable resource for the industry. But the Skilled Nursing Data Initiative, like CMS data, is only one resource and the need for more data resources is clear.

Furthermore, the importance of the five-star rating to property financial performance is often discussed in the abstract. This study is unique in that it delivers clear data demonstrating what we sometimes hear—the higher the five-star score, the more profitable the property. This concept influenced NIC to integrate quality metrics from multiple data sources in NIC MAP^©, to be launched in 2018. Stay tuned for details!

Lastly, the study stands as yet another example of how closely the skilled nursing industry is being watched. Indeed, investigations, new regulations, and studies like this one continue to put skilled nursing operators under a magnifying glass. CMS is constantly updating regulations to improve the five-star system, such as the move to payroll-based journaling to record staffing levels launched in 2016 or the addition of new metrics to the quality component of the score. In this era of constant revision to regulations that have real impact on the bottom line, it is more important than ever that the industry focus attention on quality.

Download 3Q17 Skilled Nursing Data Report