Analyst warns that Cuts in Medicaid may not Favor Senior Care REITs on an Operating Basis

Analyst mentions that cuts in Medicaid would not favor senior care REITs since cuts might adversely affect the operations of companies dependent on Medicaid for skilled nursing.

Analyst Juan Sanabria of BMO Capital Markets warns that threats to federal Medicaid cuts represent heavy risks for senior care-disposed real estate investment trusts (REITS). As presented by the Republicans, any cut would lower the federal share in Medicaid, causing possible state reductions in Medicaid spending which is majorly relied upon for U.S. nursing home services.

Possible areas of cutting federal funding support from Medicaid for nursing homes include capping the reimbursement rates or imposing block grants or changing FMAP parameters. In this event, some would be a tough decision for states to make, such as curtailing Medicaid expansion altogether, lowering reimbursement rates for skilled nursing care, or squeezing certain services such as assisted living programs, despite an adverse bias on the REITs maximally supporting this funding from Medicaid.

Sanabria said key operators, such as Omega Healthcare Investors, LTC Properties, and National Health Investors, which have a large share of their portfolios in skilled nursing facilities (SNFs), would be most vulnerable should reductions in FMAP proceed. Such companies are exposed partly because of where their facilities are located and their reliance on Medicaid payment.

Notwithstanding all these threats, there is some level of reassurance, expressed by REIT executives, including Matthew Gourmand of Omega, in the role of Medicaid in the funding environment, though worries have risen with the change in administration. Risk analytics currently provide a critical role regarding present and future stability of the REITs in question as the political debate over Medicaid persists.