The skilled nursing industry will emerge from its current period of duress and be reinvented in the coming years, according to Tom DeRosa, CEO of real estate investment trust (REIT) Welltower Inc. (NYSE: WELL).
This belief is one reason why Toledo, Ohio-based Welltower is maintaining a foothold in skilled nursing, with about 10% of the REIT’s net operating income coming from its skilled nursing and post-acute properties, DeRosa said Wednesday at the Citi 2018 Global Property CEO Conference in Hollywood, Florida. Welltower reported consolidated net operating income of about $2.2 billion in 2017.
“[The SNF industry] will get reinvented, and as a health care REIT, we want the option to deploy capital in good structures around high quality real estate,” he said.
As for what the skilled nursing reinvention might look like, DeRosa pointed to what has happened in the West Village neighborhood of New York City. The area’s community hospital, St. Vincent’s, was at the epicenter of the AIDS crisis in the 1980s and 1990s but went bankrupt and closed in 2010.
Now, the former St. Vincent’s site has been converted to luxury condominiums, but there’s a “funny looking white building” across the street that is operated by Northwell Health, DeRosa said. That building includes an emergency department, surgical suites, rehabilitation and physician’s offices. If someone arrives there and needs to spend more than 23 hours as an inpatient, that individual is transferred via ambulance to what DeRosa called “the mothership” hospital uptown, Lenox Hill.
“Today, people in the West Village say, we do have a hospital, but it’s an outpatient building,” he said.
He believes that as the health care system overall shifts away from hospital inpatient care to more efficient and less costly services, the Northwell Health-Lenox Hill model will become more commonplace. Welltower is currently working on projects to re-envision hospital campuses in this manner, and he foresees that senior housing and skilled nursing could be components.
“We think there will be a new asset class developed,” he said. “In some of the reinventions, there could be something that looks like a new-age SNF.”
Asked what payors would support these operations, DeRosa said it would likely be similar to hospitals’ current revenue mix.
“Most people showing up [at hospitals] are on Medicare or Medicaid, or may not have insurance,” he said. “The game for the top health systems is to attract as much of the private insurance market as possible.”
Whatever the next-generation SNF looks like, DeRosa and Welltower Senior Vice President of Investments Shankh Mitra agreed that there will be a need for skilled nursing services in the future, and that the highly leveraged skilled nursing operations of the past will be replaced by more sustainable business models. Part of the solution will have to come from Medicare and Medicaid reimbursements that support a healthy margin, and the Welltower executives said they believe the federal government will understand this imperative.
Given the aging population and the need to reduce health care costs overall, the government will be seeking ways to keep people out of the hospital—including by supporting skilled nursing.
“It’s not in their interest to put [skilled nursing] out of business,” DeRosa said.
Written by Tim Mullaney