What is the value of skilled nursing facility (SNF) “bed rights,” or sometimes called “CON beds” in an arms-length purchase and sale?  What are the issues and concerns?   Can they be sold?  Who owns them?  Are they a durable or perishable asset?  While Healthcare Transactions Group has conducted the sale of skilled nursing facilities, the firm sold skilled nursing facility rights in Maryland, Ohio and North Carolina. Thus, we are opining in this blog based on our experience.

At the outset, we define “bed rights” as the penumbra of intangible rights associated with an operating license, but not the license itself, because typically under the law, a skilled nursing facility operating license can neither be sold nor conveyed.  However, the number of beds with bed rights must be equal to the number of corresponding licensed beds.  Bed rights can be transformed into an operating license subject to State approval.

Generally, most valuations involving skilled nursing facilities are as “going-concerns,” incorporating the facility’s total assets, both tangible and intangible. A skilled nursing facility could not continue to operate if it loses its license. Conversely, an operating license is inseparably linked to a physical plant. The value of a skilled nursing facility’s physical plant without an operating license is a fraction of the value of an ongoing skilled nursing facility with one. However, the assumption in this blog is that intangible bed rights are not the licenses and are separable from the real property from which they may have originated and can be sold and transferred for use, and relicensed at another location.

It is also assumed that the bed rights’ seller operates the beds in a physical plant it owns. If the bed rights’ seller is leasing the facility from an unrelated third-party, a question exists either under the law or under the lease whether the lessor or lessee owns these rights. Many leases are for the operation of the skilled nursing facility only and exclude an ownership interest in the bed rights. While the license may be in the name of the lessee, the bed rights originate with the underlying Certificate of Need approval, which may belong to the lessor.

If a Certificate of Need law is in place governing the supply and establishment of new skilled nursing facility beds, then these bed licenses have more value because of the barriers to entry restrictions. In a state without Certificate of Need regulations, these beds are worthless, except if they include an eligibility for Medicaid reimbursement such as in Texas, which may be also subject to separate moratoria or limitations.

In Maryland, it is possible to purchase SNF bed rights from other Maryland providers in the same jurisdiction and include them in an expansion project, subject to Certificate of Need (CON) approval to relocate them from one SNF to another. The sale of bed rights is subject to the review and approval of the Maryland Health Care Commission. The seller must delicense the unused beds being sold and has one year to relicense these beds. If not relicensed within this time period, the beds are permanently delicensed by the Commission. The buyer must submit a CON application for approval for construction or expansion of the buyer’s facility, when transferring and purchasing bed rights from another facility. The transaction must occur between two existing licensed SNF (or from an existing SNF to a CON applicant for a new licensed SNF), within the same jurisdiction planning area. Because these transactions are subject to state approval, the foregoing restrictions may function to contain the pricing of the SNF bed rights.

In addition, market considerations affect the value of SNF bed rights in a particular jurisdiction, the foremost being the service area occupancy. If an excess of SNF beds exists in the jurisdiction resulting in lower area CCF inpatient occupancies, then the value of the bed rights is diminished. If a shortage of beds exists, resulting in higher inpatient occupancies, then the value of the bed rights is enhanced. Other market factors that affect the value of the SNF bed rights include the service area’s demographics and socioeconomic profile, competition, staffing, presence of acute care hospitals and upside potentials.

Also, aside from market considerations, there are also important health planning factors that affect the economic value of SNF bed rights. The Maryland Health Care Commission develops and updates bed need projections by jurisdiction that are used as the basis for CON determinations for approval or disapproval of additional SNF beds. If the Commission’s projections show little or no need SNF bed need in a jurisdiction, then the bed rights in that area have diminished value, and a proposed transfer may also encounter regulatory objections from the Commission, given that the service area is “overbedded.” Conversely, if the Commission’s bed need projections show a net SNF bed need, then the value of the SNF bed rights is greater because of the SNF bed shortage and the likelihood of the Commission’s approval of the transfer. They indicate that where there is no bed need, the market occupancy is below optimal level, which can be interpreted to reflect a surplus of skilled nursing facility beds relative to demand and utilization.

In our opinion and from our experience with these type of transactions, the value of skilled nursing facility bed rights across the United States ranges from $5,000 to $15,000 a bed. In Maryland, the range is $4,000 to $10,000 a SNF bed, with the average price about $7,000 a SNF bed.   In some other states, the bed rights are the following:  Kentucky – $20,000 to $25,000 a bed in a service area with no projection of CON bed need; Massachusetts – $1,500 to $4,000/bed; and Texas – $20,000 to $25,000 a bed, but only if the Medicaid certification for these beds is included.