PICKING UP THE PIECES.

CEOs of three growing long-term care companies discuss their strategies for "saving" today's faltering nursing home field

Interviews with Three "Regionals" Gearing Up for Success

If ever there was a "buyer's market" in nursing homes, it's now. With so many skilled nursing facility organizations flirting with bankruptcy, not to mention chronic under-reimbursement and crushing regulation, owners are looking to sell and reorganize, or maybe get out of the field altogether. But other organizations are buying. Who are they? Why are they doing this? What growth prospects do they foresee that would inspire such an investment? Recently Nursing Homes/Long Term Care Management contributing writer Jo Donofrio sought out some of their top executives for answers.

Douglas M. Wright, Jr.

President and Chief Executive Officer of Community Eldercare Services, LLC (CES), Tupelo, Mississippi. CES operates 38 senior living properties along with other ancillary senior living companies, and serves communities in 10 states.

What is your central business strategy?

Wright: When we saw the first signs of PPS in 1997, we immediately slowed our growth and worked on our systems, preparing ourselves for the changes that were coming. So we were ready and able to adapt to PPS quickly. We then resumed our growth plans, and in 1999 we acquired eight properties in Georgia and four in California, and developed our own therapy company. We merged with Grace Health Care earlier this year and acquired facilities in Maryland and Virginia.

We have been fortunate to be able to hire a high caliber of people with relevant experience. Our management team consists of a host of industry leaders from nationally recognized companies that have all been very important to our success.

What does this offer that the old system didn't?

Wright: There are two key factors that thread through companies that are survivors. First, those that are Medicare providers must recognize that they are Medicare providers and stay at the forefront regarding changes in the law. Second, private companies are more flexible and have more control. They are better able to adapt and change their growth patterns, as opposed to being driven by Wall Street and having to continue to drive their growth and earnings. A lot of large companies and publicly traded companies were not able to do that.

How will your strategy promote survival vis-a-vis Medicare changes, Medicaid tightness, staffing shortages and legal/regulatory challenges?

Wright: Quality of care and community outreach programs are top priorities. We changed our name to Community Eldercare Services to reflect our commitment to the communities we serve. For nursing homes to thrive and best benefit the people they serve, the local communities must get involved. Our Healthy Aging Community program provides outreach programs to homebound seniors and is an integral element of the continuum of eldercare services we provide. This program helps people to stay at home by monitoring their health and abilities and offering guidance on exercise and nutrition. If the time comes when they need long-term care and skilled nursing services, we want them to understand that our community living centers are comfortable, warm and friendly places to live.

What are the implications for the future of long-term care?

Wright: It is going to be very interesting over the next five years. It is inevitable that there will be more changes. To move quickly and adapt, a company has to stay relatively flat, which limits growth somewhat. The company's management needs to stay in touch with what is going on at the ground level.

The larger companies that are in bankruptcy right now will be reorganizing in various forms. We will see a leveling of the playing field with a greater number of smaller, regional companies each operating 50 to 100 homes. The public investor is not going to welcome the nursing home industry back for quite a while. It will be five or six years before public companies begin to fare well with their stock prices.

Laurence Gerber

Chief Executive Officer of Epoch Senior Living, a major owner/operator of high-quality nursing and rehabilitative centers and assisted living communities based in Waltham, Massachusetts. Epoch currently operates properties in nine states.

What is your central business strategy?

Gerber: We tend to focus on the higher end of the market in terms of quality of buildings and location, staff and quality of care. Following our acquisitions, we have spent millions of dollars renovating and upgrading the buildings. We combine this with a very high quality of care, delicious food and a comfortable environment. Wherever possible we create a continuum of care, which includes access to both an assisted living community and a skilled nursing community to facilitate meeting a resident's changing needs.

There are two ways that we stay profitable. We have a strong capital base and buy properties that are reasonably priced. Second, from an operating standpoint, we focus on attracting a higher percentage of Medicare and private-pay residents than the norm to support the operating costs of a high-quality care system.

What does this offer that the old system did not?

Gerber: There are several reasons that some long-term care companies are struggling. Many of the large public companies that are now in bankruptcy were paying prices for nursing homes that were well outside historical norms, using very high levels of leverage or lease financing. When PPS was activated and the economic opportunities offered by ancillary businesses and Medicare declined, that level of debt/service per bed could no longer be supported.

