SNFs Get Ready – Claims Audits Start Soon!
Recently, CMS announced that its Medicare Audit Contractors (MACS) would soon commence (June 5) a five-claim audit process for every nursing home in the nation participating in the Medicare program. The reviews are set to occur on a rolling basis whereby each MAC in its region, will begin by pulling five Medicare claims from each provider in their region, assessing the claims for billing errors. The genesis of this program is a Health and Human Services report that noted that (approximately) one-fourth of all SNF claims were improper as supported by documentation. In CMS language improper means overbilling vs. underbilling.
The goal of the claims review program is purportedly a combination of recoupment when payment is too high combined with education. It is likely that providers with prior bad history of ADR (Additional Documentation Requests) or probes, if their performance on this review is poor, will receive additional follow-up attention. The claim reviews are pre-payment vs. post-payment.
From the Medicare FFS (Fee for Service) Improper Payment Report (all provider types) for 2022, I included two pages with data, illustrative of the SNF improper payment issue and the reasons why. The pages are located here:2022 Improper Payment Report – SNF The most common cause of impropriety was insufficient documentation. Some of this continues to relate to PDPM as SNFs in many regards, lag in terms of MDS coding knowledge and billing education. COVID did not help. Other issues are as simple as improper certification times, illegible signatures, improper Section GG (therapy coding) and improper diagnosis codes. Per CMS, the improper payment amount for 2022 is estimated to be $5.8 billion.
My caution here for all post-acute providers but especially for SNFs and Home Health Agencies, claims audits are here to stay. According to Altarum’s Health Economic Sector Index, SNFs spending increased 11.6% YoY (March) and Home Health spending increased 8.7%. Outlays, within programs with known billing impropriety issues, beget claims reviews. The full Altarum brief is here: https://altarum.org/publications/may-2023-health-sector-economic-indicators-briefs
As I have written before, compliance is a fairly new requirement for SNFs. Within the ethics and compliance Condition of Participation found at 483.85 (F- 895) SNFs must, among a number of requirements, implement a system (reasonable with policies and procedures) to find and correct, improper billing practices such that the same, could be fraudulent or could be in violation of federal law. The last element, violation of federal law is tricky. It is against the law to bill Medicare for care that is rendered improperly or is sub-standard. Technically, care provided to a resident, billed to Medicare, later determined to be harmful via a survey (G level violation or worse) is a violation of federal law. A decent overview of the compliance requirement is available here ComplianceandEthics 483.85
Essentially, post-acute care providers, particularly HHAs and SNFs need to develop a comprehensive ethics and compliance program that INCLUDES regular claim audits. The difficulty, however, is for the audits to be useful and proper, the same should be conducted by an independent auditor. This can be costly and often, non-helpful when the auditor is not uniquely familiar to normal provider operations and typical survey and certification processes. The goal of the audit process is detection and then, education. Incorporated properly within a well-developed ethics and compliance framework, the audits can be completed efficiently and wrapped within a proper QAPI (Quality Assurance) function. Done right, the ethics and compliance program dovetails into a QAPI program and vice-versa. This reduces separate work, enhances process improvement, focuses on resident/patient care and how the same is effectively provided, properly documented, and properly billed. Watch this site for more on this topic and for additional tools that I have developed and effectively used with H2 Healthcare clients.
A bit of travel awaits so I will not offer new posts/updates until next week. Until then, Vaya con Dios!
Wednesday Feature: Summer’s Here!
This past weekend was the official, unofficial start of summer as Memorial Day weekend typically ushers-in the summer faves of barbecue, fireworks, picnics, parades, and warm days. I hope you all enjoyed the weekend and took a bit of pause from your fun to remember those special men and women that lost their lives in service to our country (USA).
There are so many summer traditions that I am fond of or fondly recall as part of my youth (a long time ago). Foods of course, cooked on the grill, never go out of style. These days, I am a fan of farmer’s markets, fairs (local and state), and drives on country roads in our Mustang convertible. When I was young, a summer ritual was packing the car with food and drink and heading to the drive-in movies. For a while, the drive-ins were in steep decline, but I’ve noticed a renaissance occurring and within an hour’s drive, we can hit a drive-in theater. The problem for me now, is that there just isn’t the summer blockbuster, got to see, movies that typified my younger years (and memories). Sure, the comic book adaptations are kind of fun, but I really miss the kingpins of my youth.
I’m going to date myself with this post but so be it. I grew up in the 60s and 70s. My young adult years were the 80s. I spent many days in my youth in movie theaters, Saturday matinees with cartoons! I grew-up in the city so getting to the movies on a Saturday was as simple as scrimping together some change (50 cents was more than enough), hopping on your bike (weather permitting), and hitting a local theater – the old-fashioned kind with a balcony, single screen, drawable red and gold curtains, etc. I was a big Tarzan fan, any kind of western, and some of the creepy, old monster movies like Dracula and the Mummy.
