Impact of Affordable Care Act on Seniors Housing Market Still Uncertain

When the Supreme Court upheld the Affordable Care Act (ACA) in June, it brought out strong reactions from the political, health care and public arenas.

The responses about the high court’s nod to “Obamacare” from the seniors housing investment sector have been more subdued. Several real estate executives didn’t even want to comment on the issue.

Others said there is still too much controversy that needs to be settled as politicians vow to repeal the act.

“Basically, it’s too early to determine what the impact will be,” says Richard Donohue, managing director for seniors housing/healthcare with Lee & Associates NYC.

Donohue notes that the larger issues of slow job growth, market turmoil in Europe and the Libor fiasco will likely have a greater impact on seniors housing than the ACA.

“Having said all that, people will still seek investments which will provide reasonable returns,” he adds, and seniors housing is one of the safest bets in the marketplace.

Bob Kramer, president of the National Investment Center for the Seniors Housing and Care Industry (NIC), says the ruling has not had much of an impact on the private-pay market when it comes to investing.

“I do think it might have been one of a number of factors that had an impact on skilled nursing,” Kramer says. “Many people felt that it was one of the major uncertainties, like a cloud, and that may have caused people to hang back as investors.”

“I think it’s fair to say that in the run up to the decision, a lot of investors in the skilled post-acute space were hesitating to jump in. Now that the decision has come down, I think people realize there is still uncertainty. But if you are someone who is bold, those people think it’s a great time to make a move.”

Like many experts, Kramer says one of the biggest issues investors face is what will happen with states that opt out of the Medicaid expansion to cover childless adults, losing their existing Medicaid funds. So far governors in several states have chosen not to expand their Medicaid programs, including Florida--one of several states that already have high numbers of uninsured coupled with weak economies.

“The concern is that in those states, the hospitals and providers already agreed to cut their Medicaid compensation with the assumption that they were not going to have the bad debt [for] people coming to the ER because those people were supposed to be covered,” under Obamacare, Kramer says. “It’s a very complex picture.”

As Obamacare changes the face of U.S. healthcare, Kramer says it will also change acquisitions in the sector.

“Two forces are going to drive acquisitions in the post-acute space,” he says. “One is this ability to be able to have more control over the post-acute care continuum—hospice, home health care, skilled nursing. The other force is going to be managed care players actively stepping in and getting engaged in this.”

In Kramer’s view, the ACA model is going to move healthcare away from reimbursing providers with a fee for the services they provide in a particular setting.

“We’re moving away from that with rapid speed and now acquisitions are going to be driven by ‘How do I need to realign myself with the new reality which incentivizes people who can deliver across the continuum, from primary care to the health and hospital system to the post-acute system?’”

All this complexity will cause some providers to just get out of the game.

“People are going to say there is just too much going on and I don’t have the capital to reinvest in my facility,” Kramer says, noting that providers are also being crunched with new technology demands from computerized record-keeping. On top of that, the ACA includes provisions that punish providers that have high readmission rates.

Other potential impacts on the seniors housing sector are similar to those for any employer. Dave Schless, president of the American Seniors Housing Association, says it will be interesting to see how many employers in the seniors housing sector stop providing insurance and offer employees cash to join state exchanges. Schless cited the controversial McKinsey & Company study which indicated that one third to one half of businesses would give up on healthcare coverage or make major changes because of the law.

“We’ll have to wait and see what actually happens, but there are big consequences if that study is correct,” Schless says. The industry employs a fair number of lower-wage workers “and many people believe that you’ll see employers with lower wage workers putting their employees into exchanges. Of course, some people think that the employees will end up getting a much better package with the subsidies they get that way.”

Bob Noonan, senior vice president of acquisitions for Benchmark Senior Housing, says he sees a far greater impact on the medical office building sector, thanks to the ACA.

“If Obamacare survives, that adds 32 million people into the insured marketplace by 2014,” Noonan says. “The medical office market, which is booming now, is going to be the beneficiary of that because medical office has already almost substituted for hospitals in this stage of the game in how they provide service on a more cost-effective basis.”

Patricia Will, CEO and president of Belmont Village Senior Living, says she doesn’t expect a huge impact on investment and sales from the Supreme Court ruling and the ultimate survival of Obamacare. The greater impact on the ground level will be in the many guidelines in the ACA that impact actual care.

“There are an awful lot of good public health ideas embedded in there that will continue and probably would have continued even without the Affordable Care Act,” she says.

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