Business Opportunities and/or Challenges - Business Owners: Part One
In 2020, the skilled nursing industry will be financially influenced by the changes in the scoring system of the US, modifications in leasing contracts, and the I-SNP model while the dental practices' industry will be affected by the growth in the elder population and adoption of new technology. The food and beverage industry will face financial consequences from trading tariffs and the reduction of the labor force.
Skilled Nursing Industry
1. Scoring System
- In 2020, Skilled Nursing Facilities (SNFs) will face a new scoring system that will consider interoperability and hospital readmissions that could have been potentially prevented.
- SNFs will receive an increase of $887 million from Medicare payment rates or 2.5% increase.
- Additionally, the Centers for Medicare and Medicaid Services (CMS) plans to start using a payment model that is driven by the patients and focuses on their condition and care needs, instead of being charged for provided care.
- This will affect the payment system of SNFs, the purchasing program, which is currently based on value, the quality reporting program, align payment rates with the costs, and increase transparency.
- The value-based program will be renamed "Skilled Nursing Facility Potentially Preventable Readmissions after Hospital Discharge."
- Some policies that will be included are the requirements to update public reporting if the SNF has no eligible cases or less than 25 eligible cases. It will also set the deadline for corrections and reviews to 30 days.
- A reduction of 2% will be assigned to the SNFs that don't submit the data properly.
- Additionally, SNFs will be measured on quality when transferring information to the patients or another provider to improve interoperability.
2. Lease Modifications by Landlords and Operators
- In 2019, the skilled nursing industry was affected by the Senior Care Centers’ (SCC) bankruptcy regulation, with operators blaming leases as the main cause of bankruptcy, and is expected to continue in 2020.
- Sabra Health Care REIT, one of the biggest landlords of skilled nursing facilities, reported losses of more than $77.7 million only during the first quarter of 2019, caused by SCC’s bankruptcy.
- Absolut Care and 14-SNF Cornerstone Healthcare Services are examples of operators that blamed their bankruptcy on leasing issues.
- Omega Healthcare Investors and Signature HealthCARE stated they were having financial issues caused by Daybreak Venture's leasing contract, although they haven't declared bankruptcy. Consulate Health Care is also renegotiating its lease.
- Rent payments and leases will be on the close look by many operators, and the federal and state authorities, who will be following on laws to regulate them and making renegotiations.
- Lease agreements will play an important role in the ability of operators to be viable. It is expected that landlords and providers will be looking at reassessing existing agreements for the benefit of their cash flow.
3. Institutional Special Needs Plan (I-SNP) model
- While the I-SNP model sounds good in theory, the reality is that it won't benefit every provider, especially if the provider struggles with rehospitalizations.
- I-SNPs have been talked about everywhere in the skilled nursing space, comparing it with less capital-intensive options and those that add less stress based on its regulations.
- It is expected that, although not in every case, it will ease the financial burden of a lot of SNFs, allowing them to invest in talent, resources, and time. 2020 is expected to show the first results for the SNFs who are already implementing this model.
Dental Practices Industry
4. Increase in Dental Implants and Procedures for Elders
- According to IBIS World, from 2019 to 2024, the number of elderly Americans will increase and so will the demand for cosmetic dental procedures and implants, because with age, dental health declined and needs more maintenance.
- The American Dental Association stated that the age gap will be a potential financial challenge for the Dental Practices industry, as even though the cost barriers for dental procedures on adults and children is declining, the costs are growing for seniors, and as the population that needs these procedures the most, and continues to grow, it will limit the revenue growth of the industry to only the ones who can afford it.
- Even with access to health insurance and different health programs from the government to cover dental expenditure, patients are expected to cover a significant portion of it.
- 38.6% of dental practices patients make out-of-pocket payments, representing the second largest source of revenue for the dental practice industry.
- Individuals with higher income levels are the ones more likely to spend on cosmetic procedures and dentist visits.
5. New Technology
- Based on an analysis conducted by the global company Straumann, in 2020, it is expected that dental practices will adopt new technologies for dental procedures and treatments, to stay on top of the market's needs.
- However, this increasing availability of costly technology will put a financial strain on new dental practices, as it will raise the barrier of investment required to start their business, making it harder to stay afloat.
Food & Beverage Industry
- Owners of the food and beverage business will likely be financially affected by the difficulty to find workers in the industry in 2020, which has been reduced to 4.6 million jobs according to the Manufacturing Institute and Deloitte in the last decade.
- The shortage of workers has been caused by the decline in the working-age population, the strict immigration changes in America, and the difficulty to attract young people to work in food plants.
- This has been affecting the manufacturing industry of food and beverage, who has been forced to change salary wages, training programs, skill selection, and incentives to attract workers, impacting their margins, prices, and costs.
- Another aspect that has put a financial strain in the food and beverage industry of the US is the increase in foreign trade regulations and tariffs, caused mainly but the trade war initiated under President Trump's government.
- Tariffs are changing constantly, back and forth, causing retaliation against the American food industry and imported commodities.
- While it was expected that these tariffs on food exports would drive prices down and increase the supply of domestic product, the effect hasn't been immediate and the fluctuation in the market uncertain.
- The tariffs imposed on China, one of the largest importers of meat and agricultural products has increased the costs of the entire food and beverage industry and is expected to continue during 2020.