As I got into my teen years and early 20s drive-ins were great as were the multiplexes that had just started to populate shopping malls. Movies were great for dates, followed by a pizza or ice cream. Seeing a blockbuster at a drive-in was a real treat and I have many memories of nervous jumps and audible shrieks at a drive-in theater where I saw Jaws. The enormity of the screen and we, as always, were fairly close, was a perfect venue to see a flick like Jaws.
As I have gotten older, I no longer have a big desire to go to the movies via a theater. My wife and I will try to conjure-up a date night at a drive-in this summer, provided we can find a movie we both will like. A couple of places we know of, occasionally pull-out an oldie, worthy of our attention. I guess we’ve fallen into a routine where, we can find something on-demand for a few bucks and be comfortable at home with a glass of wine and some snacks – definitely cheaper and more practical when it comes time that either of us needs a pitstop.
As I migrate into summer in the great Midwest, I can’t help but recall my favorite summer flicks, the blockbusters of a few years back. My ten favorites are below including the year of their release. I hope this post stirs some fond summer memories for you. Happy Hump Day!
- Jaws – 1975
- Star Wars, Episode IV (A New Hope) – 1977 (this was the original Luke, Leia, Han Solo, et. al. flick)
- Star Wars, Episode V ( The Empire Strikes Back) – 1980
- Raider of the Lost Ark – 1981
- Star Wars, Episode VI (Return of the Jedi) – 1983
- Ghostbusters – 1984
- Back to the Future – 1985
- Top Gun – 1986
- RoboCop – 1987
- Total Recall – 1990
And, last to mention, an all-time guilty pleasure film of mine from the summer of 1996 – Twister! Still a must watch when I can catch it.
Friday Feature: SNFs Still Make Sense
For some recent years, enhanced by the pandemic, the role of SNFs in the post-acute/senior living industry has tarnished. Residents and families often view the SNF as a “negative place” to reside, even if for short-term recuperation. Clinical staff take a dim view of the care complexity such that the SNF is a downgraded clinical setting, less than a hospital or outpatient setting. Providers, struggling with reimbursement inadequacy and advancing regulation, have reduced beds or closed locations. Some organizations like CCRCs, have minimized bed capacity or completely eliminated the SNF and moved to advanced Assisted Living care as the highest available care option for residents. Yet, in spite of these trends and the tarnish, SNFs have a place in the continuum and in some regards, and advancing place.
What challenges the SNF industry and thus, its reputation, are more external forces than flaws in the core purpose of an SNF. External forces such as onerous and increasing regulation, below cost reimbursement, and labor shortages are the most common forces providers deal with. Gone are the days where nursing homes were locations of long-term stays, typified by years of residency. Where and when this still occurs is for residents with early-age disabilities, or for residents that have minimal financial means such that Medicaid nursing home benefits are the primary level of support for care. With Medicaid supports via waiver programs expanding, long-term skilled nursing care includes primarily the most complicated residents, those with multiple conditions requiring skilled nursing interventions weekly or even, daily. Examples include ventilator care, dialysis, tube feedings, ostomy care, etc. While these services can be provided in the home or a non-SNF setting, location challenges often make an inpatient environment (SNF), the best place for consistent care when required.
The demographics forward, favor a post-acute, SNF setting. Despite the push for post-acute care to migrate to home settings with home health the reality remains, this is not the answer for every patient. The older the patient, the number of comorbidities involved, the nature of the comorbidities, the presence of an aging spouse with health challenges, etc. all are a predicate to whether or not, home care via home health is viable. Today, even access to home health can be challenging if not, impossible. The staffing challenges all health care providers face are particularly daunting for home health agencies where, acceptance of cases, especially complex cases, comes down to having available staff to meet patient needs. As home health care by its nature is inefficient, facility-based care can be more feasible when complexity of the case is at issue and the availability of staff is challenged. In other words, staffing one location that can accommodate say 60 residents, is easier than staffing a caseload of 60 separated by travel with distances expressed in miles.
The SNF industry and the facilities within tend to be some of the oldest classes of assets in the senior living industry. The cost of new construction is high and without access to a very high-quality payer mix, the returns are challenging. For providers than can maintain solid occupancy and high-quality payer mixes (Medicare, insurance, private pay), the returns are solid and the access to capital is there. Medicare Advantage plans are starting to create solid value-based care propositions for good providers with exceptional quality records AND great care coordination partners. For example, an SNF that has a relationship with a Home Health Agency, either owned or in partnership, has the ability to package price disease management approaches by common clinical conditions that include SNF care and HHA care, all bundled, and care coordinated. If the pricing is mapped with overall savings, reductions in re-hospitalizations, improved patient outcomes and satisfaction, the opportunities going forward are significant. I have a number of pathways/algorithms that fit this example. A few can be downloaded here.
