What SNF Operators Should Consider Before Renovating or Building

With the cost of construction steadily rising, more skilled nursing developers are finding they need to put extra thought into where—and how—they spend their money.

And although it may sound like common sense to some, owners and developers should first understand the market in which they do business before they open their wallet.

“From a competitive standpoint, if I was looking at either a renovation or a new build, I’d want to know what the marketplace is like,” Brian Pangle, CEO at Clark Retirement Communities in Grand Rapids, Michigan, tells Skilled Nursing News.

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One key piece of that puzzle is market analytics. When an operator wants to get a lay of the land before they reposition an existing facility, they can call experts like Jamie Timoteo, vice president at Plante Moran Living Forward. Plante Moran Living Forward is the senior living development consulting arm of the nation’s 14th largest certified public accounting and business advisory firm, Plante Moran.

Reading the market

Among the first things SNF operators who want to develop or reposition should think about in their market is demand, Timoteo tells SNN. And that starts with metrics like penetration rates, which help measure the degree to which a market is underserved or oversaturated.

“The one thing that we tend to always advise operators on is, make sure you look at how the capture or penetration rate has been trending over the last several quarters or years,” Timoteo says.

Though skilled nursing penetration rates vary from market to market, it’s important to look at where that rate is headed.

“If that number is trending up or down would be an indicator if it’s worthwhile to invest in that additional rehab, or whatever it might be,” Timoteo adds.

SNF operators should also examine their relationships with local hospitals, especially the ones that are sending patients to skilled nursing facilities.

“You’d advise folks to really make sure they establish some of those relationships, even prior to taking on a project,” Timoteo says. “If you don’t have those existing relationships, you’re not just going to magically build this building and have people funneling into the facility.”

Another data point that is important to study is average length of stay. Even if an operator has relationships and plenty of demand, they need to examine whether they can even handle that business. This especially applies to facilities that go big on short-term rehab, where average length of stay can be as low as one week at a time in some markets.

Timoteo uses this example: “If every single bed in your facility is turning over every 14 days, you’ve got to fill that building two times in one month to maintain decent occupancy.”

Such a quick turnaround requires a high level of organization.

“If your care starts to diminish, then you’re not going to get the referrals from the hospital, and it almost turns into a ripple effect,” Timoteo says. “So, having that all really well ironed out and set in place is very important.”

Do I really want to do this?

When it comes to building new skilled nursing projects, you’ve got to know when to hold ‘em, know when to fold ‘em, and know when to walk away, as the Kenny Rogers song goes.

Sometimes, it just doesn’t work out, and that’s okay, says Pangle, whose company spans two continuing care retirement communities (CCRCs).

“There’s a lot of operators looking at, do I want to stay in this business? What’s my core competency?” Pangle says.

He suggests those companies examine their mission, and ultimately turn to their residents for guidance.

“From a lessons learned standpoint, pay close attention to your core business,” Pangle says. “And take your time in making decisions that have long-lasting effects. Don’t take forever, but don’t be knee-jerk about it either.”

Written by Tim Regan

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