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Silverado CFO Sweetser: Data-Driven Approach Improves Operations, Profits

Silverado CFO Christian Sweetser has a passion for data. And in building the company’s financial planning and analytics department, he’s focused on getting other people throughout the organization excited about the numbers, to drive the company’s mission and bottom line.

“You have to make it real for people and connect it to what they do on a daily basis … as they’re making decisions,” he told Senior Housing News. “That’s the really exciting part. You get people energized and they carry it into the interactions they have with your customers.”

Sweetser joined Irvine, California-based Silverado in 2016, having previously been on the ownership side with Welltower (NYSE: WELL), a real estate investment trust. In some regards, Sweetser is drawing on the same data-oriented skillset he honed at Welltower, but he relishes being closer to the frontline of an operating business, he said during an interview for SHN’s “Bottom Line” series. For this series, SHN is connecting with chief financial officers to gain greater insight into how the evolution of the industry is creating new financial risks and opportunities, and to learn how these C-suite leaders are helping guide their companies into an exciting but sometimes uncertain future.

Silverado is well known as a pioneer in standalone memory care communities and operates about 40, as well as private duty home care and hospice businesses. Going forward, it is not only creating a more data-driven operation but is starting pilots with health care systems and payers — although the company has no plans to launch a Medicare Advantage plan of its own, and Sweetser is skeptical of this play in senior living. The company is also pursuing new developments, with $45 million in backing from Artemis Real Estate Partners.

The following has been edited for length and clarity.

You first joined Silverado in 2016?

I joined Silverado in May 2016. I was recruited to start their FP&A (financial planning and analytics) department. I was the interim CFO in September of 2018 and assumed the role officially in January of this year.

You came to Silverado from Welltower, where you also were involved in building an FP&A department. Can you talk about that transition from the real estate investor trust (REIT) side to the operator side?

I think Welltower really spearheaded a different approach to the business, which was working with the operators in a way that I think changed the trajectory of the industry. It had been more a traditional REIT industry — true landlord, tenant relationship with SNF (skilled nursing facility) operators. Now they were moving into senior housing and that relationship dynamic hadn’t really changed much. And then here was an opportunity to really say, the operators are responsible for driving so much of the value and patient care, and that’s where the rubber meets the road with respect to business, and it has this benefit of driving value to the real estate. So, if we get closer to the business, we can learn ways to drive a lot more value in our real estate that we’re holding. That’s what I really enjoyed at Welltower — building that aspect out. I had an opportunity to come and do it at an operator with Silverado.

I had met [Silverado CEO] Loren [Shook] and Tom Croal, the previous CFO, because we had worked with him on various projects we had kicked off and implemented during my time at Welltower, and they said we would love for you to come and do something similar here. We want to have that acumen in-house.

For me, curiosity and the opportunity to get much closer to the frontline of the business and perhaps help influence better decisions, was how I made the transition and what I’ve enjoyed about being here. It’s about your customers and the people serving your customer. Your associates and residents, patients and clients.

Can you describe some specifics of what you’ve put into place to get the FP&A department off the ground?

I think it goes back to the abiding obsession with the front line. What I think is important and I think has changed is helping operations teams — the folks doing the day to day — fundamentally understand the data they’re working with. Connecting everybody with that information and, most importantly, teaching them how to use it and apply it.

You send out financial reports every month to each of your hospice locations, At Home locations, your communities, and the level of financial acumen and ability to comprehend what’s there — that’s not their skill set. That’s not why we hired them. We hired them to run the community and take care of our residents and bring more residents in and enrich lives. So how are we helping them connect with the information and data?

So, one of the biggest things we did was — and it sounds simple but it always ends up being more difficult — is creating dashboards for folks, so our reporting wasn’t just a set of paper distributions every single month. It was, let’s focus on our key performance indicators … It’s really about connecting people with that fundamental foundation, in my mind, of finance, which is that every day you’re taking these actions, and all these events can end up looking very, very random, but — you look at all that data, and it’s not random. There are themes, things you could be doing that you say, I could have circumvented that by making this decision, or doing this differently. If you’re connecting people with that foundation, I think the lights go on. People say, ah, this income statement … it’s just the result of all my actions that I’ve already taken. So, how do I take a different action?

We just had our leadership conference, and of course, I had to cover financial responsibility. How do you get people excited about financial responsibility? It’s about as exciting as a wet blanket. So many people, they just assume that you’re just really good at math, and that’s why I’m never going to understand this income statement, it’s just a whole bunch of numbers. And of course everyone understands NOI [net operating income] or EBITDAR [earnings before interest, taxes, depreciation, amortization and rent], right, it’s just the bottom line, but what are the decisions that go into each of those individual lines down the income statement that truly can influence that EBITDAR?

