North Shore CEO: Amid SNF Changes, Regional Operators Poised for Future Success

North Shore Healthcare’s recent acquisition of a 72-bed skilled nursing facility in Ashland, Wis., presented an opportunity for the provider to expand its existing services in the town — and fit with the company’s ethos of growth.

Specifically, the Glendale, Wis.-based operator isn’t looking to grow “for growth’s sake,” but it will look for opportunities in markets where it thinks it can meet specific needs. And geography plays a key part in its decisions. With 42 centers in Wisconsin, five in Minnesota, and one in South Dakota, North Shore Healthcare has developed a strong regional presence since its founding in 2014.

North Shore managing partner and CEO David Mills — whose career includes senior-level positions at Beverly Enterprises and Golden Living, Villa Healthcare and the co-founding of patient-experience-focused company Align — believes that the operator is in a solid position to navigate the changing skilled nursing landscape, in part because of its regional strength.

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Skilled Nursing News sat down with Mills to talk about North Shore’s approach to growth, and how regional players can thrive in the skilled nursing world of the future.

Can you talk about North Shore’s approach to growth and how it’s played out over the course of the company’s history?

We don’t have a specific growth strategy, so let me start with that. We are certainly looking for opportunities; we don’t intend to growth for growth’s sake. But if there are opportunities in markets where we feel there is a need and we can meet that need, that’s certainly something we want to explore. We believe very strongly that the regional operator has a significant opportunity moving forward, because of that ability to have that right level of resources and support — but also being able to stay close enough to markets and being able to adapt as needed, like with Medicaid financing or regulatory changes or demographic changes.

The things that we look for … geography certainly plays a part. I would say what the deal structure would look like certainly plays a part. Where we already have complementary products, where it can be something where we’re able to leverage additional resources, i.e. region resources — that can certainly play a part.

So there isn’t a specific formula, but as deals come our way and opportunities come our way, we really take a hard look at a number of different things to see if it makes sense in terms of: location, quality, and asset.

When it comes to the deals themselves, how do you assess the different facilities? What factors come into consideration?

Again, there’s a number of different things that we look at. It depends on whether we’re purchasing the property or we’re going to be leasing it from the owner. A couple of different things we need to consider: If it’s a leased prop, that needs to be a win-win relationship between the lessor and the lessee, the operator. Creating those lease terms where there can be a win-win, that’s certainly something that’s very important for both parties.

Then looking at our larger partners, whether that’s with pharmacy and therapy and some of the higher-cost service areas, and making sure those have win-win relationships is really important.

Another area that we model in is making sure our management fees are appropriate, so we have the right level of service but we don’t burden our centers with a high management fee that is very difficult to cover.

And then a number of other things that we model is really what’s going on in different markets: Do we have opportunities to create a particular or have a niche-type product that would meet the needs of that community? Is there repurposing that could be available for a skilled center that would provide a different service?

We really have to think very differently moving forward, not only in our operational model, our clinical model; how we operate moving forward is going to really need to be different than how we’ve operated in the past. The demographics are changing, the needs of seniors are changing, there’s pressures around staffing — and obviously that’s playing a significant role in our ability to provide quality care. It really is making sure, from a financial model perspective, [that] there can be the opportunity to be successful if we implement the type of things we believe we need to implement to provide exceptional service to residents and be a superior employer.

The point about demographics changing is interesting, because those can vary so much even from county to county; I’d imagine that’s a pretty big consideration.

No question about it. There is no one-size-fits-all, and depending on the needs of the community — other services that are currently already offered, what the acute care partners are looking for in terms of partnership — it is very market-specific. And that requires us to have a pretty fresh perspective for us to be successful, taking a certain amount of risk, being creative, not being afraid to adapt to change, and really being a part of that local community.

One thing I wanted to ask relates to ownership and leasing. What portion of North Shore’s facilities are owned versus leased, and does North Shore prefer one over the other?

