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Post-Acute and Healthcare News and Topics

Friday Feature: Occam’s Razor and Management

When I have coached/mentored executives and senior management, I am always initially surprised by how much these folk want to complicate things. Healthcare is notorious for bureaucracy and to a large extent, folks that have worked only in healthcare have been socialized that complex regulations and rules and then, organizational systems for compliance wrapped with layers of policy and procedures are absolute necessities. Government likes its paperwork. Payers the same.

It is often said that healthcare is the most regulated or at minimum, the second most regulated industry in the U.S. Some would argue that nuclear energy is more regulated. Regardless, healthcare is complex but yet, there isn’t a requirement that the regulation-driven craziness must in turn, impact the business and what leadership/management does from an operating perspective. In other words, simplicity is possible in lots of ways.

Occam’s Razor is a principle that states that one should not increase entities or processes beyond reason, simply to explain or complete anything. In other words, when a committee isn’t required, don’t form one. When one policy suffices, no need to write multiple. When a policy isn’t required, don’t create one. When one layer of management is failing to achieve desired results, don’t add another layer. I could go on.

In healthcare, the first principle I try to drive into an executive is that the business model is truly about only two things: patient care and human capital (staffing). One requires the other and vice-versa. If the care is great and the staff are too or minimally, the staff are engaged and productive, a huge part of the operating requiem is being met. From this platform, great care, and great staff, everything else can flow with limited interruption and limited challenge. Sure, infrastructure is necessary, but frankly, it doesn’t require a whole bunch of layers or new bureaucracy. Arguably, and I have seen this happen, adding layers and new managers tends to reduce the quality of care, the productivity of staff, and then, the performance of staff. Success, for some reason, seems to breed the feeling that more operational structure is necessary, yet no real argument can be made via return on investment, for the same.

The primary objective of management is to achieve more while requiring and spending less. More succinctly, to create structure that is simple, consistent with the enterprise goal, rewards tied to outcomes, and people, in places with the capacity and capability, to produce the desired outcomes. Simple. As Steve Jobs would say, “tolerate only “A” players”. Leadership should exist to create a vision and form a structure that allows folks to swiftly and easily, incorporate the vision into an operating plan.

The application of Occam’s Razor to management and ultimately leadership, follows a pretty simple format. Mine is below. Happy Friday and enjoy the weekend!

  1. Focus and evangelize that work is about a process of caring for the patient – nothing else matters.
  2. In order to effectively perform #1 above, the work culture for staff must be interdependent – take care of each other.
  3. Reward outcomes that are measurable and tied to #1.
  4. Limit management and supervision to the bare essentials and fight against, additions thereto.
  5. Minimize meetings and committees – empower staff and management to make decisions.
  6. All business expenditures should be fundamentally tied to Return on Investment and a long view.
  7. Overhead should be levered as frequently as possible.  Find capacity within.
  8. Minimize policy and procedure to only that which is absolutely required.  Use protocols instead.
  9. Don’t let regulations and industry focus cloud the operating parameters.  Most of the conferences, seminars, and association newsletters serve a purpose other than your business.  Use them solely for information, not a how-to.
  10. Give feedback on how things are going.  Reward progress toward the goals and vision, often.  Skin in the game is how  and why “A” players remain.

 

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June 9, 2023 Posted by | Uncategorized | , , , , , , | 1 Comment

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.

 

May 26, 2023 Posted by | Health Policy and Economics, Skilled Nursing, Uncategorized | , , , , , , , , , , , | Leave a comment

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.

  1. 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!
  2. 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.
  3. 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.
  4. 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.”
  5. 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!

 

May 19, 2023 Posted by | Uncategorized | , , , , | Leave a comment

Friday Feature: The Economic Realities

For the past two years, as the pandemic emergency waned, and the U.S. and the rest of the world moved back to a more normalized business and social condition, the fallouts of a mish-mashed pandemic policy (federal, states, local) became evident. School closures with virtual learning impacted kids and their education performance (falling performance on reading and math). Enormous governmental outlays and supports to the tune of trillions, revealed fraud (PPP), begat inflation, and assisted in dislocating millions of people from the workforce via subsidies (rent abatements, student loan payment abatement, enhanced unemployment, etc.). What we know is that short-term measures without a longer-term view of the resultant impacts, can lead to troubling economic times, and sometimes, the cure in terms of pain is worse than the original condition.