I bring people back to, one, it’s that continuous curiosity and … getting people to calculate their average rates and look at their rent roll and say, all right, am I having rent roll up or roll down, because I’m moving people in above the average rates in the community? And helping them appreciate that math is not about the computation. It’s really just explaining why things turned out the way they did. The computation will tell you a story, and that’s a story we can learn from, to apply every day.

Is there an example of how the data has driven a particular change?

On the finance side, when I was put in charge of the At Home side of the business, in March of last year — about a year ago — a big focus for At Home is that it’s an hour of care for an hour of pay. So, unbilled overtime is a killer. When you’re running a 10% margin, an hour of unbilled overtime and all of a sudden that entire shift didn’t make money.

I started looking at the data, and said, okay, unbilled overtime, we’ve really got to focus on that. Everyone said, we’ve always focused on that. We really can’t get it over this particular threshold. So I said, let’s look at what we’re doing every single day. I started looking at which shifts did we incur the most unbilled overtime? Long story short, what was happening was most of our unbilled overtime was on short shift and infrequent clients. So, folks who we serve on a two to three-hour basis once or twice a week, sometimes once every two weeks.

We said, we’re not going to do shifts that are shorter than four hours — so, half a day — and we’re not going to have clients on our At Home business that aren’t at least getting 20 hours a week of service. That’s more consistent with our mission. Our mission is to change lives, and you can make an impact, but are you really going to change someone’s life if you’re seeing them twice a month or three times a month for a couple hours because you’re just providing their primary caregiver a little relief so they can go and do the food shopping? It fundamentally changed our At Home business in terms of the clients we accept. Our customer satisfaction has escalated by a significant margin and we’ve become more profitable.

We’ve reported that Silverado’s intention is to add about two hospice sites and two to three memory care communities a year, and there’s the At Home division. So there’s a care continuum model being built up?

Both hospice and At Home grew organically out of our communities business. To put it in perspective, we’re a $350 million [annual revenue] company, and the At Home is a $15 million business, and of that $15 million, 90% of it comes from our communities. It’s folks who come in, tour the communities, and decide they’re not quite ready to move into a memory care community.

If you’re not quite ready, we could bring some programming and introduce your loved one to what we do at the community. It’s what we call flex care. Our At Home caregivers will bring folks into the communities to participate in the programming. I think that’s something we do very, very well. We’ve done it for 12 years now and it’s been very successful. For At Home clients who are appropriate candidates for the communities, our conversion from At Home to the community is about 75%.

It really is a way we’ve extended our length of stay in the Silverado family, whereas our length of stay in the Silverado communities hasn’t moved materially in seven or eight years. But we’ve been able to extend that length of stay, and the same corollary on the hospice side.

Folks were providing hospice care in our communities — we have 24-hour nursing and great clinical outcomes over the last 20 years, readmit rates to the hospital of less than 3% despite a high acuity population. Compare that to assisted living, the last time they looked at it was in like 2012, at 35%. And SNFs around 25%. That’s because we have higher clinical [capabilities], medical directors at every one of our communities. That clinical oversight enables us to do a lot of what we do and have the outcomes that we have. The feedback from our nursing staffs and clinical was, these hospice companies are coming in to serve our residents, and not doing it at a level that we do. So, again, it started organically out of our own communities. We became a hospice-certified provider and we’ve grown with our communities in that way. Today, 35% of our 1,000 ADC (average daily census) that we take care of every single day are in our communities. For us, that was paying attention to what our staff were saying. As a company, that obsession with the frontline is in our blood.

With the ability to keep hospital readmissions low, is another benefit and maybe strategy in building out the continuum that health systems and payers start to see Silverado as a partner in more innovative payment arrangements?

I’ll answer that in a couple ways.

It’s my contention and it’s our position at Silverado that we’re still in very, very early days with respect to seniors housing being a solution to that pre- or post-acute care continuum. And for us, we don’t have the patients under care, the residents under care, the scale to start our own Medicare Advantage plan.

More importantly, being the data person, I think the head start and the data advantage that the large payers and providers already have over [senior living] — I don’t think it makes any sense for us to be jumping into that world, as an industry, at all. I think we need to be trying to work with them, but in essence trying to compete with them, having our own Medicare Advantage plan — I’m not saying you can’t learn a lot — but I don’t think you’d ever be competitive, and at best would be able to break even.

So, with respect to Silverado, in Southern California, on a pilot basis, is our supportive care program. We work with two different payers. Blue Shield of Orange County is one, and we’ve worked with a provider, Tri-City Health System in San Diego. So, one payer, one provider, and it’s a little early to talk about a third one. It’s our true foray and platform into that pre/post-acute solution. These payers or providers identify high-acuity individuals with chronic conditions, CHF, COPD, MS, et cetera, the folks that are those perpetual ER visitors, and we help to interrupt that cycle.

At Tri-City, their 30-day readmit rate was over 20%, about 22%, and we’re down now to less than 6%. We’re leveraging our hospice staff, and their 24-hour availability because we have that in place, the call desk and coverage, and using those folks as part of our supportive care program. It’s been very, very successful. And we’re excited about it and want to continue to roll it out.

