From consolidation to expansion of existing communities to growth of home health services, nonprofit operators adapt to a changing landscape
By Jane Adler
Nonprofit senior living providers face an increasingly complex and competitive landscape. For-profit companies are opening a large number of new assisted living and memory care units. Meanwhile, healthcare providers are holding housing operators accountable for resident outcomes.
New ground-up development is out of favor as nonprofits focus on the expansion of existing campuses. But they’re also building crucial alliances with healthcare groups and adding their own ancillary services, such as home health agencies.
As the nonprofit sector evolves, here are five intersecting trends to follow.
1 Consolidation continues
Affiliations and acquisitions are on the rise among not-for-profit senior living providers. Approximately 80 transactions were tallied in 2015 compared with about 60 in 2014, according to Ziegler Investment Banking, a Chicago-based firm that provides financing for the not-for-profit senior living sector.
Among the transactions are new affiliations among large housing providers. For example, American Baptist Homes of the West (ABHOW) is joining with the be.group to create a $1.5 billion senior living nonprofit. The affiliation — the nonprofit term for merger — should be finalized sometime in March, says Dan Hutson, vice president of marketing at the be.group based in Glendale, Calif.
The be.group owns and operates six continuing care communities and an assisted living facility, plus 27 affordable seniors housing projects. The properties are located in Southern California. ABHOW owns and operates 48 communities, many in Northern California. “There is increased competition, particularly from for-profit entities,” says Hutson. “We saw the need for greater strength, scale and stability as the market evolves.”
Besides competition, the drivers of consolidation have increased since 1995. A decade ago, consolidation among nonprofits was driven by financial pressure, reinvestment requirements and access to capital, says Dan Hermann, senior managing director at Ziegler.
Today, 10 factors are driving consolidation, including the intricacies of healthcare and technology demands. “The complexity of the business has increased,” says Hermann. “Smaller organizations recognize they are better off being part of a bigger system.”
In 2010, ACTS Retirement Life Communities affiliated with Peninsula United Methodist Homes, assuming management of four communities. Herron Point in Chestertown, Md., had an occupancy rate of about 60 percent, but ACTS has grown that to its current level of 97 percent.
“We have the resources to invest that a (small) operator doesn’t have,” says Mark Vanderbeck, CEO at West Point, Pa.-based ACTS. The organization currently owns and operates 21 communities on the East Coast.
2 Growth of existing campuses
While new campus development is sluggish — only five opened in 2014 — many not-for-profits are expanding existing communities. Like for-profit companies, nonprofits are adding assisted living and memory care units.
Nonprofits took advantage of the recession to purchase adjacent land at a relatively low price to expand an existing community, says Lisa McCracken, senior vice president at Ziegler.
In 2008, for example, ACTS purchased 46 acres of land adjacent to its Plantation Estates project in North Carolina. The organization plans to build 250 independent living units on the parcel. “We are focused on internal expansion,” says ACTS CEO Vanderbeck. Another goal is to reposition and renovate communities that are 20 to 30 years old. The renovations are expected to total $300 million over the next three years.
Aggressive expansion plans are underway at Lutheran Senior Services, a St. Louis, Mo.-based nonprofit with 19 communities in Missouri and Illinois. Last July, the group broke ground on a $15 million repositioning at Lutheran Hillside Village, in Peoria, Ill.
Improvements include private rooms for short-term rehabilitation patients, new assisted living units and renovation of the nursing center. The organization completed a $50 million expansion of its LaClede Groves campus in 2013. Located in Webster Groves, Mo., the campus added 80 independent living units.
New ground-up development is sporadic, depending on demand. The Los Angeles Jewish Home is building a new 175-unit continuing care community, Fountainview at Gonda Westside in Playa Vista, a master-planned community in Los Angeles.
The upscale community is scheduled for completion in 2016, and is completely sold out. There are 35 applicants on the waiting list. The average entry fee is $750,000. Penthouses cost about $2 million.
Many of the new residents live in the immediate area, demonstrating a high demand for the product, according to Molly Forrest, CEO and president of the Los Angeles Jewish Home. “There’s a huge unmet need,” she says. The organization, which has four campuses housing approximately 1,000 seniors, also serves about 6,000 seniors annually through community outreach programs.
3 Nonprofits exit skilled nursing
Amid the rising complexity of healthcare delivery, a growing number of nonprofits are selling their skilled nursing facilities. The trend is most evident among single-site operators that lack the resources to compete against large, well-financed owners and operators. Since 2010, there have been 140 dispositions of nonprofit facilities — mostly freestanding nursing homes and distressed continuing care retirement communities — to for-profit operators, according to Ziegler’s McCracken.
The biggest challenges facing skilled nursing operators are compliance with regulations, delivery and measurement of clinical outcomes, updating information technology systems, and the amount of capital reinvestment needed to remain competitive.
“Single-site, nonprofit operators are the main candidates to sell a property,” says Mark Davis, president of Healthcare Transactions Group based in Reisterstown, Md. His business with nonprofits has tripled in the last two years.
