HUD OIG Memorandum 2022-KC-0801 — COVID-19: Challenges Faced by Section 232 Nursing Homes
Summary
A HUD Office of Inspector General memorandum, Memorandum No: 2022-KC-0801, dated March 29, 2022, from the Assistant Inspector General for Audit to the Deputy Assistant Secretary of the Office of Healthcare Programs, titled "COVID-19: Challenges Faced by Section 232 Nursing Homes During the Pandemic." It reports a survey of Section 232 nursing home owners covering March 2020 to March 2021, with 228 complete responses and a response rate of 39.5 percent. Owners ranked overall staffing level, infections in residents and infections in staff as the top challenges, and 87 percent reported a change in occupied beds of 5 percent or more. The memorandum states that few owners used reserve for replacement funds or HUD's operating loss loan program. It closes with suggestions to ORCF and an appendix on auditee comments.
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Full text
March 29, 2022
MEMORANDUM NO:
2022-KC-0801
Memorandum
TO: Roger Lewis
Deputy Assistant Secretary, Office of Healthcare Programs, HP
//signed//
FROM: Kilah S. White
Assistant Inspector General for Audit, GA
SUBJECT: COVID-19: Challenges Faced by Section 232 Nursing Homes During the
Pandemic
INTRODUCTION
We conducted a limited review of nursing home owners 1 to identify their operational challenges
and needs of nursing homes in responding to the Coronavirus Disease 2019 (COVID-19)
pandemic. Our objective 2 was to determine the biggest challenges operators of Section 232
nursing home facilities face related to the COVID-19 pandemic and whether nursing homes are
prepared to meet their future financial obligations.
Most of the owners who responded to our survey indicated that nursing homes experienced
financial and operational challenges during the pandemic. These challenges included staffing
shortages; COVID-19 infections in residents and staff; large fluctuations in occupancy levels;
rising operating costs; and difficulties in responding to local, State, and Federal requirements.
We found that as of July 2021, few nursing home owners used their reserve for replacement
1
For purposes of this review, an owner refers to a borrower of an insured Section 232 mortgage loan for one or
multiple residential care facilities (also referred to as nursing home facilities). In some cases, the licensed operator
of a nursing home may also be the HUD borrower. In circumstances in which the same entity is both borrower and
operator, HUD may refer to them by the terms “owner-operator” or “borrower-operator.” The surveys collected to
substantiate the results of the memorandum were derived from owners.
2
The review did not focus on the compliance of the Office of Residential Care Facilities (ORCF). Instead, the focus
was to provide ORCF with an informational overview of the efficiency of its Section 232 program during the
COVID-19 pandemic.
Office of Audit
451 7th Street SW, Room 8180, Washington, DC 20410
Phone (202) 708-0364, Fax (202) 708-1783
Visit the Office of Inspector General website at https://www.hudoig.gov.
funds or the U.S. Department of Housing and Urban Development’s (HUD) operating loss loan
program, and some nursing home owners stated during this review that they were unaware of this
program. Nursing home owners primarily utilized the Small Business Administration (SBA)
Paycheck Protection Program (PPP) loan authorized by the Coronavirus Aid, Relief, and
Economic Security Act (CARES Act) as well as other Federal and State programs to mitigate
operational challenges.
SCOPE AND METHODOLOGY
Our audit period covered the COVID-19 pandemic during the period March 2020 to March 2021.
To accomplish our objective, we developed and sent a survey questionnaire to all Section 232
nursing home owners between May and July 2021. We conducted the review remotely from March
3, 2021 to July 29, 2021.
Section 232 nursing home owners and their contact information were identified using HUD’s
Housing Enterprise Real Estate Management System 3 (HEREMS) as well as the Centers for
Medicare & Medicaid Services (CMS) Five-Star Quality Rating System. We matched the CMS
data to HUD’s nursing home data to ensure updated and accurate contact information.
Our universe consisted of 2,591 Section 232 nursing home loans. Of that number, 522 loans were
removed due to a lack of outstanding unpaid principal balance. We removed an additional 45 loans
due to duplicate Integrated Real Estate Management System (iREMS) numbers 4. We surveyed all
of the remaining 2,024 nursing home facilities associated with these loans by sending 770 emails to
nursing home owners, of which 489 emails were sent to owners of a single facility and 281 emails
were sent to owners of multiple facilities. We sent the multiple facility owners just one email that
represented all owned nursing homes. We conducted a 100 percent sample selection because we
wanted to get a national snapshot of the challenges faced by the operators of Section 232 nursing
homes in responding to the COVID-19 pandemic.
