The nursing home industry faces a potential financial storm as the federal government considers reducing Medicaid matching funds to states. This move could significantly impact senior care-oriented Real Estate Investment Trusts (REITs) and the facilities they support, according to a recent analysis by BMO Capital Markets. The proposed cuts are part of a broader effort to reallocate federal spending, potentially impacting programs like border security and tax credit extensions. With Medicaid being the primary payer for nursing home services in the US, any reduction in funding could have ripple effects across the industry.
Republican lawmakers are exploring various avenues to cut Medicaid spending, including caps, block grants, and work requirements. However, reducing the Federal Medical Assistance Percentage (FMAP) has emerged as a favored strategy. This approach would force states to make difficult decisions about where to cut their Medicaid budgets, potentially impacting skilled nursing care reimbursement rates and waiver programs that cover assisted living.
“Medicaid will continue to be a necessary part of the funding environment,” stated Matthew Gourmand, President of Omega Healthcare Investors, during a recent earnings call, acknowledging the program’s vital role. Despite this, the potential for FMAP cuts remains a significant concern.
A January proposal by the House Budget Committee included FMAP reductions, even suggesting lowering the minimum rate below 50%. Currently, only 10 states are at this floor, with many receiving higher matching percentages based on per capita income, according to KFF. The House Republicans estimate that simply cutting the standard FMAP base rate could save $387 billion over a decade. As Congress begins drafting its official plan, the nursing home industry watches with bated breath.
Juan Sanabria, managing director and real estate analyst at BMO Capital Markets, has identified Omega Healthcare Investors, LTC Properties, and National Health Investors as particularly vulnerable to FMAP cuts due to their significant SNF holdings and geographic distribution. His analysis, based on portfolios as of Q3 2024, suggests that Ventas, Welltower, and CareTrust REIT are “least at risk.”
The proposed FMAP cuts represent a significant challenge for the nursing home industry. A reduction in state Medicaid funding could lead to lower reimbursement rates for skilled nursing facilities, impacting their financial stability and potentially affecting resident care. The industry is bracing for potential changes as the political landscape evolves and the final budget decisions are made. The future of Medicaid funding, and its impact on senior care, remains a critical issue to watch in the coming months.