Nonprofits are selling nursing homes to for-profit operators for high prices as new capital flows into the space. When 2015 data is available, Other nonprofits don’t have the capital to pay the price that can be garnered in a competitive bidding process, says Davis. “It’s a good time to sell.”
Davis recently sold a single-site property in Denton, Md. The Caroline Nursing and Rehabilitation Center has 87 beds. The property includes the Gables at Caroline, a 16-bed assisted living facility. “The nonprofit saw that the industry was getting more complex,” says Davis. Fifteen buyers bid for the property, which was purchased by Aurora Health Management, a for-profit operator based in Maryland. “We expect to see more single-site sales in 2016,” says Davis.
It should be noted that nonprofits carefully screen for-profit buyers. Mission-based nonprofits are concerned about their legacy and reputation in the community. Many nonprofits continue to work with local seniors even after selling a skilled facility. The purchase process can also take longer than transactions between for-profit entities, Davis notes. Board meetings and deliberations can add several months to the process.
4 Growth of home and community-based services
Nonprofits are expanding operations “beyond the walls” by offering home health, housekeeping, hospice and other services to elders in the wider community. About 57 percent of nonprofits provide some type of services to non-residents, according to 2015 LeadingAge Ziegler 150, a report that lists the largest nonprofit systems providing aging services through senior living in the United States by order of their total owned market-rate units.
Jim Moore, industry consultant and president of Moore Diversified Services based in Fort Worth, Texas, notes that many nonprofits with continuing care communities don’t have the land or resources needed to expand their real estate footprint.
“They’re offering more ancillary services,” says Moore. Providing home-based services expands the mission of the nonprofit, touching seniors who prefer not to move from their single-family homes. The services also create a pipeline of potential new residents for a nonprofit’s continuing care community.
Some not-for-profit organizations are charging non-residents a reduced entry fee to access home-based services, says Moore. The fee also guarantees a place in the health care unit when needed.
Many non-profits are growing home and community-based services through the acquisition of existing agencies. Nonprofits are also forming alliances with healthcare providers to expand their reach. About one-third of the nonprofits in the 2015 LeadingAge Ziegler 150 report are engaged in a formal joint venture with a healthcare provider, up from 24 percent in 2014.
Last year, the Los Angeles Jewish Home added home health services. “It costs a lot to build brick-and-mortar facilities,” says Forrest, Jewish Home’s CEO. “And people prefer services in their own homes, if it’s possible.” The group plans to add home care services in the near future.
The group also participates in the Program of All-inclusive Care for the Elderly (PACE) — a government program that provides community-based care and services to people age 55 or older who otherwise would need nursing home care. Until 2015, only nonprofit groups could participate in the PACE program.
The Los Angeles Jewish Home serves about 180 seniors through the PACE program, and the group hopes to increase that number by opening another PACE site in the near future. “There’s a huge need,” says Forrest.
5 Impact of healthcare reform
While much of the attention around healthcare reform has focused on the newly insured, the big healthcare trend affecting nonprofit (and for-profit) operators
is the migration from a fee-for-
service to a fee-for-outcome payment system. In 2018, nursing homes will be penalized if their hospital readmission rate falls below their expected rate. Rules covering assisted living probably won’t be far behind.
Managed care and accountable care organizations are already building networks of preferred providers that meet certain quality standards. About one-third of providers in the 2015 LeadingAge Ziegler 150 report are engaged in a formal healthcare reform contract.
“Operators need to pay attention,” says Dr. Cheryl Phillips, senior vice president of policy and health service at LeadingAge, the Washington, D.C.-based advocacy group with 6,000 nonprofit members. “Senior living providers are being held responsible for outcomes.”
Quality initiatives are becoming imperative. The 2014 Impact Act passed by Congress aims to standardize data to compare results across post-acute care settings. LeadingAge is educating its members on how to track quality measures. A tool kit for members allows a nursing home or home health agency to compare its results to other nonprofit and for-profit providers.
The American Health Care Association (AHCA), which represents skilled nursing centers and has about 3,600 nonprofit members, rolled out a quality initiative in 2012. Members track resident satisfaction, rehospitalizations, staff turnover and the use of anti-psychotic medicines to treat dementia patients. Members have access to benchmarking and trend tracking tools.
“We’ve made progress,” says Dr. David Gifford, senior vice president of quality and regulatory affairs at AHCA. The program’s goals were updated in 2015.
The Front Porch Retirement Communities focus on three quality initiatives: staff training, resident enrichment and internal assessments. The Glendale, Calif.-based nonprofit owns and operates 10 retirement communities, two active adult developments, and 25 affordable seniors housing projects.
Front Porch has a $90 million redevelopment underway at its Wesley Palms community in San Diego. The quality improvement programs have reduced hospital readmission rates, says Front Porch President Roberta Jacobsen.
“Quality initiatives translate into better patient care,” she says. “And managed care entities are looking at these metrics.”