Washingtons Impact on SNF Financing September 2018 TABLE OF - PowerPoint PPT Presentation

Washington’s Impact on SNF Financing September 2018

TABLE OF CONTENTS • Washington Update & Impact • Financial Review & Outlook • Financing Options • Observations & Predictions

REPEAL & REPLACEMENT DIES

WASHINGTON’S IMPACT 400 390 380 Total Return Index Value 370 Graham-Cassidy Released 360 BCRA Released 350 AHCA Released Presidential 340 Election 330 320 Source: Bank of America, U.S. Healthcare Facilities Index, Total Index Return

REFORM STILL LOOMS Reduced Regulation & Reimbursement Congress CMS Other Medicaid Waivers President’s 2018 Unified, Post-Acute [work requirements, Budget Medicare Payments reduce benefits, [$650bn Medicaid cuts] increase beneficiary costs] Bipartisan Budget Regulatory Relief UPL Payment Act of 2018 Scrutiny [Voluntary Bundled Payment Program] [reduced 2019 Medicare rate]

DYNAMIC PAST 2012 PAYER CONTRIBUTION Medicaid Private Managed Medicaid Medicare 16% 26% 5% 12% 7% 11% 14% 63% 48% 10% 1.8% average PATIENT MIX REVENUE MIX MARGIN -12% -5% Source: National Investment Center

DYNAMIC PAST 2017 PAYER CONTRIBUTION Medicaid Private Managed Medicaid Medicare 13% 24% 6% 9% 10% 9% 11% 66% 49% 8% 0.7% average PATIENT MIX REVENUE MIX MARGIN -11% -6% Source: National Investment Center

MANAGED MEDICARE IMPACT FFS vs. Managed Medicare Rates Medicare Managed Medicacre $540 $522 $522 $521 $521 $519 $519 $518 $520 $500 $489 $483 $480 $475 $462 $460 $448 $441 $440 $433 $420 $400 2012 2013 2014 2015 2016 2017 2018 Source: National Investment Center

ACA IMPACT Medicare Admissions Medicare Patient Days 1950 (per 1,000 beneficiaries) (per 1,000 beneficiaries) 1893 1875 1900 70.0 1849 69.0 68.9 1824 68.8 1850 69.0 68.6 1800 68.0 1750 67.0 1706 66.4 1700 66.0 1650 65.0 1600 64.0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Length of Stay Occupancy (in patient days) 88.0% 86.9% 86.8% 28.0 87.0% 86.2% 27.4 85.9% 27.5 27.2 86.0% 27.0 27.0 84.4% 85.0% 26.5 26.5 84.0% 83.0% 26.0 25.7 83.0% 25.5 82.0% 25.0 81.0% 80.0% 24.5 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 Source: National Investment Center, MedPAC

BRINGING IT ALL TOGETHER Medicare Margins 16.0% 14.1% 13.2% 12.8% 12.8% 14.0% 11.4% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2012 2013 2014 2015 2016 Non-Medicare Margins Total Margins 0.0% 2.5% 2012 2013 2014 2015 2016 1.9% 1.9% 2.0% 1.8% -0.5% 1.6% 1.5% -1.0% 1.0% 0.7% -1.5% -1.5% 0.5% -2.0% -1.9% -2.0% 0.0% -2.1% 2012 2013 2014 2015 2016 -2.3% -2.5% Source: MedPAC

VARIATIONS AMONG THE MEAN • • • Medicare = 11.4% Medicare = 20.2% Medicare = 0.7% • • • Non-Medicare = (10.2)% Non-Medicare = (2.3)% Non-Medicare = 4.6% • • • Total = (4.9%) Total = 0.7% Total = 5.9% • • • Medicare Mix = 14% Medicare Mix = 19% Medicare Mix = 24% • • • Duel-Eligibles = 27% Duel-Eligibles = 32% Dual-Eligibles = 39% • • • H-End Therapy= 83 H-End Therapy= 87% H-End Therapy= 79% • • • Daily Census = 66 Daily Census = 77 Daily Census = 88 • • • Length of Stay = 36 Length of Stay = 39 Length of Stay = 42 Source: MedPAC

FUTURE CONSIDERATIONS Value-Based Healthcare Remains Pricing Volume Costs Patient-Driven Home health / ALF Rising minimum Payment Model competition wages Medicaid funding Length of stay Rising liability costs reform pressure Managed care Telehealth / remote Refurbishment growth monitoring requirements