What headwinds lie ahead fall mostly around staffing, regulation, and reimbursement. Oddly enough, the failures that will inevitably occur necessitating closures and bed reductions, will make good SNFs stronger going forward. The demand by demographics and patient needs is only increasing. There will be a significant role for SNFs to play in meeting the market needs. The questions that beg are around reimbursement keeping up with increasing costs and how disconnected will new staffing regulations be to the reality of the labor markets. As I have said in other posts, mandates make no sense when in all reality, the mandate cannot be met now, or anytime in the near future.
Bottom-line: Banks are still willing to lend to good providers. REIT capital is available as is private equity for facility improvements and modifications. Demand is decent and recovering. There is a lot of pent-up demand as well, post-COVID. Valuations have remained stable for SNFs as well. Plenty of partners exist, more so than other senior living segments (hospitals, Med Advantage plans, health systems, Home Health Agencies, etc.).
Litigation risk is still an issue but a recent court case in Washington involving Life Care Centers of America concerning COVID and the liability for infections obtained in an SNF was found favorably for Life Care Centers. One case, however, is not a trend but it is a good sign that perhaps, the SNF industry will not be overwhelmed by COVID litigation pertaining to outbreaks and occurrences in facilities. A synopsis of the case is available here: https://www.mcknights.com/news/life-care-centers-vindicated-in-early-covid-wrongful-death-case/?utm_source=newsletter&utm_medium=email&utm_campaign=NWLTR_MLT_DAILYUPDATE_052323&hmEmail=IjP1GPaY%2BJ2uvsLxTJ79bVeRWY7ycbnr&sha256email=aa4cb7c695037c31a216b9562788596b6fcd012145d566f31440b6fcd139c8a9&elqTrackId=2c80aade4c3647c8ab5b85f72fb85138&elq=8a824ff9b15249a9bf296d2d2c1be9e8&elqaid=4134&elqat=1&elqCampaignId=2746
Well-run, well-capitalized SNFs with more modern physical plants have a solid opportunity in the evolving post-acute industry. Challenges exist but opportunities do as well and, in my opinion, the opportunities outweigh the challenges for operators that understand value-based care models, are willing to develop partnerships, can maintain staff, and have great quality and service records.
Wednesday Feature: Memorial Day
Aside from the holiday and the weekend immediately prior marking the start of summer, Memorial Day is a significant holiday for many. Officially, it is a national holiday set aside to remember and mourn the deaths of service members, killed in the line of duty (while serving in the U.S. Armed Services). It is unlike Armed Forces Day and Veteran’s Day which exist to honor and recognize, all who currently serve or have served, in the Armed Services (alive or deceased).
Originally, Memorial Day was known as Decoration Day. The first holiday version was created by John Logan, Commander of the Army of the Republic to honor fallen Union Civil War soldiers. The day spread across the states as a day of honoring fallen soldiers via grave remembrance decorations. By 1890, every Union state celebrated the holiday. With the onset of World Wars (I and II) the day’s recognition expanded to all fallen soldiers, regardless of the war.
In 1971, Congress officially designated “Decoration Day” as Memorial Day and marked the national holiday to occur on the last Monday of every May. It is a day which includes many celebrations ranging from religious services at Veteran’s cemeteries to parades and festivals, etc.
This upcoming Monday is Memorial Day in the United States. I am grateful to be a resident and citizen and forever in debt to the brave men and women who fought for the freedoms I enjoy – daily. I will certainly pause and reflect on Monday. Until then, Happy Hump Day. Below is a favorite Memorial Day poem from Henry Wadsworth Longfellow – “Decoration Day”.
Sleep, comrades, sleep and rest
On this Field of the Grounded Arms,
Where foes no more molest,
Nor sentry’s shot alarms!Ye have slept on the ground before,
And started to your feet
At the cannon’s sudden roar,
Or the drum’s redoubling beat.But in this camp of Death
No sound your slumber breaks;
Here is no fevered breath,
No wound that bleeds and aches.All is repose and peace,
Untrampled lies the sod;
The shouts of battle cease,
It is the Truce of God!Rest, comrades, rest and sleep!
The thoughts of men shall be
As sentinels to keep
Your rest from danger free.Your silent tents of green
We deck with fragrant flowers;
Yours has the suffering been,
The memory shall be ours.
