Ancillary Service Providers in Skilled Nursing Share Tips for Success, Pitfalls to Avoid 

by Jeff Shaw

DALLAS — If it’s a financial windfall they’re seeking by entering the ancillary services business, skilled nursing providers are joining the fray for the wrong reason and are setting themselves up for disappointment, say seasoned professionals.

Instead, the successful players in the ancillary space are the ones who undertake a patient-centered approach — whether it’s the launch of a pharmacy or rehabilitation services firm or behavioral health facility — and map out a plan for taking their business to the next level.

“The most important thing to think about is why. What is your motivation for doing it? What do you hope to accomplish? And be real crystal clear on that,” urges Laurie Thomas, chief operating officer of Portland, Oregon-based Consonus Healthcare, which provides rehab, pharmacy and consulting services in over 700 facilities nationwide.

The parent company of Consonus, the Marquis Cos., owns and operates 25 post-acute and assisted living facilities and an I-SNP. (Institutional special needs plans are a type of Medicare Advantage plan a senior can subscribe to if he or she meets certain criteria.)

Consonus has been in business for over 30 years, and Thomas has had a long career in the contracted services space.

“As a small provider, you also have to go in with your eyes open on what investment is required to be able to add those services,” advises Thomas. “A big question is, do you have the bandwidth internally with your leadership team to be able to handle additional product lines? And do you have the expertise? The expertise required to run a pharmacy, or to run a rehab company, is very different than running a nursing home. And while it may seem tempting to say, ‘let’s do this ourselves,’ if you don’t have the right resources and expertise in place, it’s going to be very hard for it to be successful in the long term.”

The insights from Thomas came March 6 during a panel discussion at the 2024 NIC Spring Conference. The event took place at the Omni Dallas Hotel. The panel was titled “Skilled Nursing Facilities Ancillary Services: Can You Afford to Not Be in the Game?” 

Bill Kauffman, senior principal at NIC, moderated the one-hour session. Joining Thomas and Kauffman on stage were Amy Kaszak, executive vice president of strategic initiatives with Austin, Texas-based Curana Health, and Bubba McIntosh, senior vice president, ancillary services and service strategy, for National HealthCare Corp. (NHC) based in Murfreesboro, Tennessee.

Diversified portfolio

Founded in 1971 by the late Dr. Carl Adams, NHC is the nation’s oldest publicly traded senior health care company and has many tentacles. NHC affiliates operate for themselves and third parties 68 skilled nursing facilities with 8,732 beds. NHC affiliates also operate 26 assisted living communities with 1,501 units, five independent living communities with 475 units, three behavioral health hospitals, 35 homecare agencies, and 30 hospice agencies. NHC’s other services include Alzheimer’s and memory care units, pharmacy services and a rehabilitation services company. It also provides management and accounting services to third-party, post-acute operators.

Most of NHC’s ancillary services are performed in-house. One notable exception is medical imaging, which is handled by an outside company. Ultimately, McIntosh said the decision of what services to bring in-house hinges on two factors: economics and how much control the organization wants over the services provided. 

“Financially, can you afford to invest the capital? We have a great deal of capital invested in our pharmacies. And it’s not just when you set it up, it’s constant. You have to keep all that equipment going. The courier services — they’re very expensive as well. I think any provider that’s considering adding these [services] really needs to sit down and put together a business plan,” said McIntosh.

Rather than go it alone, a provider might want to consider entering into a joint venture or partnership to deliver ancillary services, said Kaszak. “Now, there’s a lot of things to consider if you’re thinking about taking on a partner. But we’re certainly seeing a lot of that. And I can see where it makes sense in a capital-heavy investment potentially to come together. It’s also helpful also for some of the ancillary service lines — and also for just healthcare services in general — to have some density of population. So. being able to bring together a larger group through a partnership could be a strategy.”

Curana Health is neither an operator nor an ancillary services provider but does provide onsite primary care services for senior living residents. The company’s services include care coordination, telehealth, palliative services, and primary care nurse practitioner visits. 

Kaszak believes ancillary services are an important part of patient-centered care. She pictures in her mind a wheel with the patient in the middle. “Ancillary services help fill in some of those spokes that make everything run very, very well.”

Delivering customized service

Consonus has 253 different parent entities as its pharmacy customers. “Think about managing 250 different sets of expectations. They want different reports, different delivery times different packaging,” notes Thomas.

“Once you start going outside of your house, you’re going to end up with people that have different expectations, different values, different goals,” she emphasizes. The question becomes, “How am I going to continue to be an exceptional service provider, exceed expectations for my customer, and still keep my sanity?’

Healthcare delivery is similar to running a relay race, explains McIntosh. “And where do you lose that race? It’s when you drop that baton. And so being able to provide these ancillary services in a smooth handoff, from one delivery model to the next, I think is always better for the patient.” 

Shrinking profit margins

The profit margins for ancillary businesses have decreased from pre-pandemic levels, according to Thomas. She estimates the pharmacy EBITDA (earnings before interest, taxes, depreciation and amortization) is approximately five percent today, or about half of what it was five years ago. 

“We’ve got some serious headwinds on the pharmacy side,” said Thomas, citing higher staffing and delivery costs and a reduction in insulin prices stemming from the Inflation Reduction Act. 

Effective Jan. 1, 2023, out-of-pocket costs for insulin were capped at $35 per monthly prescription among Medicare Part D enrollees. 

Prior to the pandemic, the profit margins in the rehabilitation services business ranged from 10 to 15 percent. But the implementation of the Patient-Driven Payment Model (PDPM) in October 2019 changed Medicare reimbursement from a volume-driven, fee-for-service model to a patient-centered approach. The profit margins post-PDPM are “very different,” said Thomas, though she did not provide any figures. 

A major challenge for the rehab industry is maintaining the quality of care it provides while managing the process in a completely different way than it did prior to the reimbursement changes resulting from PDPM, said Thomas.

McIntosh pointed out that the margins are constantly shifting as the healthcare industry continues to move toward a managed care model. “It’s something that we have to stay on top of. We’re seeing less and less [Medicare] Part B in the rehab environment.” 

Medicare Part B covers services such as doctor’s visits, lab tests, medical equipment and supplies, outpatient therapy services, and certain preventive services.

During the audience Q&A portion of the program, McIntosh was asked if NHC has given any consideration to providing audiology, podiatry, optometry or dentistry services.

“We did some pretty extensive research this year on dialysis, and we’re starting dialysis in some of our buildings. Another area is infusion,” said McIntosh. The most important question, McIntosh believes, is how do you control the care of the patient? “We all know that sending a patient out of the facility to go for dialysis is not the best for that patient, and so that’s something we’re exploring.”

— Matt Valley

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