Where Do We Go From Here? Senior Care Innovators Taking Divergent Paths in a Challenging Post-Covid Environment

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ATIInsights
11/29/2022
AUTHOR – Fred Bentley

Long term care (LTC) operators face a daunting array of challenges as the U.S. emerges from the pandemic. The workforce shortage has evolved from a near-term disruption to “getting back to normal” to a long-term existential crisis for many providers. As the end of the Public Health Emergency (PHE) gets closer, the regulatory environment has shifted from accommodating and flexible to one with tougher surveys, sanctions, and scrutiny on all facets of operations, from ownership status to clinical staffing levels and infection control measures.

The dramatic growth of Medicare Advantage (MA) also presents a profound challenge for LTC providers as MA plans (and their post-acute care benefits managers) seek to minimize Skilled Nursing Facility (SNF) utilization, length of stay, and payment rates. And perhaps most significantly, older Americans continue to place a premium on aging in place, undercutting demand for “institutional” LTC settings. 

At the same time, new opportunities are emerging for senior care providers. An increasing number of Medicare Advantage plans and primary care groups recognize the unique relationship that LTC operators have with their residents. Some of these stakeholders are approaching LTC operators with ideas for innovative partnerships that can benefit the residents and their caregivers, the LTC operator, and the payer and provider partners. And as key players in the healthcare industry focus on addressing the social risk factors like unstable housing situations and social isolation as well as food insecurity and transportation challenges, demand has surged for the types of non-medical services that LTC operators have long provided their residents. With the inevitable growth in the ranks of older Americans needing an array of services, LTC operators will play a vital role for many years to come.

Divining the Right Path Forward: Double Down on Your SNFs, Further Diversify Your Portfolio, or Get Out of Healthcare Altogether?

Given the significant headwinds and tailwinds facing LTC providers, it’s not surprising that senior care organizations are pursuing radically different paths forward.

As the figure above illustrates, LTC providers are taking increasingly divergent strategies with respect to their role in the healthcare system. These approaches are detailed below.  

Despite the resounding interest and investment, platforms in healthcare have not had the same widespread success seen by Uber and Airbnb, and often have a high failure rate just a few years after their launch. This is likely due to a variety of factors, including: 

  • “Healthcare-Less CCRC” – At one end of this spectrum, some prominent senior care organizations are dramatically downscaling their healthcare services. Indeed, some providers have opted to exit the skilled nursing business altogether in favor of a “healthcare-less CCRC” model that focuses on supporting residents in senior living settings. While this approach represents a dramatic shift away from one of their core service lines, the benefits of exiting a complex, highly regulated business with thin margins and growth challenges are too compelling to ignore for some operators. 
  • “LTC Focused Factory” – In contrast, adherents to the “LTC Focused Factory” model are doubling down on their skilled nursing business to position themselves as the go-to post-acute care provider in their market. They are investing heavily in advanced clinical training and state-of-the-art infrastructure to deliver superior clinical outcomes, create a differentiated patient experience, and manage a higher-acuity (and potentially more profitable) mix of short-stay skilled nursing patients. Many of these skilled nursing specialty providers have scaled back or completely jettisoned their long-stay business in favor of short-stay rehabilitation services. 
  • “Diversified LTC Provider” – Moving to the right on the spectrum, many LTC operators don’t want to significantly scale back their skilled nursing business or go all-in on a “LTC focused factory.” Instead, they are expanding the service portfolio to create new revenue streams and reduce their dependence on skilled nursing. This diversification can take the form of launching an LTC pharmacy, developing lab and imaging diagnostics offerings, or creating a robust outpatient (“Part B”) therapy service line. Looking beyond their campuses, we are seeing LTC organizations embrace the home-based care movement, ranging from partnering on private duty home care services to offering home-based hospice and palliative care. And an increasing number of LTC organizations are partnering with, or in some cases, standing up their own geriatrics-focused primary care groups. It’s important to note that not all of these moves will pay off! But they point to the desire among many in the LTC industry to diversify their service mix to remain competitive and relevant for seniors in their communities.
  • “LTC Payvider” – Taking the concept of diversification one step further, an increasing number of LTC operators have moved into the insurance business through Institutional and Institutional-Equivalent Special Needs Plans (I/IE-SNPs). They are migrating into the health plan space to capture a portion of the value they generate through better care management and reductions in ED visits and hospitalizations. Robust primary care services are central to realizing this value, and as a result, the LTC payviders are forging partnerships with primary care groups, and in some cases, launching their own nurse practitioner-led primary care groups. Achieving the necessary enrollment levels and managing utilization are a tall order for provider-led I-SNPs, but these organizations are seizing a growth opportunity and taking greater control over how healthcare dollars are spent on their patients.  
  • “Kaiser of Senior Care” – At the most extreme end, a select few LTC operators offer the full continuum of healthcare and healthcare-related services for senior care, seeking to be a “one-stop shop” akin to Kaiser Permanente. These organizations have built out the full care continuum, from primary care and preventive services to end of life care, complemented by ancillary services such as meals, transportation, and other offerings that address the social determinants of health. Similar to the “LTC payviders,” these full-continuum providers also offer I/IE-SNPs for their residents.  This is certainly a maximalist approach to senior care, but some organizations see a strong financial opportunity in providing fully integrated, financially aligned services for their residents. 

What’s the Right Path for Your Organization?

As ATI’s work with leading senior care organizations across the country highlights, the right path forward depends on market conditions and the organization’s mission and capabilities. For instance, in markets with relatively low MA penetration, an I/IE-SNP MA plan is unlikely to be successful. In markets with high MA penetration, doubling down on skilled nursing services as a “LTC focused factory” may not make sense financially given MA plans’ generally lower reimbursement rates and their efforts to divert members away from SNFs.

As organizations contemplate diversification, there are significant build/buy/partner questions to consider. While building or buying your way into a new service line gives you more control and a higher potential return, many senior care organizations are seeking specialized partners, whether its long-term care pharmacy companies or I/IE-SNP plan operators, to help them quickly move into a new market with minimal upfront costs and lower financial risk.

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