Home Health and Assisted Living: Compliance and Litigation Tips to Note
A growth, if you will, opportunity for many Assisted Living facilities is caring for a more clinically complex resident or resident group. The clinical complexity is very much tied to additional medical and physical frailty, necessitating access at times to skilled nursing and therapies. Most Assisted Living facilities, especially those not affiliated with a national or regional organization with infrastructure services such as therapies, seek services from Home Health Agencies when required. In this manner, the Assisted Living core staff are for resident ADL needs and care primarily, and the intermittent skilled needs of certain nursing interventions and therapies (OT, PT, etc.) are provided by the Home Health Agency.
What occurs when an Assisted Living and a Home Health Agency work collaboratively to serve certain residents with skilled needs, is a bifurcated relationship where roles and responsibilities for resident care and service can get murky. Briefly, here are the two organizational duties for resident care.
Assisted Living Facility:
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- Room and Board accommodations including (typically) common areas, dining/meals, some level of furnishings, utilities, access/egress, outside areas, etc.
- Staff supervision of residents in general and the facility including maintenance and cleaning of the environment
- Resident assistance or direct provision of ADL cares such as dressing, toileting, bathing, mobility/transferring, eating but not generally, feeding assistance.
- Social activities for residents and certain social services.
- Medication management and administration. Facility may/may not accommodate medication ordering via a pharmacy relationship.
- Other services such as religion/pastoral care, beauty/barber, transportation, dietetics, physician, banking, etc. may/may not be available.
Home Health Agency:
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- Physical, Occupational, and/or Speech Therapy as assessed by need and as ordered by a physician.
- Skilled nursing services if required, as assessed by need and as order by a physician. These services typically include education, various wound treatments, complex catheter care, IV services, ostomy care, pain management, etc.
- Services are provided as needed by the resident.
- The Agency must provide training/education to the Assisted Living Facility staff regarding the skilled services/care it is providing.
- The Agency is responsible for care coordination between the two organizations such that, its orders and services are reflected as required by law, in the resident Service/Care Plan.
- The Home Health Agency is also responsible for billing insurance or Medicare and for keeping its own medical record.
- The Agency is responsible for patient supplies as the same pertain to their provision of skilled services.
- The Agency is responsible for maintaining compliance with Medicare Conditions of Participation and it cannot delegate any related tasks or duties to the Assisted Living unless permitted by regulation. Examples include obtaining orders for care, updating physicians as needed, documenting service provision, reconciliation of medications, etc.
Think of the relationship this way. The Assisted Living serves as the resident/patient’s home. This is no different than if the resident/patient lived in the community, in their own residence. One could easily create the relationship via a mental picture of the Assisted Living staff as familial caregivers.
The Home Health Agency’s relationship is then, no different than if the patient resided in their own home. The Agency must assess, develop a plan of care, coordinate visit schedules, document the care, share info. with the patient and the family (Assisted Living staff), and when appropriate, discharge plan and coordinate care for any additional services.
The compliance and litigation perils occur when the relationships between the two become blurry or, when either entity fails to properly meet its separate obligations. Here are the common risks that I routinely see/encounter.
- The Home Health Agency fails to incorporate the Assisted Living in its plan of care and to educate the Assisted Living of the same, especially if follow-through is required on ADL education or support.
- The Assisted Living fails to update its Service Plan for Home Health services, as required. The biggest error I see here is typically with regard to therapy services and the introduction of any new devices (e.g., walkers, canes, support bars, adaptive equipment).
- The Home Health Agency delegates physician and family contact to the Assisted Living for Home Health related service needs.
- The Assisted Living fails to notify the Home Health agency of changes in resident care, conditions, etc. such as noticing a change in skin condition, a change in a medication order unrelated to the Agency’s skilled services.
- The Home Health Agency fails to coordinate care via discharge planning, even though the resident will remain at the Facility.
- The Home Health Agency does not do med reconciliation on each visit, believing that the Facility should update the Agency with any new medications or order changes.
- The Agency is not responsive on a timely basis to resident condition changes including, hospitalizations. The Agency must be on-call and connected to resident condition changes, documenting and addressed service/care plan updates as required, especially post-hospitalization.
The risks associated with caring for a more complex resident/patient in an Assisted Living environment when Home Health services are initiated are many, as indicated above. I suggest Assisted Living Facilities try to coordinate their Home Health offerings, where possible, with a few or even, one agency. With good collaboration between providers, the risks can be minimized. In any regard, both providers need to understand their roles in resident care and make sure, staff are well-versed in their respective responsibilities. I advocate tools/cheat sheets if you will, especially for AL staff, delineating “who does what” and where, resources can be sourced if need be.
Senior Housing and the Real Estate Market – Status
While we are seeing incremental occupancy gains in senior housing, the increases are slow but steady. Is there a leveling-off point upcoming? Perhaps. Regardless, even with the recent history of gains, there is a reason to be a bit skeptical for some product types to continue to improve. My skepticism rests at the Independent Living product level, specifically on above-market rate units and entry fee units. The reasons are the real estate market and the economy.
