Mozart Healthcare acquired seven skilled nursing facilities in Texas with 1,004 beds, for $32 million, the Skokie, Ill.-based company announced this week, adding to its presence in the Lone Star State.
The facilities were acquired from a national operator, which was not disclosed. The transaction is the fifth deal Mozart has closed in the state, as part of a planned expansion in Texas.
Mozart negotiated leases with two operators to run the portfolio: the Fort Worth, Texas-based Summit LTC, which currently has five facilities in Texas and will be taking on four of the SNFs, and Paradigm, an operating company based in Texas with a team of 350 that was backed by some of the ownership interests in Mozart.
Summit will be taking facilities in Dallas and San Antonio, while Paradigm’s properties are all in the Houston area — a deliberate move by the founders.
“Part of what we believe in at Mozart is that health care is no longer a big-player game,” Mozart CEO and co-founder Archie Shkop told Skilled Nursing News. “[The facilities] are all in Houston, allowing our corporate team quick access to each building. The proximity is critical to the execution of our hands-on approach and will enable us to move quickly to address the needs of our residents and families.”
His brother Ben Shkop, who serves as co-founder and chief operating officer at Mozart, echoed this sentiment.
“From our perspective, it’s difficult to grow as a company when tackling multiple regions simultaneously,” he said.
Not all the SNFs have the same clinical competencies, but this diversification allows the operators to make recommendations to one another as necessary, Archie Shkop said. Tight budgets in Texas due to the state’s low Medicaid reimbursement have resulted in dated information technology for many buildings, so Paradigm upgraded the infrastructure in its buildings first, spending on average $50,000 per property for the first round of changes, he added.
Texas has other challenges for skilled nursing operators — particularly in the fact that it is not a certificate of need (CON) state, meaning that providers can face competition from new buildings without the protection of government caps on the number of skilled nursing beds.
But as long as the nursing homes are providing the best care and paying attention to the needs of employees, success will follow, Ben Shkop said.
“We didn’t make any decisions before asking [the employees],” he told SNN. “If they feel like their voices are heard, the dollars and cents will follow. When a caregiver is fully vested in the vision of their company and feels like they have a voice, then ultimately our residents see the best care possible.”
Workforce is a major reason why Mozart and, by extension Paradigm, is focused on Texas; employees tend to stay longer in one place in this region, Ben Shkop added. This keeps the SNFs from being tied to agency workers, and mitigates some of the labor challenges that SNFs across the country have experienced.
“The ability to be able hire good employees is more important than the state average Medicaid rate, because you’re not seeing constant turnover,” he said.
The fact that the facilities have $55 million in top-line revenue will also help Mozart be successful in the purchase, he added.
Texas has been the target of negative press for skilled nursing, most recently in the form of the high-profile bankruptcy of Senior Care Centers. Genesis Healthcare (NYSE: GEN) has also sold several facilities in the state as it works through an exit of the region altogether. The turmoil has led to several opportunities for Mozart to take over facilities, but the company is being choosy when evaluating the properties on the marketplace; management has “a very bearish outlook on the margins of the skilled nursing business,” Ben Shkop told SNN.
Because of the low Medicaid rates, it’s incumbent upon landlords to adjust their leases if they want to be successful, he stressed. This is why they’ve generally avoided more recently built facilities, which generally come with more costs to recoup through leases.
“When you’re dealing with a new building, the lowest possible lease a facility can enter in those markets is going to be a dollar amount that’s going to require the operator to operate [at a margin] in the high teens and low 20s,” he said. “And if we accept those, we’re not being true to our view of the marketplace.”
Written by Maggie Flynn