Formation Founder: Time for Skilled Nursing to Leave the ‘Kids’ Table’

Despite all the doom and gloom in the skilled nursing industry in recent years, at least one major financial player thinks the time is ripe for operators and investors to expand.

“We, as an industry, need to be at parity in the health care delivery system,” Formation Capital Founder and Chairman Arnold Whitman said during a discussion at the National Investment Center for Seniors Housing & Care (NIC) Spring Investment Forum in Dallas on Thursday. “It’s been too long that we’ve been at the ‘kids’ table.’ We need to be at parity.”

Whitman spoke as part of a two-man panel with Sabra Health Care REIT (NASDAQ: SBRA) CEO Rick Matros, and the pair had a largely positive vision of the years to come for skilled nursing. As he stated during Sabra’s 2017 acquisition of former “pure play” skilled nursing real estate investment trust (REIT) Care Capital Properties, Matros said that he’s optimistic about the ability of SNFs to succeed — as long as they adapt to the changing times by targeting higher-acuity patients.


When Sabra made a major splash in the assisted living marketplace by purchasing a 49% stake in a 183-property Enlivant portfolio last year, it wasn’t because Matros and management had concerns about skilled nursing; it was merely a play to diversify the overall REIT portfolio, he said.

Based on recent murmurings around Capitol Hill, Matros said he doesn’t believe there is any reason to be concerned about major changes to the way SNFs receive reimbursements from Medicare and Medicaid.

“I think there’s a certain level of cover or protection there,” Matros said, adding that lawmakers don’t want to face campaigns in which they’re accused of harming people’s grandmothers. “It may not always be what you want it to be, but it’s there.”


Diversifying services

Whitman echoed Matros’s call for nursing homes to provide more complex care, noting that SNFs have a significant opportunity to become a lower-cost setting for procedures that are traditionally performed in hospitals. When value-based care plans were first rolled out, Whitman said he was generally optimistic, given SNFs’ ability to provide long-term care outside of a hospital setting.

“This should be a win. This is pretty apparent,” he said of value-based payment. “The next thing we know…the conveners are figuring out — faster than we are — how to basically disrupt the business we’re in, and go after the low-hanging fruit in the way of rehab, shortening stays.”

By targeting higher acuity residents, skilled nursing facilities can also take market share away from inpatient rehab facilities (IRFs) and long-term acute care (LTAC) facilities — the latter of which Matros classified as a fading asset class.

“The skilled nursing facility isn’t a nursing home,” he said. “It’s more of a step-down unit from an acute care hospital.”

Part of the strategy, in Whitman’s estimation, is positioning the skilled nursing and long-term care facilities as equal players in the overall care continuum.

“We need to be at parity. We control senior care. We control the patients. We control the seniors. Let’s not mess it up,” he said.

Written by Alex Spanko

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