Among additional measures announced by the Biden administration on August 18 in response to the proliferation of the Delta variant of COVID-19, the Department of Health and Human Services is directed to implement guidelines in effect requiring, as a condition to participation in the Medicare and/or Medicaid programs, that nursing homes require all staff to be fully vaccinated against COVID-19. The administration did not include periodic testing as an alternative for the vaccine-hesitant. According to the corresponding White House announcement, this new requirement will impact nearly 15,000 facilities employing approximately 1.6 million workers; the Centers for Medicare & Medicaid Services (CMS) separately reported that as of August 8, about 62% of staff at nursing home facilities were fully vaccinated across the nation, leaving a significant portion of skilled nursing facility staff that will soon need to decide whether to get vaccinated or leave their positions. According to a related August 18 press release, CMS is currently developing an emergency regulation in collaboration with the Centers for Disease Control and Prevention (CDC) to implement the new policy and expects to complete rule-making within a matter of weeks for issuance of the new rules in September. CMS has otherwise provided limited indication of the mechanics of implementation and monitoring, including deadlines for compliance. Regulations published by CMS in May imposed requirements that long term care facilities report, on a weekly basis, resident and staff vaccination data to the CDC’s National Healthcare Safety Network (NHSN). CMS has indicated it will utilize NHSN data as one form of compliance monitoring and will deploy Quality Improvement Organizations in connection with the policy.
These new measures project to add further staffing strain for an industry already struggling with a labor shortage, as operators will grapple with both implementation and compliance monitoring costs and some inevitable loss of employees that refuse to comply. Given the current tightening of margins due to lower occupancy rates, wage pressure in light of the existing labor shortage, higher insurance costs, capital expenditures and other variables, prudent operators will attempt to get ahead of the announced guidelines as much as possible, both from a messaging and a compliance perspective, in order to minimize potential downside impact. This might be accomplished by further incentivizing (and facilitating) staff vaccination, providing a period within which vaccination must be commenced as an internal policy, or otherwise.
The implementation of express guidelines by the federal government will likely be welcomed by at least some skilled nursing operators that have been struggling with the decision of whether to impose a vaccine mandate, since in effect it takes the decision out of their hands. A new, broader mandate, announced on September 9, will require that any healthcare provider receiving Medicare or Medicaid funds mandate vaccination of its employees, which should to some degree mitigate the staffing impact on skilled nursing operators by reducing the alternative employment options in the healthcare industry to which vaccine-hesitant skilled nursing staff might otherwise pivot. Larger long term care operators will also need to consider the impact of forthcoming rulemaking by the Occupational Safety and Health Administration, also announced on September 9, which will mandate that private employers with 100 or more employees require either vaccination or weekly testing for their employees.
If a facility loses its Medicare or Medicaid funding due to unvaccinated staff, it would have a significant impact on cash flow. Lenders in the industry should also monitor these new requirements and consider working with counsel to, on a going-forward basis, build express references to such mandates into their loan documents and covenants to specifically require compliance with such guidelines when they become effective. With respect to existing relationships, lenders should consider proactively discussing implementation measures, timing, and labor and cost impacts with their borrowers to avoid surprises. The newly announced vaccination requirements are projected to increase uncertainty in an industry already struggling with labor and cost challenges, and operators and their lenders will need to keep a close watch on the specific requirements that will be issued later this month.
