michigan nursing home in distress
Four tell-tale signs that skilled nursing home operations are going in the wrong direction…..
This is a four-part series in which Roger Mali explores specific major operational indicators that a skilled nursing facility is in financial and/or operational distress. In this series, he will explore the finer points and nuances associated with:
(1) low census and low referral rates,
(2) poor collection rates on revenue and aging on receivables,
(3) problems with employee turnover and mispositioning of employees, and
(4) delinquent and outstanding taxes relating to the Michigan Quality Assurance Assessment Program (i.e., Bed Tax).
I. Census, Bed Management, and (the infamous) Michigan Non-Available Bed Plans
I was recently in a budget meeting with one of my Directors of Nursing, and she was complaining about having to do multiple admissions per day, every day—how it is so much work to find beds for these admissions, where are we going to put all these admissions, and how much extra work it creates, and so on and so on….. I listened carefully and attentively because we are running at 98% occupancy at this particular nursing care facility, so she is definitely doing something RIGHT.
My response:
“…..that we should be so lucky that our problem is being at full capacity……”
It was the perfect setup to our budget meeting, in which I was able to show in real terms how admissions translate to revenues, which translate to paying employees and vendors, which translates to keeping operations moving, which translates to a good working environment—including lots of activities for residents and lots of benefits for employees.
For an otherwise brilliant and very talented nurse (she truly is), I believe that she had not really connected the dots—which is an endemic problem with so many great caregivers, in that they cannot budget their costs, yet care so deeply and give such good care to their residents.
Anecdotes aside, while having too many admissions and being near capacity is a good “problem” to have, it goes without saying that too few admissions and low census is a bad thing. But is low census or low referral rates, in and of itself, an indicator of a problem facility? The answer is—well, maybe…….
Certainly, we would always prefer high census to low census, but the mere fact that census is low or admissions are slow is not, in and of itself, a tell-tale sign of distress. There is much more to the picture, and there are natural ebbs and flows with referral and admissions rates as they relate to census and capacity.
To really understand whether a dip in referrals or census is a sign of distress, the operator must dig to the root cause. For example, hospitals’ census (assuming this is a traditional skilled nursing facility in which the majority of referrals are coming from hospitals) will ebb and flow. Hospital occupancy fluctuates with seasons or events such as influenza outbreaks, RSV outbreaks, icy conditions (i.e., our elder population slipping, falling, and breaking hips), and other similar events.
Within the last two years, I faced a situation in which one of our major referring hospitals had a prolonged labor dispute with its union employees, resulting in a strike at the hospital and its affiliated health systems. This caused the hospital to drop to record-low occupancy. As this hospital was our number-one referral source, this had a devastating effect on the nursing care facility’s admissions. The team had to quickly pivot to find referrals and admissions from other sources.
The lesson here: the net effect of admissions to and from hospitals will almost always trickle down and manifest itself in referral rates at skilled nursing facilities. A dip in census due to primary referral sources experiencing a dip in their census is not necessarily a sign of distress in a nursing care facility’s operations. Seasons change, circumstances change, and referral and admission patterns change……
But look closer. Dig a little deeper. Do a little investigating. Do not simply rely on your marketing staff or hospital discharge planners telling you that hospital census is low. Persistent low referral rates and low census should be cause for alarm by any operator (or any purchaser or lender during diligence) and should be explored at the root level.
Four things to look for when confronted with chronic low census or low referral rates:
a. Referrals Not Being Accepted
Are referrals coming in and the facility is simply not taking them, or is the facility not responding to referrals at all?
Saying “no” to residents who could otherwise be placed in the nursing facility can be a lead indicator that there are clinical capability issues and/or staffing and monitoring issues. An inability to accept so-called “challenging” residents may indicate that the nursing team cannot handle higher clinical complexity.
Check the most recent annual survey or the last two years of complaint surveys. Serious clinical deficiencies or monitoring tags often reveal themselves through resident selectiveness—admitting only residents who are less clinically complex.
For example, suppose the facility received citation tags for tracheostomy care on its last annual survey. There may be a natural tendency for the Director of Nursing to (rightfully) pause on accepting new trach residents. While this may be best for those residents in the short term, the long-term effects on the facility and its relationship with the hospital could be problematic.
The solution is to establish better training and level up clinical skills. The nursing facility will be far better positioned to attract higher-quality nurses and clinical unit managers who can handle more complex cases rather than avoiding clinically challenging residents altogether.
b. Referral Flow Slowing (or Stopping)
If referrals are slowing, first check the market and the competition. As noted above, ebbs and flows can be normal. However, an abrupt stoppage from an otherwise consistent referral source could indicate problems with the referring hospital and/or physicians.