IL housing and CCRC IL units are interconnected with the residential real estate market. Though demand for these product types has proven durable, the demand is highly price elastic. In other words, as these product types tend to be rather pricy, higher than comparable living conditions, economic forces that constrain value (either real estate or estate), shift demand away from higher priced product offerings. Today, the real estate market with its conditions somewhat similar to 2008-2010, is creating a negative drag for senior housing demand, specifically, entry-fee units and high-end above market rate IL units.
Per NIC (National lnvestment Center), while occupancy levels for IL improved in April 2023, the same remain 4.4% below pre-pandemic levels for the same period (March 2020). In the major metro areas that NIC tracks data, only 4 markets out of 31 have moved back or above, pre-pandemic levels (e.g., San Antonio and Pittsburg). Interesting to note however, is that the recovered levels still reflect occupancy averages below 90%.
Demographic trends for senior housing remain solid and new inventory is almost non-existent due to high development costs (interest rates and construction supply and labor costs). These forecast opportunity for occupancy improvement BUT, residential real estate conditions (current) create a significant drag. Higher interest rates (decade plus high) and tighter lending conditions plus a Fed Reserve that is not consuming mortgages today, suppresses buyers. While home values expressed as prices are stable to slightly increasing, the liquidity conditions necessary for homes to be fluidly sold (ready credit, favorable lending conditions), are not favorable today.
Below are some of the current non-favorable residential real estate conditions that are dragging home sales and thus, keeping seniors tight to their residence (and out of a CCRC/IL move queue).
- Supply of homes for sale overall is low, much due to existing residences with low interest rate mortgages (below 4%). These low rates make it exceptionally difficult for the current owner to sell and buy a new home with an equal cost-factor (same mortgage level).
- Zilllow is forecasting home prices to increase modestly over the next two to three years: 3% range with a peak or event slight fallback, possible. The cause is rising interest rates, credit tightening and an increase in housing supply but primarily, rental supply.
- The Case-Shiller/S&P Index for home values/prices illustrates a significant slow-down in home values. As long as mortgage rates remain high, combined with tightened bank credit policies, home values increases will be slower than 2019 to 2020.
- Mortage rate forecast track close to inflation expectations. Most economists believe inflation will remain higher than pre-pandemic levels for at least the next twelve months. While a recession will likely cause Federal Reserve rate reductions, the depth and strength of a full-blow economic slowdown will also, hurt home sales. Recessions typically come with job losses and job losses/higher unemployment drive buyers away from residential home purchases, pushing more people into rental real estate options.
Another overall set of numbers I am watching in conjunction with CCRC/IL demand tie to returns on investment assets or asset classes. CCRC movement in terms of new entrants is yes, impacted by the liquidity of residential real estate but similarly, by the overall condition of the economy. Social Security increases boosted incomes but, the reduction in overall estate values tied to other asset classes, puts a damper on the estate values of seniors. Reductions in investments and estate values, even if real estate prices remain solid, create a general sentiment of negativity such tha timing of making a major CCRC entry fee investment is viewed less favorably. Higher-end IL options are living choices not typically, living requirements. Sentiment, feelings about where the economy is at and where the health of an estate is at, propel or drag, investment and moving decisions. Today the sentiment is “drag”. Below is a graph illustrating inflation, the home value index (Case Shiller) and the Bank of America/U.S. Corp. Total Investment Return index tracked by the Federal Reserve. The blue line is CPI, the red line is the Case Shiller Index, and the green line is the Total Return Index.
While the Case Shiller trend has been modestly up and then steady to slightly down, the investment/total return index has been on a down trend for nearly three years – since September of 2020. Until this index comes closer to the inflation index which, will only really occur as inflation moves down, consumer sentiment about the economy will remain soft. This soft sentiment for senior adults with few years of life left for recovery, creates the pessimism around moving and investing in a higher cost, higher end lifestyle in CCRCs or high-end rental projects.
My outlook is for a softer demand cycle as long as economic conditions for investments and residential real estate remain proximal to their current position. Seniors will have less opportunity to liquidate a primary residence and while those that do will receive decent prices, their overall estate values in terms of real estate and savings, will have shrunk in real purchasing power. Inflation reduces wealth and purchasing power. The cures unfortunately, are a bit brutal and tend to impact middle class seniors the most, especially those in the prime age demographic for CCRCs and IL housing. Operators are going to have to continue to market and be creative and likely continue to use incentives, to gain incremental occuppancy.
