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Financing for Nursing Homes in Difficult Times

Author: Michael Lesnick from Axiom

We are writing this article because a growing number of our clients have expressed concern over the current reimbursement situation in the State of California. Specifically, they have expressed concerns over the 10% cut back that the state intends to implement on Medi-Cal rates. The state passed a law almost a year ago that requires them to take back 10% of the money that has been paid to nursing homes between June 1st 2011 and July 31st 2012. The state intends to take back this money retroactively and is likely to start that process very soon. When that occurs many providers will experience a significant cash flow problem.

In addition to the 10% take back described above, the general state of Medi-Cal reimbursement is “weaker” than it has been for several years. The state’s budget crisis and the horrible economy over the past few years have contributed to Medi-Cal rates that are falling further behind the cost of care. This “weakness” in the Medi-Cal reimbursement exaggerates the problem for nursing homes.
Further, the Medicare rates were reduced by approximately 11% starting in October of 2011 and with the continuing weakness in the national economy, nursing home providers are likely to face additional cuts in Medicare rates.

If all of this were not bad enough, the banking industry is more restrictive than ever in our lifetimes. Nursing home operators, who have never had an easy time of working with banks, are having extreme difficulties in obtaining loans and lines of credit. This hits small chains and “mom & pops” harder than larger organizations, but anyone looking to borrow money is facing a more difficult and more complicated path than ever before.
In an effort to help our clients we have attempted to learn as much as we can about this area. We have spoken with a number of brokers and bankers and others who can provide financing and lines of credit to nursing facilities. We have listened to the stories of many of our clients and have asked the people we interface with to help us understand the situation.
Unfortunately, there are no easy answers. Unfortunately, there are many road blocks to obtaining financing. Unfortunately obtaining financing (if it can be obtained at all) can take a long time to accomplish and can be very expensive. So what’s the point? Why are you telling us things we already know? We want to highlight the issue in the hope that providers will prepare for cash flow problems in advance.

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