Editor’s Note: The following article is based on a webinar that covered several topics that will be under discussion during our upcoming RETHINK conference in Chicago, Aug. 18-20. To learn more about RETHINK and purchase a ticket, please go to: https://skillednursingnews.com/snn-live-event/rethink/
Given that access to capital is easy to find but harder to justify in the current high interest-rate environment, nursing home operators in the thick of deploying capital must make choices that align with market needs, foster strategic partnerships, and take advantage of reimbursement opportunities.
According to experts who shared examples from their own facilities during a webinar Tuesday, fast-tracking investments with a direct impact on residents as well as updating aging infrastructure has also paid off well.
Matthew Maurano, CEO of Maryland-based Transitions Healthcare, said it was imperative to know the specific needs of a particular market. And if there was a big capital purchase planned, operators will benefit from collaborating with a strategic partner who is going to refer residents that match higher reimbursement services, he said.
“We identify a need, seek a strategic partner that’s either going to help us finance it or is going to at least guarantee that we can model a return. Then I can go to a capital investor and say we need to make this investment now in order to be successful now and in the future,” said Maurano.
Maurano highlighted trends and success stories in capital deployment and access to funding during the webinar, along with fellow panelists Lori Strubbe, CEO of Focused Post Acute Care Partners in Texas, and Deke Cateau, CEO of Georgia nonprofit A.G. Rhodes.
Strubbe said Focused considers capital deployment in terms of human capital and more physical infrastructure, but right now the team chooses to invest in its people, for the most part.
“I think that the payoff will be greater … we’re doing quite a few things to invest in our people,” said Strubbe. “We are creating career ladders for our folks, we are looking at promotions from within, and we are looking at some educational opportunities and how we can give back to our staff, to entice them to stay, and offer options for the future from a leadership and training perspective.”
In terms of state funding, Maurano said it’s a good idea to make investments “while the sun is shining.” In other words, he advised taking advantage of decent state rates and initiatives because they can always be changed in upcoming budgets.
Maurano touched on the intersection of financial planning and managed care as well, emphasizing that operators need to know what the Medicare Advantage (MA) plans are looking for, and stay in constant communication with them. Transitions runs three nursing homes in Pittsburgh with 88% MA penetration.
Capital opportunities, meet interest rates
Overall, there’s no shortage of capital opportunities out there, Maurano noted. But, today’s interest rates make return on investment difficult, and if there is a return, it needs to be high enough to attract the workforce that will continue to drive innovation while also meeting demands of the community.
The same goes for access to capital, he said. Capital is easy enough to find, but finding funding at an interest rate or as part of an opportunity where return on investment actually makes sense is much more of a challenge for nursing homes.
“Unfortunately, in some of the areas that we operate, the opportunities to grow are limited by the amount of depressed assets that are out there,” said Maurano. “You can grow, but we have to make sure that when we do that we have a big enough runway and that we can fund the amount of turnaround that we’re seeing in some of the facilities out there.”
Strubbe said her team at Focused has really concentrated on developing strategic partners, specifically financial partners like REITs and other financial institutions, and monitor interest rates to determine when it would make the most sense to explore other capital options.
Cateau echoed these thoughts, adding that the reality of the current investment market dictates caution. Even a wise allocation today may “burn” an operator in other areas, making a lot of investments a bit of a wash.
“As a nonprofit, we also have another subcategory that really drives investment: is this going to have a direct impact on our residents or staff? Most of those get fast tracked. Those are investments that we can justify … it’s a lot easier to live with those types of investments,” said Cateau.
Thoughtful investments in the face of slim profits
For AG Rhodes, capital deployment decisions have more thoughtful minds put to the task with a board of directors as well as administrative and clinical executives. Transitions also has a board of directors for input, especially when it comes to financial decisions, Maurano said.
Everyone involved looks at three categories of investments: long-term, short-term and medium-term investments. Sometimes an investment is longer or shorter than initially thought, like with the operator’s dialysis initiative.
“We looked at the demographics of the communities we serve. Two of those communities happen to have the highest density of end-stage renal disease in the state of Georgia, and so we wanted to go into dialysis,” said Cateau. “We built two dialysis stands, and luckily that medium-term investment really turned into a shorter investment; we started seeing returns very quickly.”
Brick and mortar investments, including a $40 million facility dedicated to skilled nursing and memory care from A.G. Rhodes, nonprofits need to look at the equity stack. Decisions on fundraising need to be made early on since it’s not all going to be refinanced, Cateau said.
The nonprofit decided to do renovations for the other two buildings rather than repeating the $40 million build.
“While we can’t afford to just go build another $40 million building, we actually have the opportunity to make some meaningful, significant renovations to those communities,” added Cateau.
Maurano weighed in on the infrastructure balancing act too, and that Transitions has been looking to convert its buildings to have more private rooms, or increase the footprint of these rooms.
Renovations tailored toward infection control and better quality of life for residents is no small feat in buildings that have been around since the 1980s, he said.
“We have to understand that the population in this country isn’t the only thing that’s aging. The long term care infrastructure is as well,” said Maurano. “What are we doing for the next generation? Because we’re watching buildings crumble, and unfortunately, I don’t think some people in Washington understand that.”
Maurano refers to cuts to the amount of Medicare available, and creating managed care organizations to manage a large portion of federal dollars.
“I think that’s something that all states and federal governments need to understand when they’re looking at profit margin. That doesn’t include capital costs, and capital is what’s needed to keep older buildings running and looking new,” said Maurano.