This morning, core inflation data was released, known as PCE (personal consumption expenditure). What we see is continued inflation above the Fed target of 2%. PCE measures personal consumption, removing volatile components such as food and energy. This report showed that inflation, minus food and energy, ticked-up in March and rested at 5% year-over-year. With energy such as gas on the rise, expect the CPI number with food and energy included, to continue to be at or above 6%. Here is this morning’s PCE release: https://www.bea.gov/news/2023/personal-income-and-outlays-february-2023

Earlier in the week, another key economic number was released – GDP or Gross Domestic Product. GDP data represents the growth rate of the economy as measured by the sum total of goods and services produced by economic activity. The first quarter number was 1.1%. This result is down from the prior quarter measure of 2.2%. GDP releases are initial and then adjusted, with adjustments typically moving the initial number down. With inflation running significantly above GDP 1.1% vs. 5% PCE and/or 6+% CPI, the economy is either in a state of or moving towards (quickly) a condition known as stagflation and perhaps, recession. Stagflation occurs when inflation runs considerably higher than GDP growth. Here is the GDP report: https://www.bea.gov/news/2023/gross-domestic-product-first-quarter-2023-advance-estimate

So, what does this data translate into for the near-term outlook for the economy? Answer: More of the same struggles and perhaps, some additional challenges. Interest rates will continue to rise as the Federal Reserve is likely to add another .25% rate hike to its core borrowing rate (fed funds rate), now at 4.75 to 5%. This will push the rate to 5 to 5.25%. A traditional economic principle starts to become evident: Fed rates at or above the rate of inflation drive inflation via demand reduction, down. If as suspected, the core inflation driver is 5% or thereabout, a fed funds rate at 5% to 5.25% should significantly slow the economy and move inflation down. The problem is the lag in seeing the impact and whether, the impact will in turn, push the economy into recession.

For senior housing and post-acute care, the current economic conditions are problematic (kindly stated). Real wages are not yet, keeping up with inflation meaning staffing costs will continue to have upward pressures. Borrowing costs are now crazy high and yet, reimbursement rates are not keeping up in growth, with the increasing cost of capital. For debt that is variable, providers are getting a rude and frequent awakening with increasing index rates pegged to the borrowing costs on the debt – rates therefore, rising. I’m watching growing debt defaults for senior housing as expenses have risen, borrowing costs the same in some cases, while revenues are flat or modestly higher but in no way, keeping up with the expense increases. The result is margin reduction and of course, reduced cash flow, translating into lower levels of income available for debt (below covenants).

Here’s a quick snapshot of economic data and conditions to watch over the next quarter.

  • Bank capacity and willingness to lend. Credit is tightening and banks with deposit runs, are not capable of generating the same lending levels as before. This will hamper access to credit.
  • As I have written about before, a non-existent (or very, very sluggish) home sale market due to high borrowing costs turns real estate primarily illiquid. This is not good news for seniors seeking or needing to sell a home to move into a senior housing project. With occupancy rates still below pre-pandemic levels, CCRCs and other senior housing providers will likely continue to struggle to move occupancy up due to the housing market challenges.
  • Access to capital for capital improvements is a necessity for the senior housing sector. I expect a year of tough sledding in terms of capital access and thus, a creep-up in average age of plant with deferred maintenance being the driver (this year).
  • Mergers and Acquisitions will also slow (already down) due to higher costs of capital and economic uncertainty. This may mean, with fewer buyers/acquirers, some projects/providers fall into closure/bankruptcy.
  • If there is a bit of good news, it may come a bit later this year, in the labor market. The impact will not be on the clinical side but on the non-clinical side. Layoffs which are occurring, will accelerate if further demand reduction in the economy occurs. This will move people into situations where shifting industries for work occurs. In other words, fall-out in construction could beget maintenance staff (an example).

TGIF and Happy Weekend to all!

April 28, 2023 Posted by | Health Policy and Economics, Policy and Politics - Federal | , , , , , , , | Leave a comment