In other cases, companies that had a very high-cost operating model and dramatic reductions in revenue had a difficult time reducing costs by a corresponding amount. And with excess beds and assisted living eating into the private-pay census of nursing homes, those that did not modernize their facilities experienced decreased occupancy.

How will your strategy promote survival vis-a-vis Medicare changes, Medicaid tightness, staffing shortages and legal/regulatory challenges?

Gerber: You need three things to succeed in this business. Great care, which includes a caring staff, good medical and quality control procedures; effective cost controls, because it still is a public-reimbursement-based business; and an ongoing marketing program.

It is important to be proactive and implement good policies, procedures and controls. For example, we have our own internal mock survey team that conducts internal surveys mirroring those of the state inspectors. This quality control technique identifies a problem and allows us to take steps to correct it.

We base case managers in hospitals who review cases and work with discharge planners to place people appropriately. These Epoch employees help assess patients and direct them toward our facilities, or the right facility for them if special needs exist, and in this way provide a valuable service to the hospital.

We also do outreach with physician groups, hospitals and discharge planners, clergy in the community, banks and trust officers. And we benefit from referrals from our own assisted living communities.

What are the implications for the future of long-term care?

Gerber: A successful company will need to be at the high end of the quality spectrum in order to operate at above-average occupancy, with an above-average percent of Medicare and private pay to drive the higher revenue rates needed to provide quality care.

We are facing very tight labor markets because of the strength of the economy. The federal and state governments need to recognize a need for adequate reimbursement to pay competitive wages and, therefore, provide quality care.

Fred Benjamin

President of Boulevard Healthcare LLC, a new company based in Skokie, Illinois, that specializes in the acquisition and operation of senior living facilities.

What is your central business strategy?

Benjamin: There is a dramatic shift toward high acuity in long-term care, and the implications of this are tremendous. People are coming out of the hospital sicker and quicker by virtue of Medicare and managed care rules, as well as by virtue of some success at the home care level. At the low-acuity end, assisted living has provided a viable option to nursing homes. And, because there is a wider array of referral choices and options, the state is becoming more selective about placement.

This shift to higher acuity requires a different type of staffing, with more nursing time per patient per day. Physician involvement in long-term care is critical, and this is one of the key differentiating points our facilities will use to be successful over the longer term. We will involve physicians, help them understand how long-term care provides services and use their expertise to design and provide better programs, monitor patient progress and develop a new model of care.

What we look for in acquisitions are facilities that are amenable to our model of care. We like working with other parts of the healthcare system and, to the extent that those opportunities exist, we think we can make the facility operate more efficiently.

What does this offer that the old system did not?

Benjamin: Closer relationships are needed between institutions providing different levels of care, and continuity in the form of a physician who follows the patient throughout the continuum. These relationships require improved information flow, professional communications and a plan of care that is coordinated between settings. Boulevard offers extensive management and operational experience in both the acute and subacute settings. Physicians are increasingly the common element between venues of care. We will empower physicians and give them the opportunity to design new and different systems of care that can bridge the relationship between acute care and skilled care environments.

How will your strategy promote survival vis-a-vis Medicare changes, Medicaid tightness, staffing shortages and legal/regulatory challenges?

Benjamin: We want to focus on clinical quality of care. Hospital units have become increasingly specialized by clinical expertise. This specialization is likely to happen in long-term skilled care, as well, and we are preparing for that. We want to have specialty units, staffed by expert nurses and physicians, that focus on specific clinical problems.

Long-term care should be a direct part of the continuum and the care plan that is put in place in the hospital. We would like to have case managers from our facility participating from the beginning in case conferences at the hospital. This would clearly provide an improved quality of care.

What are the Implications for the future of long-term care?

Benjamin: To stay profitable, you need a reasonable patient mix that provides greater revenue per patient day to meet the expenses of having more nurses to care for a higher-acuity population.

We will also require a change in leadership. Historically, the industry has chosen administrators and managers who were jacks-of-all-trades. This will shift toward those who understand how healthcare systems work, who have worked in different parts of the healthcare system and who can build effective teams. With the intensive regulatory nature and the increasingly litigious environment of this industry, people with broader clinical skill sets will be sought out and involved in the skilled care environment.