Sabra’s Matros: Vertical Integration Tough to Pull Off in Skilled Nursing

Few voices in the skilled nursing world have been as outspoken as Rick Matros, CEO of Sabra Health Care REIT (Nasdaq: SBRA). That’s why we thought he’d make the perfect subject for our inaugural episode of “Rethink: The Future of Skilled Nursing,” a new podcast from Skilled Nursing News.

During our 30-minute conversation, Matros offered his opinion on his company’s performance over the last year — including its contentious divorce from tenant Senior Care Centers, which filed for bankruptcy in December — as well as the bleak future for Medicaid residents as the U.S. population ages.

He also expressed major doubts about fellow real estate investment trust (REIT) Welltower Inc.’s (NYSE: WELL) deal to acquire the struggling HCR ManorCare chain in conjunction with hospital giant ProMedica, noting that previous collaborations between acute and post-acute providers didn’t always work out so well.

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Here are a few of the highlights from the interview, but if you want to hear the full conversation, head to the iTunes and Google Play stores — as well as Soundcloud — to download the full podcast episode for free today. And if you like what you hear, subscribe to make sure you don’t miss the next conversation with a skilled nursing leader.

On Sabra’s relationship with Senior Care Centers:

“The sponsor, or op-co, and the board, wasn’t able to put the right management team in place. It’s kind of as simple as that. They brought in a new executive, a new CEO in the spring. We lost all our confidence at that point, and things began to further deteriorate. So at that point, we felt like the best path was not to hang around, and to sell the portfolio, which we’re well on the way to doing.”

On his company’s concentration of skilled nursing assets:

“Once we sell Senior Care, we’ll be just under 60% skilled, so pretty much back to where we were before the CCP merger. And now that sentiment, for good reason, is changing on skilled, we get all these calls: You shouldn’t have to reduce your skilled exposure. Why don’t you buy more skilled?

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That was actually the single biggest issue that people had with us on the CCP merger, was that it took our skilled exposure from the high 50s to the low 70s. But we saw a lot of good operators there, and as you know, we know the business really well. We felt there were much better times ahead. And everybody seems to be buying into that now.

For us, selling Senior Care Centers and getting our skilled exposure down has nothing to do with asset class, and it rarely has anything to do with asset class. It’s all about the operator to us. And so getting our skilled exposure back to where it was gives us the room to buy more skilled deals if that’s the right opportunity that we see.”

On the Welltower-ProMedica-ManorCare deal:

“I don’t view that as a vertical integration deal. There’s nothing about it, other than the way it was marketed, that puts any meat on those bones, for a number of reasons. One: There’s very little overlap between where the ProMedica hospitals are and the ManorCare skilled nursing facilities are. That, in it of itself, makes it almost impossible to happen.

Secondly, in those markets where there may be overlap between a ProMedica hospital and a ManorCare facility, that ManorCare facility, in all likelihood, already has relationships with other health care systems. And you’re walking a dangerous line [if] because someone owns you, you’re going to start moving your business and your strategy toward that entity, away from the entity that you’ve had tried-and-true relationships with for a long time.

The last company that we saw that tried to do that was Kindred. And Kindred really owned a lot of the right pieces in order to make that happen, and it wasn’t very effective. Not that they didn’t execute well when it came with patient care or anything like that. But in terms of that integrated delivery system, it really wasn’t very effective.”

On the outlook for Medicaid and skilled nursing coverage:

“With supply continuing to drop — and now you’ve got the demographic that’s going to start coming in — you’re going to have a huge displacement of people. While you have certain individuals who hire a lawyer, they transfer their assets, and they qualify for Medicaid even though they probably shouldn’t — there are a lot of truly indigent people in our country, and in our skilled nursing facilities, that really don’t have the money to pay private pay.

Medicare Advantage will fill some gap, but that’s not a long-term payer. So they’re going to fill some gap in senior housing, but for the truly indigent Medicaid patient, they’re really not going to have anywhere to go. I’m very concerned about it. You’re going to have people that are going to be at home longer than they should be at home, or in places that just are really inadequate. I think there are going to be some really bad stories, and there’s going to be some blood on the street, and I don’t think our government is going to react until that’s the case.”

Want more? Download the full episode at Apple Podcasts, Google Play, and
SoundCloud.

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