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s the senior population grows, it’s easy to think that nursing homes will be popping up everywhere. In fact, the opposite is true. After booming for much of the late 20th century, the number of skilled nursing homes in the United States has flatlined at about 15,000 for more than a decade. By 2021, that figure could shrink by 20 percent.

That means more and more Americans will be forced to consider new ways to get the kind of care once found almost solely in nursing homes. Blame this on the new math of health care, the growth of alternatives to skilled care facilities, and rising lifespans.

Home care and assisted living facilities are becoming more popular, largely driven by how insurance reimbursement is changing. Medicare, a federal insurance program, and Medicaid, an assistance program run by state and local governments under federal guidelines, account for 90 percent of nursing home revenues; the rest comes from private long-term care insurance.

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Both of these programs pay for long-term care for people who are poor and chronically or terminally ill. But nursing homes have long lost money on residents covered by Medicaid programs. A recent rewiring under Obamacare of payment approaches for Medicare patients who need short-term care following injuries or illnesses and hospital treatment has hurt profits there, as well.

Even revenues from private-pay and long-term care insurance are under threat. Many insurers hiked long-term care premiums or left the market, largely because policies are becoming unprofitable as seniors live longer. Wealthier nursing home residents, the true private-pay market, are poorer than they were before the Great Recession and now run out of money sooner, often in two or three years. When funds run out, individuals then enroll in Medicaid and can’t be discharged for failure to pay, which puts further financial pressure on facilities.

Medicare and Medicaid, along with other health care insurers, want to find ways to reduce the cost of health care by shifting individuals to lower-cost models. Increasingly, states are expanding Medicaid coverage to include home and community-based settings, options that are typically preferred over traditional nursing home facilities, especially among the newly old.

Thus, skilled nursing facilities are floundering while both home care and assisted living facilities are growing in popularity, particularly for those with chronic but manageable conditions, such as circulatory problems, respiratory diseases, and arthritis. The capital markets, including private equity sources, are accelerating the decline in nursing homes by shifting investment into assisted living facilities and home-based technologies.

Given these trends, nursing home construction and renovation have slowed as owners and operators hesitate to invest amid growing unpredictability over future revenues.

While consumers and their families prefer newer facilities, what drives satisfaction are the three C’s: consistency, capability, and caring by the staff. Unfortunately, nursing homes face significant challenges in recruiting and retaining staff in many regions of the country.

Nursing homes are used, for the most part, by individuals in their 80s and older. According to a US Census Bureau report, the percentage of the population 85 and older will increase from about 2 percent today to 2.9 percent in 2030 and 4.5 percent in 2050. In other words, for nursing homes, the widely publicized age wave will be more of a slowly rising tide, not a tsunami.

And the baby boomers who are expected to fill nursing homes aren’t quite ready to make the move. The leading age of this demographic group is barely 70, and the youngest barely 50. With advances in health care, “old age” is being pushed further out. In fact, medical advances and baby boomers’ quest for good health could mean that the bulk of this generation might not be looking for nursing homes — or whatever alternatives exist by then — for another 20 to 30 years.

All of these issues make for a questionable future for nursing homes, especially for single facility mom and pop operations or small multifacility groups. Indeed, many are exploring selling while prices are still high. Others may decide to watch their occupancy rates decline and the value of their businesses diminish.

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Not all nursing homes will make it. The survivors in the sector likely will be chains, along with a handful of small, often high-end, niche operators.

As America grays, it’s a paradox that challenges; difficult choices, and uncertainty lie ahead for millions of future potential nursing home patients, particularly those living in states that are not progressively promoting an environment that encourages payers to cover alternatives to traditional care.

Betsy Rust is a consulting partner with Plante Moran’s senior care and living practice.

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  • As a retired medical social worker I find the articles in STAT useful. What I find unsatisfying is the lack of a comments section. I often learn more useful info from readers who correct, question or supplement the articles. What could we do about this problem?

    • I’m glad you are finding STAT to be a useful source of information. Comments are enabled in the First Opinion and Pharmalot sections, and we will be opening comments on all articles soon.

  • LTC insurance that gets people paying while they are younger is the obvious answer. Obama’s healthcare reform included a federally sponsored program but the experts concluded it was not feasible. The federal government should shift gears and do more to promote private LTC insurance. This is a national problem that is not being appropriately addressed.

  • Good Information. I am 82 years young. My savings may run out. But today am paying my yearly payment
    On my Long Term Insurance policy. I am thankful for this Assurance.

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