We emailed survey questionnaires to owners of nursing homes in May 2021 and provided the
addressees with reminders and a final response due date of July 29, 2021. During the survey period,
we removed 193 emails from the 770 due to undeliverable email addresses and issues arising from
some owners listing multiple email addresses, which further reduced our universe to 577 delivered
emails. We received 228 complete responses 5 during the survey period, which resulted in a
response rate of 39.5 percent (228 out of 577 responses).
We relied on data obtained from HEREMS and the CMS Five-Star Rating System database for the
owners’ contact information. We also relied on the computer-processed data in Microsoft Forms. 6
However, we did not perform a detailed assessment of the reliability of these systems. The results
3
HEREMS is an internal database system or application, which pulls select data fields from the Multifamily Data
Warehouse, which originates in iREMS or other sources. iREMS is the official source of data on the Office of
Multifamily Housing Programs’ portfolio of insured and assisted properties.
4
The IREMS numbers are for the HUD property identification (ID) numbers, and if a property has more than one
FHA loan, the property ID number would show up more than one time.
5
We received a total of 236 responses in Microsoft Forms, but 8 responses were not fully completed. We did not
include any responses from the eight incomplete questionnaires. We only included the responses from the 228
completed questionnaires.
6
Microsoft Forms is an online survey creator and a part of Office 365.
2
of our review reflect only those nursing home owners that responded and do not represent the
universe of nursing homes.
We conducted the review in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the review to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusion based on our objective. We
believe that the evidence obtained provides a reasonable basis for our conclusions based on our
objective.
We determined that internal controls were not relevant to our objective. Our objective was not to
evaluate or provide assurance of HUD’s internal controls. Therefore, we did not assess HUD’s
controls or express an opinion on them. This did not have any impact on the report because our
objective was answered by the responses we received from the survey questionnaire.
BACKGROUND
The Office of Healthcare Programs (OHP) is located within the Office of Housing and
administers the Federal Housing Administration’s (FHA) healthcare programs, which include
Section 232 mortgage insurance for the Office of Residential Care Facilities (ORCF). The
Section 232 program is an FHA mortgage insurance program that insures HUD-approved lenders
against financial loss from mortgage defaults. Section 232 mortgage insurance is available on
mortgages that finance residential healthcare facilities, such as nursing homes, assisted living
facilities, and board and care facilities. The FHA mortgage insurance provides lenders with
protection against losses as the result of borrowers’ defaulting on their mortgage loans. The
ORCF manages an insured portfolio of approximately 3,889 residential care facility Section 232
loans, according to the FHA 2020 annual management report.
The United States declared a national emergency on March 13, 2020, in response to the COVID-
19 outbreak. As of January 2022, the Centers for Disease Control and Prevention (CDC)
reported that there had been more than 74 million COVID-19 cases and approximately 879,971
deaths in the United States. As of January 2022, CMS reported that there had been a combined
resident and staff total of more than 1.7 million COVID-19 cases and approximately 145,270
COVID-19 deaths. The communal nature of nursing homes and long-term care facilities and the
population served (generally older adults, often with underlying medical conditions) put those
living in nursing homes at increased risk of infection and severe illness from COVID-19.
On March 27, 2020, the CARES Act was signed into law in response to the economic fallout of
the COVID-19 pandemic. The CARES Act appropriated $2.2 trillion in economic stimulus
funds, including $300 billion in one-time cash payments to individual Americans; $260 billion in
increased unemployment benefits; the creation of the SBA PPP, which provides forgivable loans
to small businesses with an initial $350 billion in funding; $500 billion in aid for large
corporations; and $339.8 billion to State and local governments. On April 10, 2020,
disbursements started for the first $30 billion of the $100 billion that Congress allocated to
hospitals, physicians, and other health care providers in the Public Health and Social Services
Emergency Fund in the CARES Act, also known as the Provider Relief Fund.
3
On December 27, 2020, the Consolidated Appropriations Act of 2021 was signed into law and
provided statutory authority for ORCF to insure operating loss loans under Section 223(d) of the
National Housing Act to mitigate healthcare facilities’ COVID-19-related temporary revenue
reductions. The operating loss loan program has been a longstanding program available to
healthcare facilities in cases in which there is an operating loss, which is the difference between
project income and project operating expenses. Further, the statutory authority established an
alternative set of criteria through which Section 223(d) loans may be issued. Overall, there is an
emphasis on the borrower’s 7 exhaustion of all other available funds and also limits on the loan
size and the requirement that the loss be due to COVID-19-related financial impacts.
ORCF also provided flexibility for the use of the reserve for replacement account in response to
recommendations from the skilled nursing industry. The reserve for replacement account helps
to defray the costs of replacing facility capital items and must be funded by the borrower and
maintained by the lenders. In some circumstances, the lenders were authorized to suspend
monthly deposits to the reserve for replacement and to use the reserve for replacement accounts
to meet debt service payments so long as the account balance did not fall below $1,000 per unit.