PATIENT-DRIVEN PAYMENT MODEL Characteristic $ Impact Removes therapy minutes as basis for payment All SNFs 0% By Ownership For-Profit -1% Instead, uses clinical Not-for-Profit +2% characteristics Government +4% By Location Urban -1% Establishes separate payment Rural +4% category for “non -therapy By Affiliation ancillary services” Freestanding 0% Hospital-Based +17% Divides therapy into three # Days Billed as RU separate payment categories 0-10% +28% (PT, OT, SLP) 10-25% +16% 25-50% +7% Creates sliding payment scale that changes with “resource use” 50-75% 0% over a stay 75-90% -6% 90-100% -10% Source: CMS

ROBUST INVESTMENT TRENDS Price-Per-Unit Cap Rate 14.0% $100,000 $90,181 11.5% 11.2% 12.0% $85,284 10.5% 10.1% 10.0% 9.6% $80,000 $75,324 $71,320 10.0% $69,123 $68,293 8.0% $60,000 6.0% $40,000 4.0% $20,000 2.0% 0.0% $0 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 Sales Volume (in millions) $8,000 $7,083 $7,205 $7,000 $5,830 $5,694 $6,000 $5,000 $3,264 $3,777 $4,000 $3,000 $2,000 $1,000 $0 2012 2013 2014 2015 2016 2017 Source: National Investment Center

IMPORTANCE OF CREDIT STRENGTH Banks Credit Cash from Government Operations (HUD/FHA) Strength Non-Banks

SNF FINANCING OPTIONS Banks HUD/FHA Flexible Rigid Short-Term Long-Term Recourse No Recourse Speedy Slow Rate?

BANK LOAN YIELDS 4.4 2.0 1.9 1.8 4.2 4.2 +15% 1.6 1.4 4.0 1.4 3.9 3.9 1.2 1.2 1.2 1.2 3.8 1.2 3.8 3.8 1.0 0.9 0.9 3.6 3.6 3.6 0.8 3.5 3.5 3.4 3.4 0.6 0.6 3.4 0.4 0.4 0.4 3.2 0.2 3.0 0.0 Bank Yield (%) Fed Funds (%) Source: Bank of America, U.S. Healthcare Facilities Index, Effective Yield; U.S. Government, Federal Funds Rate

BANK DEBT VS. HUD/FHA RATES 4.8 2.0 4.7 1.8 4.6 1.6 4.4 1.4 4.2 +15% 4.2 1.2 4.0 3.9 3.9 1.0 3.8 3.8 3.8 3.7 3.7 0.8 3.6 3.6 3.6 3.6 3.5 3.5 0.6 3.5 3.5 3.4 3.4 3.4 0.4 3.3 3.3 3.3 3.3 3.2 0.2 3.0 3.0 0.0 Bank Yield (%) HUD Rate (%) Fed Funds (%) Source: Bank of America, U.S. Healthcare Facilities Index, Effective Yield; HUD/FHA, Interest Rate on Final Endorsements, U.S. Government, Federal Funds Rate

OBSERVATIONS & PREDICTIONS Fool’s game trying to predict major healthcare reform measurers Legislative & Minor reform measurers will continue via Congress & CMS Regulatory Value-based healthcare is here to stay Financial SNF financials will remain under pressure over near-term Outlook SNF pricing/volume/expense pressure will continue Credit metrics will tighten, especially with legislative uncertainty Financing Credit strength will remain important & dictate financing options Options HUD will remain active, but with stringent terms & conditions Bank loans will continue to offer high flexibility & attractive rates

APPENDIX BOK Financial Healthcare Banking Geographic Dispersion of Commitments ($000) Jason Almiro, CFA, CPA $25,544 $2,271 • $662 Director, Healthcare Research $12,788 $2,900 $514 $8,778 $28,100 $5,478 FALSE • FALSE 214.525.7673 $5,115 $67,580 $4,000 $21,739 $20,870 FALSE $29,136 $12,600 $71,113 $112,534 • jalmiro@bokf.com $83,888 $132,903 $56,814 $13,737 $76,048 $279,413 $108,506 $100,386 $8,792 $127,532 $9,200 $5,862 $12,284 $321,908 BOK Financial N.A. $71,384 $14,997 • Top 30 U.S.-based bank holding $4,420 TOTAL STATES company 35 ≤ 15,000 30,000 50,000 100,000 ≥ 115,000 • BOK Financial Leading healthcare & energy Healthcare Banking Sector Distribution of Commitments lender nationwide Services • 20% Healthcare Banking – $2.3 billion total commitments SNFs 41% – $950 million SNF commitments – National SNF/senior housing Hospitals expertise 23% ALFs 16%