Next, examine the facility’s readmission rate to the referring hospital. Hospitals face significant financial penalties for readmitting residents within 30 days of discharge to a nursing home. Nothing shuts off the referral spigot faster than avoidable readmissions.
The solution is, first and foremost, having a strong medical director or attending physician who is actively engaged, monitoring residents closely, and communicating effectively with both nursing staff and hospital partners. Communication, quality care planning, and internal clinical discussions are critically important before sending a resident back to the hospital.
Early and careful intervention is the best measure. The medical director must be hands-on and thoroughly familiar with residents. And if a readmission does occur, clear communication with the hospital and discharge planners is crucial so it is not perceived as a failure of the nursing facility’s care capabilities.
Keep in mind, it is not always the case that a resident was discharged in a truly “stable” condition from the hospital. Often, readmissions are warranted—but this is where strong communication between the hospital and the facility is critically important.
c. Low Census Due to Staffing
A nursing facility must have adequate staffing—both in number and in quality—to properly care for residents. While staffing challenges are not as severe as during the COVID and immediate post-pandemic periods, they still exist in the skilled nursing space.
Here is the dead-end cycle:
The facility cannot staff appropriately, so it pulls back on admissions. Census drops. Revenue drops. With reduced revenue, the facility cannot pay prevailing wages and benefits. Staffing drops further. Rinse and repeat.
When assessing this issue, examine clinical staffing and the number of unit managers and directors working the floor. When unit managers spend too much time on the floor, managerial duties suffer.
Dig deeper into support roles. Is the facility struggling to retain housekeeping or maintenance staff? Dietary aides or cooks? Is there agency nursing present? These are all signals of serious operational dysfunction and require immediate attention.
Please read the next part of this series, where I will take a deep dive into staffing-related issues.
d. Non-Available Bed Plans (NABPs)
The hidden trap to lowering census without affecting Medicaid rates.
Michigan Medicaid rates are based on the theoretical assumption that a nursing facility operates at a minimum of 85% occupancy. Current-year Medicaid rates are based on the prior year’s cost structure. If a facility’s census falls below 85% on average for any given year, it can expect reduced Medicaid reimbursement rates in future years.
The instinctive “easy fix” is to adjust bed counts to maintain occupancy above 85%. However, facilities are licensed for a specific number of beds, and taking beds offline requires approval from the State of Michigan through a Non-Available Bed Plan (NABP). Failure to obtain proper approvals can result in licensure issues.
Over time, operators have become adept at manipulating occupancy averages through NABPs. While this can be appropriate for short-term situations—such as renovations—overuse or repeated extensions beyond one year are indicators of deeper operational problems.
The NABP is a band-aid. It is a quick fix—but not a solution. Persistent low census, slow referrals, and reliance on NABPs typically signal fundamental operational dysfunction. There is simply no good reason to operate below 85% occupancy for an extended period without consequence.
When assessing census levels and referral rates, operators must look beyond surface explanations and identify underlying causes. Patterns and recurring themes over time—usually at least three years—tell the real story. Address occupancy issues quickly to avoid cascading revenue losses.
Low census creates a domino effect that impacts nearly every aspect of skilled nursing operations.
About Roger Mali
Roger Mali is an accomplished healthcare executive and attorney with more than two decades of experience in operational leadership, financial restructuring, and strategic advisory services. As Founder and CEO of Elevate North Group, Roger leads a premier healthcare consulting firm specializing in acquisitions, turnaround management, insolvency planning, operations improvement, census and occupancy development, and revenue cycle optimization.
Previously, Roger served as Owner and Managing Director of a skilled nursing and assisted living-focused organization, transforming a five-person startup into a multi-state enterprise operating 30 facilities and employing more than 2,900 team members. Under his leadership, the company restructured over $170 million in debt and equity and successfully recapitalized before Roger exited his majority and controlling interest in 2022.
Before entering healthcare operations, Roger practiced law as a Partner at Honigman Miller Schwartz and Cohn LLP, specializing in real estate, bankruptcy, and corporate restructuring. He holds a J.D., cum laude, from Wayne State University Law School and a B.A. from Bowdoin College. Roger previously served on Michigan’s Nursing Home COVID-19 Task Force and is a frequent speaker at national healthcare conferences.