Friday Feature: 5 Important Leadership Principles
Every successful organization shares a common trait – good or great leadership. I’ve written numerous articles on this topic and how the same is connected to employee retention, market share increase, brand dominance, and organizational wealth (balance sheet and cash flow). Fundamentally, organizations flourish under good leaders and flounder when leadership is poor or not present.
I’ve worked with many, many organizations in turn-around situations whereby, prior executives failed to provide solid leadership and operational performance demonstrated that lack of proper leadership. In senior living, the common signs of poor leadership include staff morale, too many unidentified supervisory or management positions generating bureaucracy but not results, weak financial structure expressed via marginal cashflows, census challenges, rate imbalances, no growth plan, marginal quality and service, etc. The structural imbalances are evident even if the basics get done.
There are only three business strategies: grow, milk, or sell. Selling occurs when a business decides that it either cannot exist on its own or it’s time to return capital to its investors. Milking often occurs before selling if the business has been successful. Milking entails skimming profits and cash, generally prior to selling. For non-profits, milking and selling are pretty much, moot strategies. Frankly, most businesses choose to adopt a growth strategy. Growth however, requires good, solid leadership and governance. Without these elements, a strategy for growth may be discussed or even outlined but implementation will not occur successfully.
I am a fan of Peter Drucker and Steve Jobs in terms of how leadership and growth are operationalized. From both, I’ve developed and maintained a set of leadership principles that tested, over time, work and facilitate growth and business success. Below are the first five principles.
- Remember Occam’s Razor/KISS: Leaders should keep things as simple as possible and focus on relentless incrementalism. Growth comes via a learned set of behaviors that if properly simplified, and rewarded, become habits. Likewise, it easier for the operational leaders to put into place, simple goals and objectives that forward the growth strategy. I’ve watched so many strategic elements fail not due to a bad concept but due to too much complexity. How do you eat an elephant? One bite at a time!
- Measure what Matters: This ties to one above but it is a bit more nuanced. Organizations talk about KPIs, etc. and throw out reams of data, often meaningless to growth. I like a simple set of core metrics. For example, care breaks down to only so many things that matter to the patient and the organization. Outcomes are key. Financials are relevant only such that the same paint the desired picture. I like a focus on cash, especially in relationship to the expenses. This is often called, ROI.
- Play a Long Game: Leaders should focus on a long view, one that embraces an ongoing picture of what growth and success looks like. Short views frustrate management and staff. The short stuff is about progress toward a longer, bigger picture. Paint this picture, evangelize it, reward it and growth will occur.
- Create Succes via Humanness: In service organizations like healthcare, people are the capital. They are the most precious commodity and a renewable resource. Leaders build teams like coaches. Treating people with respect, caring about them and for them, affords them the comfort and willingness to do great things. I like what Steve Jobs said about doing great things in business: “Great things in business are never done by one person; they’re done by a team of people.”
- Create Constant Forward Momentum: Leaders are and always should be, ahead of any point in time. They sell and exhibit a forward vision and work constantly, to keep momentum going forward (e.g., growth). A good leader looks to simplify, keep obstacles to progress minimalized, rewards activity and growth, recognizes performance, and when necessary, eliminates people that are barriers to the team and its accomplishments.
TGIF!. I’ll have more on leadership in future posts!
Wednesday Feature: Here’s Comes Summer!
I can feel it and smell it…. summer is coming. Every year at this time, it feels like it’s taken forever, but soon, the warmer days and the longer days (hours of sunlight), erase the darker memories of dreary, cold days. Winter becomes a distant memory, replaced by a joyous desire to romp outside.
Where I primarily live, the celebration of summer is almost a ritual. Winters can be long and springs, short. Some years, spring is almost unrecognizable, and summer becomes, a quick jump into warm, muggy days. This year though, winter was relatively mild marked by a decent amount of snow but no real prolonged frigid, sub-zero periods. Just north of me, the snowfall was righteous and the melt, the cause of major flooding along the Mississippi. The transition to summer can be brutal at times.
Early summer is also storm season or can be. When I lived in the Great Plains, this timeframe marked the sweet spot of tornado season. I’ve seen my share of tornadoes, fortunately not up-close. Still, I love watching storm systems and cloud formations as warm fronts clash with upper air cold fronts, etc. The views can be breathtaking and soul filling.
Soon, next week in fact, the summer season kicks into high gear. Most schools will be closed or soon to close. Memorial Day marks the official/unofficial start of summer with picnics, a long weekend, the Indy 500, and maybe, the first family camping trip. While the official first day of summer will remain two weeks away, Memorial Day is a perfect weekend to begin in full force, the rituals of summer. County fairs start along with various festivals. Farmer’s Markets awake (a favorite for me) and early produce like asparagus, some lettuces, rhubarb and onions become available. My summer planting is also done so now, I can wait for the flowers and the first tomatoes and peppers that will add (wonderfully) to my summer meals.