RESULTS OF REVIEW
Responsive owners stated that nursing homes experienced significant challenges to their
operations during the COVID-19 pandemic. These challenges included staffing shortages;
COVID-19 infections in residents and staff; large fluctuations in bed vacancies; rising operating
costs; and difficulties in responding to local, State, and Federal Government requirements.
Nursing home owners utilized multiple State and Federal relief programs as well as other
funding sources. However, few nursing home owners used their reserve for replacement funds
or HUD’s operating loss loan program to assist with operational expenses.
Top COVID-19 Challenges
Nursing homes experienced significant operational challenges during the COVID-19 pandemic,
with staffing, infections in residents, and infections in staff being the most prevalent.
We asked nursing home owners to select the top three challenges they experienced during the
pandemic. The two charts below show the survey results in order from the most prevalent
challenge to the least prevalent challenge: overall staffing level (175), infections in residents
(143), infections in staff (109), unit-bed vacancies (100), State 8 regulatory guidance (68),
availability of personal protective equipment (PPE) (66), Federal 9 regulatory guidance (36),
other (13), and none of the above challenges (1). We combined responses by owners of multiple
facilities with owners of single facilities.
7
In some circumstances, the borrower leases the project to a separate healthcare provider entity, which is granted the
operating license from the State and which is separately approved as the operator of the facility by ORCF. This may
make accessing the operating loss loans more difficult since it is the HUD-insured borrower that owns the real
estate, rather than the lessee, who would have the option to apply for the operating loss loan and reserve for
replacement remedies.
8
State refers to all nationwide States.
9
Federal regulatory guidance (later referred to as regulatory challenges) refers to all Federal entities who provided
guidance (e.g., U.S. Department of Health and Human Services, CDC, HUD, SBA, and Medicare) throughout the
COVID-19 pandemic.
4
COVID-19 challenges
200
180
160 175
140
143
120
100 109
100
80
60
40
20
0
Staffing level Infections in residents Infections in staff Unit-bed vacancies
Multiple and Single Responses Combined
Multiple and single
Additional COVID-19 challenges
responses combined
State regulatory guidance 68
Availability of PPE 66
Federal regulatory guidance 36
Other 13
None of the above challenges 1
Other Challenges
Twenty-seven nursing home owners provided additional comments about their challenges related
to staffing, costs, and regulations during the pandemic. Their narrative responses are
summarized below.
• Category: Staffing
Nursing home owners stated that they were impacted by industrywide staffing shortages
due to staff becoming infected with COVID-19 among other reasons. Several staff
members requested extended medical leave or quit their jobs due to the pandemic. Other
nursing home owners stated that they experienced challenges with retaining staff, paying
increased costs associated with sick pay benefits, and protecting employees from
infection.
• Category: Costs
Nursing home owners stated that the cost and availability of PPE created issues at the
onset of the pandemic. Some nursing homes offered significant hazard pay and bonuses
to incentivize staff to stay as well as pick up extra shifts. And some had to increase
overall staff wages by up to 75 percent to provide for adequate staffing coverage.
5
• Category: Regulations
Nursing home owners stated that addressing the reporting requirements from local and
State governments required a significant allotment of time. Some nursing homes stated
that State and Federal regulations changed frequently, overlapped in their reporting
requirements, and were not consistent, which caused confusion.
Policy Guidance
Ninety-five nursing home owners provided additional comments about challenges related to their
compliance with State or Federal guidance during the pandemic. Their responses are categorized
and summarized below.
• Category: Lack of Consistency
Twenty-two nursing home owners stated that the regulatory guidance from Federal, State,
and local agencies was inconsistent and hard to manage with limited staff. Some nursing
home owners stated that they had difficulty getting clarifications on the guidance. In
addition, more than 10 nursing home owners stated that they had difficulties with
inconsistent and voluminous infection control and State health department surveys.
• Category: Burdensome Reporting Requirements
Five nursing home owners stated that the reporting requirements were overly burdensome
to staff and took time away from caring for nursing home residents. Some stated that
they experienced difficulties in accessing and navigating reporting sites and a majority of
reporting requirements requested the same data.
• Category: Changes in Regulations
Fourteen nursing home owners stated that there were constant changes to the regulations,
which required rapid implementation. Some of the changes in regulations involved
retraining staff, very large unfunded mandates for testing, PPE, and additional resources
to help track and implement the changing regulations.
Occupied Beds
A majority of responsive nursing home owners stated that they experienced significant changes
in occupied beds during the pandemic. We asked nursing home owners whether their facilities
experienced a change in the number of occupied beds of 5 percent 10 or more in any given month
(from March 2020 to March 2021). The responses show that 87 percent (199 out of 228)
experienced a change in the number of occupied beds of 5 percent or more.
