The distressed skilled nursing industry appears to need fresh approaches to operations and real estate, but bringing new types of properties to market is far from easy. Mainstreet, one of the largest developers of post-acute facilities in the nation, is the latest example, as the company is scaling back the rollout of its new Rapid Recovery Center offering.
One year ago, Mainstreet’s plan was to open 11 Rapid Recovery Centers over 18 months, in Arizona and Texas. Now, the Carmel, Indiana-based company has decided to pull out of the Arizona market entirely, laying off 70 workers. All of these jobs are in Arizona; Mainstreet has not made workforce changes to its other operations or offices in response to the situation in the Grand Canyon State, CEO Zeke Turner (pictured above) told Skilled Nursing News.
One of its Arizona Rapid Recovery Centers, in the Phoenix suburb of Surprise, is open but has only a few patients, the Indianapolis Business Journal first reported Thursday. The other three locations—in Phoenix, Tucson and Chandler—will not open. Mainstreet plans to close the Surprise facility and either sell all four properties or lease them to a different operator. Originally, they were to be managed by Mainstreet’s operating arm, Mainstreet Health, which was formed in 2014.
Start-up costs for the Arizona facilities ran higher than projections, and this was a major factor in the decision to pull out of the state, Mainstreet CEO Zeke Turner told Senior Housing News. A “challenging local reimbursement environment” and slower than expected real estate sales also caused unexpected difficulties, he said.
Turner declined to share specific cost figures for the developments. The Phoenix Business Journal previously reported that Mainstreet would invest more than $100 million to develop and staff the four properties.
The Rapid Recovery Center concept is to create buildings with a luxurious feel and to staff them with high-level clinicians, including having physicians on site daily. The goal is to be a post-acute provider of choice for managed care systems, by achieving better outcomes in a shorter time period for rehabilitation patients. Specifically, the centers are meant to help prevent readmissions while shortening length of stay—two major objectives for health systems that are eager to control costs and that face Medicare penalties tied to re-hospitalization rates.
Mainstreet is moving ahead with Rapid Recovery Centers in Texas, Turner told SNN.
“We are committed to Rapid Recovery Center and believe in it,” he said. “We have three centers open in Texas right now and are scheduled to open five more over the next 12 months. This is already a huge undertaking and commitment, which did contribute to the Arizona decision.”
This is just the latest news highlighting challenges in the skilled nursing and post-acute sector.
Last week, HCR ManorCare—the second-largest skilled nursing facility operator in the United States—filed for Chapter 11 bankruptcy, with a plan to be acquired by its landlord, real estate investment trust Quality Care Properties (NYSE: QCP). Yesterday came news that Orianna Health Systems, which operates 43 SNFs, is entering bankruptcy.
Tight labor markets, oversupply pressures, challenges in working with managed care organizations, and regulatory scrutiny are just a few of the headwinds hitting the industry.
“You are correct about skilled nursing headwinds, particularly in the traditional long-term care and low-acuity rehab/therapy segments,” Turner said. “Mainstreet still sees value and opportunity in presenting new products in skilled nursing, but those new products must present solutions to existing problems.”
Turner continues to think that the Rapid Recovery Centers present these types of solutions, as do Mainstreet’s transitional care properties, which the company develops for third-party operators.
Still, it’s no secret that the company is in a different position today than it was a few years ago. In 2014, Welltower Inc. (NYSE: WELL)—then called Health Care REIT—struck a deal with Mainstreet and associated companies that represented a potential $2.3 million investment.
Yet since then, Mainstreet has had to make some tough decisions. Even prior to the situation in Arizona, Mainstreet was in reorganization mode. The company cut 10 people—or about 7% of its corporate workforce—in 2016, and followed that up with laying off another 12 last November, Indianapolis Business Journal reported.
However, Mainstreet is not poised to make radical changes to weather the current environment, Turner said, although the company is seeking to raise capital that would allow it to hold its real estate longer-term. This will enable more flexibility and stability going forward, he said.
“Our focus will continue to hone in on the development business and our health care operations,” he told SNN. “Those two areas are where our growth will be in the coming years and where we will continue to focus our resources.”
Written by Tim Mullaney