I now will spend almost every evening on our open porch or deck. We’ll eat outside nearly every day. When time permits, we’ll hop into our Mustang convertible and take long(ish) jaunts to various favorite spots for lunches or ice cream. We’ll hit parades and firework events as often as feasible. The Farmer’s Market will become a weekly stop, one or more locations. Suffice to say, I will be outside as much as I can, charging my batteries for what I know, will be another winter. Summer gives me the memories and energy to hold-off against the northern winds and frigid, dark days in January.
With Memorial Day next week and the marking of another summer season right along with it, feel free to share your memories in a comment to this post. I’ll try to retain as many as I can! Happy Hump Day!
Insight: CEO Turnover
During the pandemic and continuing somewhat through current, healthcare turnover has been on the rise. Nursing turnover (from direct care) and retirements exploded by mid-pandemic. Burnout was high as was job dissatisfaction. What became evident is the linkage between staff turnover and staffing difficulties along with COVID policy, and CEO turnover. While 2021 turnover was proximal to prior year norms, 2022 is showing an increase as the pandemic wanes but other headwinds increase.
According to Challenger, Gray & Christmas (executive outplacement firm), there were 62 hospital CEOs that called it quits in the first half of 2022 versus 42 in 2021. The impact is actually a bit more pronounced as the overall number of CEO positions has declined due to consolidations and closures. This same source indicates that the primary causes of turnover are COVID burnout, rising capital costs, capital access constraints, and staffing. Financial pressures due to these factors, evidenced by multi-billion-dollar losses at even the largest systems (Ascension $4.7 billion, CommonSpirit $3.7 billion) further contribute to turnover.
Senior Living/Post-Acute care is walking an almost parallel line in terms of turnover at the CEO level. Longer term, large provider executives are at retirement ages. The industry has not generated younger executive leadership in proportion to the positions that are turning. Talking with some of the larger recruiting firms specializing in Senior Living (e.g., Witt/Kiefer), even prominent positions at large non-profit organizations are struggling to source qualified candidates. The experience levels across the expanding system offerings (e.g., hospice, home health, post-acute services) aren’t universally held in various areas. Demand is high but quality candidate numbers are lower than say, 10 years ago. Further, market challenges in some areas such as high litigation, (low) available staff numbers, and changing demographics (think Chicago, Detroit, Portland) place boundaries on candidate opportunities. Simply put, many candidates have no desire to relocate to challenged locations.
Looking at key position availability by title, LinkedIn shows over 6,000 executive director/C-level openings in senior living. By comparison, LinkedIn shows hospital C-level openings at 738. The average tenure today for any healthcare CEO is a smidge over 5 years. Twenty years prior, the average tenure was between 10 and 15 years. Below are some interesting CEO turnover data points from Becker’s Hospital Review.
The average hospital CEO tenure is under 3.5 years.
• Fifty-six percent of CEO turnovers are involuntary.
• When a new CEO is hired, almost half of CFOs, COOs and CIOs are fired within nine months.
• Within two months of a new CEO appointment, 87 percent of CMOs are replaced.
• Ninety-four percent of new CEOs without healthcare sector experience believe extensive healthcare knowledge is not necessary to replace senior management positions.
• Eighty-nine percent of people involved in the hiring process believe a broad area of business expertise is beneficial in a hospital CEO position.
• Most new hospital CEO candidates come from a venture capital/private equity industry background (42 percent,) followed by finance and accounting (40 percent,) banking (32 percent) and marketing and sales (19 percent.)
An element not often factored into CEO turnover is the ripple effect. According to the American College of Healthcare Executives, the departure of the CEO is followed by departures of 77% of Chief Medical Officers and 52% of Chief Operating Officers. I have seen wholesale executive staff departures (CFO, COO, CPO/HR, etc.) in less than six months post the departure of a popular/effective CEO. In rural settings, the loss of a healthcare CEO can be even more painful as the executive role within the community in terms of service on various boards and civic organizations is lost with the vacation.
Addressing CEO turnover today is a function of understanding the key contributing factors. Below is a solid list that I have compiled over the past three or so decades of my work in the industry.
- Difficult relationships between the CEO and the Board
- The regulatory and reimbursement environment is becoming more challenging
- Profit motives out rank care strategies and growth
- Cultural misalignment
- Geography/location
- Challenges with helping board members understand their roles (often, board members are appointed/recruited from within, without proper training and onboarding)
- Capital access challenges
- Staffing challenges/building and maintaining a core team
- Compensation and benefits (an inability to maintain competitive compensation)
Given the above, and the fact that the majority of turnover is non-voluntary today, the industry volatility creates planning challenges. With average tenure at right around 5 years, constant and consistent succession planning for the healthcare organization is required. I’d argue, given the overall lack of qualified candidates that can be source externally, an internal leadership development process is preferable. What I have seen is that internal candidates tend to create less ripple turnover and have an advantage such that they know the culture and organizational capacity. The downside, however, is that internal candidates can have too many organizational biases and bred relationships such that creating change and new strategies that challenge the status quo (we’ve always done it this way), becomes difficult if not, improbable.
