The pace of nonprofit affiliations accelerated in recent years, and the drivers behind consolidation are expected to grow in a post-pandemic landscape.
Those drivers include single-site providers benefiting from scale offered by larger providers, including through improved health care services and reimbursements, access to capital for campus expansions and capital expenditures, and as a solution to succession planning, Life Enriching Communities (LEC) Chief Financial Officer Jim Bowersox told Senior Housing News.
The Loveland, Ohio-based nonprofit, which operates three campuses, completed an affiliation with Concord Reserve — a continuing care retirement community in Westlake, Ohio — in 2020. And it is looking to further build scale through future affiliations.
LEC has been approached by several single-site nonprofits inquiring about possible affiliations.
“We happen to be positioned to entertain those opportunities, pretty regularly,” he said.
In addition, the organization is looking to restart its home health business, expand its CCRC-at-home program, and seize the “huge opportunity” in value-based care.
This interview has been edited for clarity.
Senior living has become more operationally and financially complex over the last few years. How has that placed new demands on you?
From my perspective, the issues that are driving [affiliations and consolidation] are growing: things like health care reimbursement, leadership succession, labor pressures, technology, access to capital to improve your campuses. All those things are harder.
We completed an affiliation and now have three campuses. It was a great opportunity to grow, but doing that during a pandemic, when labor is tough to come by, I found myself spending a lot of time on thinking about sourcing [capital and labor] … I work a lot with our human resources and operations people.
And financial reporting is more complex during the pandemic.
Did LEC receive CARES Act funding and HHS provider relief?
We did and that adds to the complexity, as the guidance changed quite a bit since the rollout — in fact, HHS has not finalized the rules for reporting and how [providers] will be audited. Tracking [funds] adds another layer of complexity.
Did Covid-19 make it harder to structure the financing for the Concord Reserve affiliation?
We needed to refinance their debt, but the timing of when we needed to refinance it was not in our favor. It was post-election and, typically, the bond markets are choppy during an election. But the pandemic [compounded matters]. Bond buyers weren’t anxious to jump into senior living during a resurgence [in positive Covid-19 cases].
We were fortunate to attract a private placement investor, and we’re pleased with how everything ended up. But that market that’s typically there, wasn’t.
We’re hearing that private equity is offering debt at higher interest rates. Can you share any details on the terms of the investor that LEC used?
Our private placement actually was with a capital management firm with a fixed income fund. The timing was just such that they were positioned to invest pretty quickly. We were able to negotiate rates that were near where they would be, if it was non-rated. We created a new obligated group for this affiliation, and we were right there with all the other non-rated deals that had [closed], up to that point before the market stopped. Frankly, we were able to get terms that were probably more flexible than a public deal. So we landed on our feet and I’m really thankful that that private placement source was there. I think it was an anomaly.
Are there areas where LEC is eyeing reducing expenses in 2021?
We have a Paycheck Protection Program loan for which we’ll be asking for forgiveness soon.
We’re always looking for cost reductions, and investments in technology is where we’re focused [in achieving those]. Where can we spend on technology to look for efficiencies? There is always pressure on margin. We’re constantly looking at technology to see how we might be able to strip out some costs that make our lives better.
How does LEC strike the right balance between mission and margin?
We use the Studer Group’s five pillars for our operating model: associate satisfaction and experience; resident satisfaction and experience, quality and safety; growth; and finance.
Every pillar is integrated. There are folks on the operations side that are thinking about all these things that we could do to make residents’ lives better, which we always strive to do. We’re pretty good about running those through that five pillar process to understand if [an initiative] makes sense. We typically start from the perspective of, how can we do this? Does it improve things, and can we afford it or can we afford not to do it? It happens a lot.
I will say during the pandemic, there wasn’t a lot of that going on. People were just trying to deal with the pandemic and the new pressures that were created. One of our challenges is to get the juices flowing again and get back to continuous improvement, outside the pandemic mentality.
What do you consider a healthy margin?
We like to operate well in excess of our bond covenants and thresholds. Where we are right now, we’re very comfortable. We just had our Fitch rating affirmation. Some of the things they said in their report — we’re at a 92% operating margin for expenses as a percent of revenue, for example — feel comfortable. That is well ahead of the medians.
We do have quite a bit of debt. So I’m always reminding everybody that we need the margin because we have a little more leverage than most. We’re above 700 days cash on hand and we want to maintain that. And we’re looking at opportunities to maintain those levels. We just don’t want any creditor issues, certainly. And we want to feel safe and secure.
Do you expect margins to be under more, less, or the same amount of pressure in 2021 than they were in 2020?
Between the PPP loan and money to cover infection control costs, the government relief and funding gave us a soft landing, and we’re grateful for that.
Our biggest concern is labor. Paying a premium for temporary labor definitely caused margin issues. They weren’t unbearable, but there was pressure.
We’re seeing, and hearing from others, interest in independent living come back. Skilled nursing saw a strong decrease, but that came back. One of our challenges is [generating interest in] assisted living. There are still caregivers who are home and can take care of folks who might need those services. But when they go back to work, maybe that will change.
I think people on our own campuses had the need to move from independent living to assisted living, but government restrictions may have caused them to [postpone a move].
Is LEC looking at diversifying its service lines to alleviate pressures caused by declines to revenues in higher care settings?
We have a continuing care at home program, Competent Living. It’s a concierge and care coordination program for people who are not on our campuses. We’ve been working on that for a couple years and we’re close to 100 members now. Our goal is to grow that significantly over the ensuing years.
We are relaunching our non-medical home services business, starting on our campuses. We [discontinued it] a few years ago, but we see so many reasons to get back in. We think that’s a wonderful way to generate more revenue and make peoples’ lives better. It’s better to have our own home care service where you have more influence over the care that’s given.
Is LEC exploring ways to enter the Medicare Advantage space?
We will be playing significantly in the value-based care arena. We’re actually going to be contracting with companies to coordinate post-acute care. We think that’s just a huge opportunity.
When you started at LEC, where was the company at and what were your priorities?
I started with the company in April 2006. Our oldest community, Twin Towers in Cincinnati, is the oldest CCRC in Ohio, and the organization built a second campus, Twin Lakes.
My job was to build an infrastructure network, increase our sophistication, and refinance our debt. We had a seven-bank syndication deal. Our goal was to simplify our capital structure. That was a pretty simple order, but a lot of work. In terms of building the infrastructure, we spent the last 15 years just increasing our sophistication financially and operationally, equipping our leaders differently, bringing technology to the forefront, and improving processes.
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