With respect to CMS, we’ve found that some of these large payers and providers are much more innovative and more willing to work and try to create a program that can be constructive for both sides. That’s why we’ve worked with a payer and provider, and we get paid directly by them, we’re not billing Medicare under those programs.

Silverado secured $45 million from Artemis last year. Can you describe that partnership and give your take on the availability of capital generally at the moment? 

Taking a macro view with respect to the capital world, there is an abundance of capital. We get calls every single day. The one good thing I would say about that is that it’s been much more patient and prudent capital than 10 years ago.

We had the good fortune of going through and raising $45 million with Artemis, bringing them into the Silverado family. Part of that structure is designed to fund — not exclusively, because they put money into our holdings platform, which is our management company, our hospice company, our At Home company, so they’re aligned with us on the overall hospice and At Home strategy — but that raise was to fund our development. They’re pretty much the equity engine to fund our development, and we have a good relationships with several large banks and we’re doing two to three — more like three— new builds a year in tough in-fill markets.

I think that’s why we have an advantage. We’re hearing about a lot of failures on the memory care side, so there’s no shortage of acquisition opportunities. That’s how the company grew from the start, but where we have an advantage is that we do companion rooms, which is critical to our mission. You talk about human connection … It’s a bedroom, and you have a companion, so if you wake up in the night, there’s someone there. It’s not a money generating or cost saving initiative.

Putting my real estate hat on, what that means is we get a much higher density in rent per square foot, in our opinion, than anybody else in the industry. We’re taking about a 45,000-square-foot type of footprint with 80 residents. You get a density that allows you to go into 0.8-acre sites and get the rent per square foot to pay up for a true in-fill development, like we’re doing in Brea today, like we’re doing in Thousand Oaks today. Take a typical [senior living community], they could never build on the sites we’re building on. It’s an advantage from a real estate perspective that we’re trying to exploit. That’s why we’re not doing acquisitions, and why Artemis aligned with us.

Turning to the balance sheet, where are you seeing margin pressure this year? Labor seems to be the biggest concern industry-wide.

Based upon our experience, which may or may not be representative of the industry, it is possible to keep your labor costs/increases down if you’re just looking for bodies to fill a role in your community/building. 

Simply put, it’s all about the value proposition each of those associates brings to not just your residents but to their families and the community team. Just like maintaining your health can be decomposed into some broad guidelines, the same can be said for ADL assistance, med administration, et cetera, and the required training programs/regimen can be put in place to ensure they are adequate and appropriate. 

But, “care” is personal and individualized and requires building mutual trust, respect, accountability with residents, team members, families. That’s why we would characterize it, not as margin pressure or increasing labor costs, but rather as a “costly battle for the right people.” 

We work every day at improving our ability to identify and retain these associates as they are the key ingredient and typically only become more valuable with tenure, and their compensation reflects this.  And residents and families will pay higher rental rates every year as they understand and value this trust and connection. They appreciate that this cost is to ensure we (i.e. Silverado) maintain and keep our associates. 

You’ve said that housing seniors is always going to be necessary, but not necessarily seniors housing in its current form. Can you elaborate on that?

What’s the true value that we provide? In the case of Silverado, it’s the focus on improving and maintaining functional status. We see from a caregiver stress perspective, clinical outcomes and quality of life for residents, [this focus] is paramount. As the industry changes, what other things can we be doing to improve quality of life for our residents? It doesn’t necessarily have to be — because we have at-home as well — in the community.

Housing seniors is always going to be necessary, not necessarily seniors housing. What are we doing to continue to bring the value that we could bring to our residents in our environment or in the environment they choose to be in? That’s one key thing.

The second piece is the human connection.

You have the Aetna and CVS transaction, and in my opinion, the retail-ization of the health care experience and interaction, that’s not health care, in my mind … you can have a health/sick visit interaction in this very retail, wait-in-line format, but is that truly care? In our opinion, in our communities, in what we do in the home and why hospice is a core focus, is about human connection and bringing people life, helping them find purpose and enrich their spirit and life.

I think for what we do, and as an industry, what’s important for us to continue to be successful is to never forget that.

Did you always envision yourself having a career in senior living and being a CFO?

People say, you were an economics major, so you must have had this grand plan that you always wanted to go into business. But what I’ve always liked is the ability to be as exploratory as possible. What I liked about being an economics major at Cornell was that it only required me to take eight classes. It was literally like two semesters. I had six semesters to take whatever I wanted, which I did to the fullest. I took a lot of random classes that just seemed interesting. My passion is continuous leaning. I feel like you can and should learn a lot from different fields and it can make you more efficient and more effective in what you do every day.

The post Silverado CFO Sweetser: Data-Driven Approach Improves Operations, Profits appeared first on Senior Housing News.

Source: Senior Housing News

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