Senior Housing/Senior Living Debt Review
Senior housing in the form of CCRCs, Independent Living and Assisted Living (including memory care) is a large user of debt financing. While equity has become more prevalent via increasing private equity interests in senior living, operators, especially non-profits, continue to rely heavily on bank and bond financing. Private equity and venture capital investment trends tend to curve toward newer projects, acquisitions, healthcare offerings on the post-acute side (home health for example) and other ancillary businesses (SNFists/intensivist physician practices, pharmacy, therapy). Given the current economic conditions and banking environment, now is a good time to take a look at where the senior housing/senior living industry is from a financing perspective.
Perhaps the largest current concern focuses on existing debt that comes due in 2023 and 2024. The industry will see billions of bank and bond debt that matures or has variable rate features that will reprice across the next twelve to eighteen months. Two challenges thus exist. First, the cost of capital, expressed as interest rates, is higher now than it has been for the last fifteen years. While the rate environment (expressed as climbing or falling) seems to tack to a stable point, inflation has yet to fall to Fed target levels. As long as inflation remains high, the risk of the Fed continuing to raise rates remains. Effectively, expiring debt that requires refinancing will cost more going forward. Debt that is variable and repricing will cost more. Depending on the rate increase level, providers may face significant margin erosion and/or operational drag as debt service costs increase. A chart of the last twenty years is below. More analysis is also available here: <a href=’https://www.macrotrends.net/2015/fed-funds-rate-historical-chart’>Federal Funds Rate – 62 Year Historical Chart</a>
The second challenge is capital access. While rate is a concern, accessing capital is also a concern as lending conditions have tightened due to bank capital structural changes and generalized commercial credit concerns – real estate in particular. Valuation challenges also come into play such that operators/owners may find the overall value of their projects has changed, negatively so. Credit access is not only a function of real property collateral (value) but also, the strength of operations to meet debt service requirements. With occupancy challenges remaining, though improvement is occurring, and costs rising faster than revenues in many organizations (labor, energy, supply), credit profiles for providers (owners) have changed – negatively. In short, the spigot of available capital is less open now than it was, pre-pandemic.
The pandemic slowed the pace of property improvement and to a certain extent, the deferred maintenance “bill” for needed improvement is now coming due. Per NIC (National Investment Conference), across 31 markets that they track for senior housing data, two-thirds of the communities in these markets are old and in need of improvement – redevelopment or major upgrade. This of course, begets a need for capital and today, the capital availability is not as prevalent as five years ago and the cost of the capital, three to five times more expensive.
When improvement is required, capital access and cost are relevant but so is the cost of the improvement. The industry is seeing a bit of a perfect storm (currently) as capital is more expensive and construction costs are as well. In this scenario. project feasibility and payback conditions become stressed. Infrastructure improvements or community updates and refreshment may be required just to retain occupancy or to manage market share BUT the same may beget no new revenue or minimal revenue increase opportunities, not proportional to the investment. For many of these older communities, market location and property composition are such that significant increased revenue opportunity is unlikely. Given this prospect, the alternative to improvement via financing may be for some, merger or affiliation. See my post on this topic here: https://wp.me/ptUlY-tH
Bank debt/lending continues to be the primary source for capital but recent banking failures have tightened lending activity. We saw a bit of improvement via mini-perm lending at FYE 2022 but even there, overall loan volumes remained down compared to pre-pandemic levels. Balances did stay near all-time highs for housing but nursing care balances reduced. Construction lending remained soft and I suspect, it will continue this trend for the balance of 2023 and into 2024. Nursing care construction lending remained suppressed and senior housing construction lending sat at a quarter of 2016 levels. A good overview from NIC is here: NIC_Lender_Survey_Report_4Q_2022_FINAL
What I’ll be watching are default levels and loan volume (new levels). If we see a condition of softening rates later this year, volumes will lag but loans in-queue will tick-up. There is definitely some pent-up demand for capital and any condition or combination, of softer rates and lower construction costs due to a recession or slower overall commercial activity will ignite senior housing capital access demand. I’ll also pay close attention going forward, to default or pre-default conditions that motivate additional acquisition and affiliation deals. Softer valuation levels are good for buyers that have existing capital capacity or in some cases, equity raised capital, ready for investment. The key is patience and market conditions that produce deals that have inherent, accretive value prospects.
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