The Inevitable Decline of the Nursing Home Industry

I'm not someone who takes great delight in the decline of someone else's business. But some businesses fail for the greater society good, and the 20 percent projected decline of nursing homes by 2021 falls into that category. The reasons for the failure is the growing alternatives to nursing home care, resulting in countless of Americans remaining in their homes in the twilight of their years.

Betsy Rust, a consulting partner at the Michigan-based firm Plante Moran, has published an excellent article about the future of the nursing home industry. Like any industry that derives the bulk of its profits from government-funded programs, the traditional nursing home model is no longer sustainable. Medicare and Medicaid account for 90 percent of nursing home revenues and private long-term care insurance provides the rest.

Sadly, nursing homes traditionally have been a last-stop destination for people to go and pass away. But the Medicare and Medicaid programs have slowly been coming to the realization that it might be more cost efficient to finance programs to keep people in their homes, rather than confine them to an institution. CareLinx, the elder care company I founded with the goal of keeping America's elderly safely in their homes, is partnering with several leading health systems across the United States to prove patients will benefit more from a health outcomes perspective by having support in their own homes via professional caregivers instead of sending these patients to nursing homes.

As Rust correctly notes, consumers and their families prefer the newest nursing home facilities, but the capital markets, including private equity sources, are increasingly focusing their investments on assisted living facilities and home-based technologies. As this Redfin study makes clear, on-demand companies like Uber and Instacart have made it considerably easier for older Americans to remain in their homes even if they have limited mobility.

Another complicating factor is that nursing homes are having increasing difficulty recruiting and retaining staff in the major metropolitan regions of the country.

That's because CareLinx and an increasing number of other upstart companies have created online business models that allow quality caregivers to earn significantly more compensation than brick-and-mortar nursing homes can provide, while also reducing the cost of elder care for families.

Rusk predicts a shakeout in the nursing home industry is inevitable, and the survivors will be national chains who can squeeze savings through operating efficiencies and a scattering of high-end niche operators.

Older Americans are going to account for more than 20 percent of the U.S. population in a little over a decade. I see it as a great positive that the elder care industry is rapidly evolving to allow them to remain in their homes while helping to reduce government expenditures.