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Nursing Homes Operators Must Prepare for Rising Staff Wages

Labor costs in the sector are increasing as operators confront labor shortages and higher risk to staff.

In an already struggling nursing home sector, higher wage rates for workers are expected to become another rising expense.

“In general, certainly for skilled nursing, there has been the ‘hero pay’ increase in pay and bonuses to retain the workforce, given COVID-19,” says Bill Kauffman, senior principal at the National Investment Center for Seniors Housing & Care (NIC). “What I can say is, before the pandemic started, hourly wage increases in the nursing home sector were outpacing inflation for sure, but they were also outpacing revenue reimbursement gross. So, that, with the pandemic, has basically created even more of a challenge than it was before.”

Occupancy at skilled nursing facilities fell to 78.9 percent in April, compared to 84.7 percent just two months earlier and 84.4 percent one year ago. Around 42 percent of assisted living operators, 39 percent of memory care operators and 64 percent of nursing care operators reported a deceleration in move-ins, according to NIC data. The move-ins had also been restricted because operators have enacted self-imposed moratoriums to prevent further spread of infection inside their facilities, says NIC chief economist Beth Mace.

Wage rates are lower for skilled nursing facility workers than for others in similar professions, but the rate of year-over-year wage growth has been higher in the skilled nursing space for some time. Average hourly earnings for workers in nursing care facilities reached $19.31 per hour in May 2020, according to the Bureau of Labor Statistics (BLS). That’s a 7.2 percent increase year-over-year. At the beginning of 2020, the average hourly earnings for workers in nursing care facilities were at $18.52 per hour. In comparison, average hourly earnings for workers in the healthcare and social assistance industry increased 5.4 percent year-over-year, according to the BLS.

Before the COVID-19 pandemic hit, pay rates for nursing home workers were already being pressured upward because of the tight labor market. In February 2020, the unemployment rate nationally was at 3.5 percent, which was putting upward pressure on labor costs in seniors housing, says Mace. Now, in order to maintain staff levels, operators are paying what is referred to as “hazard pay” or “hero pay” to its employees. Kauffman says there is no data on the amount of this additional pay, but “certainly there’s been hazard pay.”

In some instances, nursing home staff members may have contracted the virus themselves. This has resulted in operators hiring agency help, or temporary employees, in order to fill in those staff positions that may have been affected by the pandemic, bringing a further increase in labor costs.

“Right now, the outlook is, yes, wages will be increasing,” says Kauffman. “Concern [for labor shortage] is certainly there. In a recession, what happens is [operators] will have more of the labor force to pull from because if the unemployment rate is increasing, then of course, more people are looking for work, which could alleviate some of the pressure, and alleviate some of the staffing shortage in skilled nursing.

That remains to be seen this go around because this is an unprecedented situation. It’s a pandemic. So, we don’t know how that will play out.”

The national unemployment rate sits at 11.1 percent as of June 2020, according to the BLS. Kauffman says this might allow the seniors housing sector to pull labor from other professions, as more and more people look for work. For example, some of the individuals in certain services sectors, such as the hospitality and restaurant industry, may pivot to the skilled nursing sector in order to find work, albeit they will need training. Candidates would need to complete a state-approved education program, as well as a brief period of supervised on-the-job training. This can be a four-week course, for example, but ultimately the length of the course depends on the specific program.

“It seems very logical that there would be labor shortages in seniors housing given the numerous risk factors; namely, COVID exposure,” says Barbara Denham, senior economist at Moody's Analytics REIS. “Hundreds of staff have gotten sick and some have even died while working. This raises a number of regulatory issues and compels seniors homes to raise pay and implement measures to protect staff along with patients.”

Denham adds it will be a difficult period for the industry as costs will rise and regulations will get more stringent just as fewer operators have the means to pay their workers more. Some seniors housing and nursing home operators are cutting executive salaries or furloughing staff. For example, Ventas, REIT specializing in health care facilities, reduced executive officer’s base salaries by 10 percent and cut about a quarter of its corporate staff. In the long term, though, demand for seniors housing, assisted living and nursing facilities will likely continue to increase as baby boomers age. That means the seniors housing sector will need to address the issues with its labor force and infection prevention with long-term solutions.

“Risk comes with pay. In the long term, demand is certainly rising, and it’s set to soar in five years,” says Denham. “So, a lot of these things need to be addressed before the aging baby boomers really hit the peak, which will start in around 2024 to 2025.”

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