Skilled nursing facilities operators should expect their profit margins to continue to shrink over the next four years, even as other segments of long-term care see modest gains. That’s according to a new report from national consulting firm McKinsey.
“Provider profit pools faced substantial pressure in 2022 and are likely to continue to do so in 2023 as a result of inflation and increased labor costs,” wrote report authors Neha Patel and Shubham Singhal. The outlook is worse than previous estimates, they said, especially for Medicaid and long-term care.
According to the data, most provider segments are predicted to see a compound annual growth rate of less than 5% from 2021 to 2026, due to cost increases. Skilled nursing and inpatient rehabilitation facilities face negative earnings before interest, taxes, depreciation and amortization, or EBITDA, through 2026. Assisted living, hospice and home health outpatient rehabilitation facilities operators, by comparison, could see profits increase by up to 5% during that time, the authors said.
The largest factors influencing profit pools, according to the report, are the move to an “endemic stage” of COVID-19 and payer mix changes. McKinsey estimates that the prevention and treatment of COVID-19 will cost about $200 billion annually in the United States. Even so, the authors said they expect economic pressures and COVID-19 to be alleviated by 2024, “leading to an eventual return to historical average profit margins.”
For the time being, at any rate, the overall outlook for providers is negative. That could change for long-term care if labor challenges can be overcome. The authors expect to see greater growth in other sites of care, such as ambulatory surgery and virtual medicine.
“We expect to see continued cost optimization measures to tackle rising costs, such as increased labor productivity efforts and the application of technological innovation,” they wrote.
For additional coverage of the McKinsey report, see McKnight’s Long-Term Care News.
