Nursing Facility Transaction Considerations

If you are interested in either selling or buying a nursing facility, you should carefully consider the following:

PRICES. Sellers have been receiving historically high offers for their facilities. According to Irving Levin Associates, the average price per SNF bed increased by 12% from 2014 to 2015, to a record high of $85,900.00/per bed. Similarly, the average capital rate for SNF sales dropped to 12.2%, also contributing to the record high prices.
REITS. The increased involvement of real estate investment trusts or “REITS” in long-term care has infused the market with additional capital, which has also contributed to higher purchase price offers.
MEDICAID RATE ADJUSTMENTS. Anticipated adjustments to a state’s Medicaid rate is influencing investment decisions. For example, on July 1^st many Ohio providers will experience the first significant impact to their Medicaid rates in five years. We are already seeing the increase in Medicaid rates being factored into potential transactions.
GOVERNMENT INVESTIGATIONS. The increased scrutiny and ongoing investigations being conducted by the Federal government have caused an increase in the amount of due diligence required, as well as the length of time necessary to thoroughly review a seller’s operations. This increased due diligence leads to a rise in the total cost of the potential transaction.
MANAGED CARE. In states with significant Medicaid managed care integration, and those with dual eligible projects, a facility’s marketability may be negatively affected due to the length of time a provider may have to wait before receiving payment for services. This lag time may in some instances require a provider to acquire or increase its line of credit. With the potential for significant Medicaid managed care expansion, the issue of delayed payment and growing accounts receivable is likely to get worse.
CONSOLIDATION OF TRADITIONAL LENDING SOURCES. The FirstMerit Bank and Huntington merger is just one example of the ongoing consolidation of traditional lending sources, which may impact buyers that historically finance potential transactions.

If you have any questions regarding buying or selling a nursing facility, or are interested in the current trends in the post-acute, long-term care and senior living transactional arena, please feel free to contact Paul Lang at Lang@ROLFLaw.com.

Please note that this alert is intended to be informational only, and is not intended to be nor should it be relied upon as legal advice. Rolf Goffman Martin Lang LLP will not be responsible for any actions taken or arrangements structured based upon this alert. The receipt of this alert by an organization that is not a current client of Rolf Goffman Martin Lang LLP does not create an attorney-client relationship between the recipient and the law firm.