Action taken last week by Standard & Poor’s Ratings Services, which placed all six of its rated issuers in the nursing home sector on watch for downgrade, “will have a negative, immediate impact on small and large operators alike,” said Alan G. Rosenbloom, president of the Alliance for Quality Nursing Home Care, in a statement.
S&P, according to news reports, said the recently announced 11.1 percent Medicare payment reduction to skilled nursing facilities “was larger than expected” and “ignited worries that reimbursement reductions will impair cash flow prospects.”
“Never in the history of the Medicare program has either CMS or Congress implemented such a large correction in one year—and the S&P warning helps confirm our concerns,” Rosenbloom said.
The six nursing home operators rated by S&P and added to the CreditWatch list were: Drumm Investors, the holding company for Golden Living; Genoa Healthcare Group; HCR HealthCare; Kindred Healthcare; Skilled Healthcare Group; and Sun Healthcare Group.
In a podcast last week, David Peknay, an S&P director on corporate healthcare ratings, said the agency anticipates the 11.1 percent Medicare cut could reduce nursing home earnings before interest, taxes, depreciation and amortization (EBITDA) by 30 percent and 60 percent “depending on the company and many other factors.”
“[B]anks who lend to regional and other local providers monitor actions by S&P, and this will increase their reluctance to lend to the sector, as well as increase costs for borrowers,” Rosenbloom continued. “This is a very serious action by S&P, and is a direct, unambiguous signal to the [Obama] administration and Congress that our sector can take no additional cuts.”