Signature CEO Steier on the Skilled Nursing Chain’s Rebuild, PDPM, and Industry’s Integrated Future
Skilled nursing provider Signature HealthCARE faced a a series of financial headwinds over the past two years.
The provider’s problems ranged from issues paying the rent to major landlords Sabra Health Care REIT (Nasdaq: SBRA) and Omega Healthcare Investors, Inc. (NYSE: OHI) to a government investigation related to the False Claims Act (FCA). The Louisville, Ky.-based operator, which currently has 115 skilled nursing locations across 10 states, also faced pressures from medical malpractice lawsuits that pose a particular problem for operators in that state.
But many of the clouds have listed since the start of this year. In May, Sabra and Omega both reached deals with Signature to restructure the operator’s lease agreements. The FCA case reached a settlement in June. And the company is now in the midst of an initiative called “Signature 2.0,” designed to prepare the operator for both the near- and long-term future.
Skilled Nursing News caught up with Signature CEO Joe Steier to talk about the restructuring of the company, the ramifications of the new Patient Driven Payment Model, and the new look of skilled nursing and post-acute care in a changing health care landscape.
What does the Signature 2.0 effort entail for Signature, and what does the process look like?
When you’re in a reset for about 18 months, you can’t really do a whole lot because you’re really trying to restructure the whole organization. Now that we’re out of that, we can really focus on the planning, and really rebuild the company to be a much better organization going forward.
We were a segmented care company; right now we’re going to state networks, which we’re really excited about. With our hospital partnerships, a lot of them are kind of state-centric, and so we’re really making this big conversion to state networks operationally. We got hit over the staffing shortages, and so we’re doing much more advanced career tracks, much more blended learning faster, much more internal-driven — kind of like a corporate university — trying to make career tracks faster.
We understand that to beef up our clinical programming and our clinical resources [for PDPM], we’ve got really 12 months from now to October  to have that build and that structure put together. We’re budgeting about $200,000 a building, on average, of additional clinical resources, to be ready for that higher-acuity patient that we think can be profitable in the future.
But you’ve got to make those investments and that scaffolding today … We’ve kind of taken our rehab division, which was more of a physical, [occupational therapy], speech, traditional rehab, to more of a “mind, body, spirit” company. So they’re now going to be doing more cognition and more behavioral assessment and brain gyms and those things.
And then we were one of the first companies in America to get into broad-based telemedicine, so we’ve got a pretty fast-growing telemedicine division that’s being expanded and that will be fully integrated for PDPM. We’re doing that mainly because a lot of our high-acuity patients are in rural areas. So we’re really trying to make sure that we have what we call a “care hub,” which means we’ve got a specialist doctor centralized to help kind of assess the patient and get them into the community.
We’ve always had decent acuity, but we understand with PDPM, there’s going to be an even sicker population with a higher acuity to be ready for. We’re starting to get a chance now with the reset to really start moving quicker on things that we think are going to change the resident experience.
And then we’re still watching Kentucky, with Kentucky being a state where everybody leaves with med-mal … We’re watching how Kentucky treats tort reform medical panels here, because we can’t control that, but we do think there’s got to be some relief in Kentucky for anybody to be successful here.
What is your geographic concentration?
Kentucky’s our largest, then Florida, then Tennessee … Our goal has kind of been to go into a state small, learn the Medicaid, learn respective state differences, and try to become a network later, and Kentucky’s the biggest one.
But people started leaving Kentucky. I think I mentioned this to Louisville Business First, but I probably took around too many turnarounds at once. We had Elmcroft exiting, and we had Kindred exiting in kind of the same season, and Kentucky is our largest state today.
Does Signature 2.0 entail a shift geographically?
One thing the reset did that I think was good was: We did divest of about 15% to 18% of our buildings that we thought, long-term, there was probably a better operator or maybe a better local solution. So during the reset, we did think about: Where should we be and where can we do the best work? So we did prune off about 23 buildings over the 18-month period, and we tried to keep the ones that we felt like, over the next five to 10 years, that we could make a difference to the communities.
At the same time, we’re really not focused on growth. We’re really focused on mastering the new reimbursement system, trying to improve stakeholder engagement, and pick up market share in core markets. I think we’re really looking more vertically aligned internally today than we are looking expansion.
What did Signature learn from taking on the more challenging facilities?
What we learned this time is that things that took 18 months now take 36 months. So what we didn’t do a good job on was underwriting how long the change would take. I think as the industry was contracting, there were bigger headwinds. Historically, I thought we were one of the better turnaround companies in the Southeast, and I think people trusted that we were going to be hands-on, you know — renovate the building, build trust back in the community, and just do a decent job and make a big difference.
