06 May
Just like Google star ratings for restaurants, hotels and hundreds of other industries, star ratings result in a real financial impact for nursing home operators and investors. But it’s the Centers for Medicare and Medicaid Services (CMS) star ratings—not Google’s—that definitively impact the bottom line in this multibillion dollar business. Why? Because the U.S. Department of Housing and Urban Development (HUD) uses CMS quality star rating data to assess the financial risk of lending money to nursing home operators.
CMS tracks survey inspection results, staffing levels and quality of care outcomes on all 15,467 nursing homes nationwide creating a standardized set of monthly key performance indicators. While star ratings are only one metric HUD utilizes as part of the mortgage approval and monitoring process, they are inevitably a very important early predictor of future financial performance.
Star ratings data trended over time is used by analysts and underwriters to quickly identify patterns of poor care related to weaknesses in operations management and workflow. Because delivering care to patients is the main source of income for nursing homes, low quality of care will eventually impact a home’s reputation and occupancy rate. Therefore, savvy lenders equate lower CMS star ratings and repetitive survey deficiencies with the nursing home operators’ ability to repay loans.
On average, nursing home facilities with the highest star ratings have the highest occupancy rates. Here’s a simple example of how this difference in occupancy level translates to revenue opportunity:
- 100 beds x 74% occupancy with an average rate of $300/day = $8.1M/annual revenue
- 100 beds x 84% occupancy with an average rate of $300/day = $9.2M/annual revenue
While no single data source tells the whole story, CMS star ratings and survey outcomes are currently the best available standardized clinical performance indicators that can be used by HUD to uniformly benchmark homes and formulate the risk level of approving loans.
