It’s no secret that nursing care occupancy levels continue to struggle. According to the latest National Investment Center’s 2Q17 Market Fundamentals report, nursing care occupancy declined to 86.2%. While operators continue to face headwinds, they are looking for creative ways to solve their occupancy problems.
One solution operators have considered is to give their underutilized, or unused, bed licenses back to the state (see Five Reasons Why Operators Consider Reducing Their Bed Licenses). Here are a few advantages:
1) The operator can avoid paying a tax bill immediately. Some states will charge an expensive tax to any bed license currently in circulation. In most states, once the operator de-licenses the bed, they are no longer obligated to pay a tax on that license from that day forward.
2) It’s unlikely the beds will go to a competitor. In states where there is a moratorium in place, the state is not likely to redistribute beds back into circulation once they are turned in. In theory, this should not only help the facility that turned in the beds, but the overall occupancy level of that geographical area as well.
As an alternative, operators should consider the comparison between giving beds back to the state and selling them to an operator. There are best practices to sell beds to another operator, while at the same time, also taking advantage of the benefits mentioned above.
If trying to decide between giving the bed licenses back to the state vs. selling them, an operator should consider the items mentioned below:
1) Avoiding the next tax bill. While giving them back to the state is an easy solution, buyers and sellers of bed licenses often negotiate who is responsible for the bed tax. Sometimes it is negotiated such that the buyer takes responsibility of the tax once that buyer closes on the beds. Other times, the buyer may be responsible once the purchase agreement is executed. This relieves the seller of paying any additional taxes immediately upon execution of the purchase agreement.
2) Avoid selling to your competitor who may be next door. In some purchase agreements, the seller may control where the beds may be moved. For example, if the seller still plans to continue to operate the facility from which some of the beds are being sold, they may be concerned with someone building new construction across the street. A seller may sometimes give a particular mile radius from a location that the beds may not be relocated to.
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While some states do not allow operators to buy and sell bed licenses, in states where it is permitted, operators should consider the advantages and disadvantages of giving beds back to the state vs. selling them to another operator.
This article is not to be considered advice. Before making investment or disposition decisions, consult a professional for legal advice.
Bed License Exchange is a trusted platform that introduces buyers and sellers to an entire marketplace of bed licenses in the healthcare industry. Bed licenses ranging from acute care, post-acute care and senior living are available for operators and investors, to act either as a buyer or a seller on the auction-style platform. Bed License Exchange is a subsidiary of HealthSwap Advisors, LLC.