The 5 percent change in the number of occupied beds is the point in time changes that occurred in any given
10
month between March 2020 to March 2021 that were related to the COVID-19 pandemic.
6
Change in occupied beds
29
Yes
No
199
Of the 199 that did experience a change, the number of unoccupied beds ranged from 5 percent
to as much as a 60 percent change in a given month.
Relief Funds Used
Nursing home owners utilized multiple State and Federal relief programs as well as other
funding sources. However, few nursing home owners used their reserve for replacement funds
or HUD’s operating loss loan program to mitigate lost revenue.
We asked nursing home owners to select which State or Federal pandemic relief programs they
used during the pandemic. The two charts below show the survey results in order from most
utilized to least utilized: utilized PPP (171), other programs (110), State grants or loans (84),
local government grants or loans (16), Economic Injury Disaster Loan (11), foundation grants or
loans (7), none (7), and nonprofit grants or loans (6).
7
Relief programs used
180
160 171
140
120
100 110
80
84
60
40
20
16
0
Paycheck protection Other State grants or loans Local government grants or
program loans
Multiple and Single Responses Combined
Multiple and single
Least selected relief programs used
responses combined
Economic Injury Disaster Loan 11
Foundation grants or loans 7
None 7
Nonprofit grants or loans 6
The chart below shows the makeup of the 110 “other programs” from the prior set of results. 11
Funding program Number of mentions
CARES Act and Federal funds 79
Provider relief funds 32
Medicare or Medicaid funds 21
State and local funds 13
Reserve for Replacement Funds
The majority of responsive nursing home owners stated that they did not use their reserve for
replacement funds. The chart below shows that the reserve for replacement funds were used by
14.5 percent (33 out of 228) of respondents during the period March 2020 to March 2021.
11
There were some nursing homes that used multiple funding programs within the makeup of “other programs.”
8
Thirty-three nursing home owners used their reserve for replacement funds, 194 nursing home
owners did not, and one respondent of the 228 did not respond to this question.
Requests for reserve funds
33
Yes
No
194
HUD’s Operating Loss Loan Program
The majority of responsive nursing home owners stated that they did not apply for a Section
223(d) operating loss loan for COVID-19-related temporary revenue reductions. The responses
in the chart below show that there were three nursing home owners that used the loan program.
However, we received multiple inquiries about the operating loss loans that are discussed in the
“additional questions or concerns” subsection below.
Multiple and single
Have you applied for the 223(d) operating loss loan?
responses combined
Yes 3
No 217
Maybe 5
All three nursing home owners that applied for the operating loss loan were in the approval
process or already approved as of July 2021.
Additional Questions or Concerns
We asked nursing home owners whether there were any additional questions or concerns. Forty-
eight nursing home owners provided additional comments, and their responses are categorized
and summarized below.
9
• Category: HUD’s Operating Loss Loan Program
More than 10 nursing home owners showed interest in HUD’s funding options and
receiving more information on HUD’s Section 223(d) operating loss loan program.
Some nursing home owners expressed concerns with the future of the labor market, the
lack of mortgage forbearance options, and the timeliness of approvals of the operating
loss loans.
• Category: Staffing and Operational Concerns
Eight nursing home owners expressed great concern related to achieving adequate
staffing, unpredictable occupancy levels, and the need for more COVID-19 relief funds
as the pandemic continues.
• Category: Streamline Regulatory Guidance
Some nursing home owners stated a desire for direct Federal funding rather than having
States administer these funds due to mismanagement and a need for more awareness of
practical problems that are experienced by skilled nursing facilities.
CONCLUSION
Based on the responses we received, nursing home owners indicated that they experienced
significant financial or operational challenges during the pandemic. The financial challenges
occurred due to a combination of extra costs related to retaining and training staff on new
requirements related to the COVID-19 pandemic, PPE, and a loss of revenue because of
decreases in bed occupancies. The operational challenges occurred because of changes in
staffing levels, availability of PPE, and additional reporting and regulation challenges. We plan
to send the information and the overall survey results to HUD’s ORCF, along with this
memorandum.
We offer ORCF the following suggestions to consider in its continued support of its Section 232
nursing home portfolio:
• Share the responses to the survey with the U.S. Department of Health and Human
Services, CMS, so it may provide support as appropriate.
• Update the nursing home owner contact information within iREMS to facilitate
continuous communications.
10
Appendix A
Auditee Comments and OIG’s Evaluation
Ref to OIG Auditee Comments
Evaluation
Comment 1
11
OIG Evaluation of Auditee Comments
Comment 1 We did not include HUD’s technical comments in this memorandum report;
however, we considered each comment and revised the memorandum report to
clarify terminology and language where warranted.
12
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