I don’t have the exact percentage, but the great majority of the centers we operate currently are leased. That was how the organization was founded, was leasing the Minot and Shawano properties. Then, over time, you’ll see the progression of the Golden Living and the Fortis properties that are leased. We’re certainly committed to that current arrangement, but the opportunity to be both owner and operator is appealing to us.

Leases have been a hot topic recently, and I was wondering if you could talk about how you approach leases and the contracts, fees, and other parts of the business. What role does this approach play in building up a sound skilled nursing business?

Well, when you look at the razor-thin margins that nursing homes operate — and it could be 2, 3, 4, 5% — that really does not leave very much margin for error on really any parts of our business, whether it’s taking advantage of revenue growth opportunities or on the expense management side. So from a lease perspective — because that portion of our expense, that line item is significant — it really is important that there is a strong relationship between the op-co and the prop-co, where there can be a win-win relationship, versus at the expense of one or the other.

You mentioned North Shore’s focus on developing regional strength. How does this fit into the bigger picture of skilled nursing moving from a national to a regional model?

I think truly over the coming years, that the regional operator has a unique opportunity to be successful, for a number of reasons. When I look at that sweet spot or that size of organization, my belief is you need to have enough scale to be able to create efficiencies and regional support and the resources necessary to support your centers, but not to the point of burdening them with overhead that is crippling. The regional provider, I believe, has that opportunity.

At the same time, because the business is been changing more rapidly than I ever recall in my 30-plus years doing this, that really requires you to stay very close to changes in market, whether that’s regulatory, reimbursement, demographics and so forth. And that regional provider — such as North Shore — is positioned to not only anticipate and see these changes, but adapt and be involved and be proactive to help allow us to create an environment where we can be successful in meeting those needs.

If you are that single operator, that makes it very difficult because you may not have the resources and the support necessary, because it’s becoming more complicated by the day in terms of reimbursement models and regulatory changes. And then that larger operator may not have that local market presence to be able to stay close enough to the business.

So that’s our approach. We believe that relationships are at the core of all this, relationships with either the acute care partners or the regulatory agencies. It really does come down to trust and establishing relationships with those that have common goals and interests, such as the regulatory agencies and acute care partners. Having a regional presence allows us to stay close to those and develop trust and relationships to have common goals.

The coming Patient-Driven Payment Model is obviously a major shift, and the skilled nursing industry in general is changing a lot. PDPM has gotten a lot of attention, but as people get ready for that, what are some shifts in the landscape that you think are getting overlooked?

A couple things come to mind. I think the first thing is regardless of the decade, or where we are today compared to when I started 30 years ago, at the core it was all about patient care and creating the right culture and being a superior employer because they go hand in hand. That hasn’t changed. That’s the foundation that was successful 30 years ago and remains to be successful today.

I think what is different — and where I believe we need to focus on to be successful moving forward — is a few things. We have an opportunity to create partnerships and be a part of the broader conversation in post-acute care, more now than we ever have, and having a seat at the table with managed care payers, acute care partners, really having a voice and influence in how that senior health care is being delivered. We are very involved, and have influence more now today than we ever have.

So if I look at now and moving forward, we need to be more efficient, and a lot of that can be through technology and automation. We need to take more risks and not necessarily do things the way we’ve always done it, because market conditions are changing. I think we need to rely more on analytics and be smarter, just in terms of connecting dots where we see opportunities to improve.

Also becoming more outcomes-based; that’s really shifted over the last handful of years and is going to continue to. At the end of the day, we’re being measured by consumers, whether it’s from a patient-satisfaction perspective, we’re being measured by our acute-care partners on a number of different measures like hospitalization and quality measures, we’re being measured by our employees with employee satisfaction. Really putting systems in place that we can measure, I see that as a real recipe for success.

But at the end of the day, it really does come down to the same thing that when I started as an administrator: Making sure that our patient is at the center of our decisions. And that’s through having a culture where you have an employee base that is valued and motivated and a big part of our team.

This interview has been condensed and edited for clarity.

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