When we got these last groups of portfolios, it was ones where the industry was crashing at the same time. Then it [ended up] taking up almost twice the resources, and it took twice the length of time. We did get a lot of the buildings turned, which we’re grateful for, but I think in terms of cash flow, intensity of service, resource allocations, we underestimated the headwinds and what it would take to turn those.
I think today, as we look at the future, operators are going to need to underwrite a little more conservatively, understanding culture will trump strategy. But I’ve seen a lot of good spinoff companies, boutique companies that we’re watching, that I think are doing great work. We think even [for] the best operators, things that would take 12, 18 months are now going to take two to three years, in our opinion. I think the REITs will be patient. I think they’ll trust the operators.
Do you plan to sell other facilities, or is that mostly done?
We’re mostly done. There’s one or two that we would still consider, but in general, our team really worked hard with the reset groups to make sure we handed them off to good operators. We’re really fortunate; in most cases the handoffs were to a really good operator. We thought we gave it to them in good condition. At this point, I think that heavy lift is done.
We’re more focused now on rebuilding Signature internally, just being a more care management company and kind of rebranding out Signature. We’re trying to shift over to being an integrated care management company, versus being a nursing home chain. Most of our focus now has been internally rebuilding as we got those assets divested.
What is top priority in this reset? What do you plan to take care of in the first year, the second year, etc.?
In the first 100 days, we wanted to get the reset done, communicate out to all our individual locations how the reset affects you, what’s the legal implications, what’s the financial reporting. A lot of it was the onboarding just the reset structure in the first 100 days.
In this quarter right now, we’re basically restructuring departments to interface to care management, which means most clinical reimbursement or rehab or nursing — all those are going through kind of a design phase to hook into to being a care management organization.
In the fourth quarter, we’ll be kind of rebranding the company so people understand that we’re not talking about just Medicare, Medicaid. We’re talking about care management as an experience for all residents. So we’re excited about that. That piece, we actually started that about two years ago, and then we obviously ran into the reset, so we’re a little behind schedule there.
We were blessed to have a telemedicine division, a medical service division with great [nurse practitioners] already. We already had in-house therapy, we already had a case management division, we already had segment and clinical operations. We had a lot of pieces that are the infrastructure you need to be a care management company. But I think now with the reset being done, we think we can get the structure done in the fourth quarter of this year, and then spend 2019 and 2020 benchmarking ourselves out there and driving quality.
We’re hoping to be tablet-based for nursing by this time next year … We’re going to have to do a lot more with less people — not from short staffing, but just in terms of: We want the nurses back with the customers. And I think the technology wins for the space can be really big over the next two to three years.
What is your reaction to PDPM and how will the new model fit into Signature’s reset?
I was so glad we went with this model … What we like about it is that we do see a true rebalancing to more of a nursing revolution than more therapy-driven. And we’ve always felt like nursing, as the backbone of the industry, needs to be a key driver.
We forecasted that PDPM will result in about 12% reduction in therapy costs, because of just the shift in patient populations. Obviously, when we looked at the therapy reductions, we said: How do we deploy therapy in a more broad way to offset that reduction in need? We really had to start looking at other service lines to really supplement that for the patient.
We saw the therapy offset, and we realized there’s a 12% savings there, but we’re going to be putting that investment back in nursing and transitional care. So most of the savings that came out of therapy, we’ll be putting in transitive care investments at the local level. At the same time, we are doing some virtual care hubs and some high-risk virtual centers where we can assess patients through telemedicine at a central location. We realize those savings are good financially, but they’re going to be reinvested quickly.
Signature is testing a joint-venture model with hospital system Ballad Health, based in Johnson City, Tenn. If this is successful, how might it change the look and business model of Signature?
This is really a three- to four-year project, but we were one of the first companies in Tennessee to get into non-medical home care under a company called Silver Angels that we operate. We finally got the chance to package our Signature Lifestyles — which is our [assisted living] product line that can actually take Medicaid waivers — with our traditional skilled post-acute services, and at the same time have the Silver Angels piece that can take people home faster.
We were really blessed with Mountain States, who became Ballad, to build on their campus a joint venture that we own with them. And obviously they’re trying to see if a post-acute operator who is integrated and has the non-medical home [care] with all those services for families, with an affordable ALF product and a post-acute product line — how much can we lower the cost, change experience, and serve more people?
We do think you’ll see us end up working at a high level with some major health systems in joint ventures … And that would be where we think health care is going to go over the next eight or 10 years. We don’t think we can work in a silo or work as an independent nursing home company by ourselves out in the real world. It’s going to take those kind of affiliations, those kind of hard joint ventures, to stay relevant. So it’s a chance for us to really demo what we built over the last decade and [see]: Does it work?
We do think it’s going to be a game changer for us and one that we’ll replicate a lot over the next five years.
This interview has been condensed and edited.
Written by Maggie Flynn