Less than a year has passed since the ink dried on health system ProMedica’s acquisition of skilled nursing operator HCR ManorCare, but the deal has already brought $70 million into its capital-starved post-acute operations this year — with more cash influxes where that came from.
That level of reinvestment, which ManorCare plans to repeat each year, comes amid a push to execute on a population health-driven approach to health care for seniors, executives at ProMedica and ManorCare told Skilled Nursing News.
It’s all part of a larger vision of growth that focuses on the burgeoning number of seniors and their needs outside of direct care that still impact their health, ProMedica CEO Randy Oostra said in a Tuesday presentation at the LTC 100 conference in Naples, Fla.
“We became convinced that we couldn’t grow just by doing hospitals alone. And we probably had limited opportunities with our health plan, [though] we could bump along,” Oostra said during his presentation. “And then the more we looked at the growing senior population and all the things that we knew about the senior populations … we began to be more and more convinced on: ‘Well, why wouldn’t we do this?'”
But that doesn’t mean the ongoing merger has been without hiccups: From the start of the merger process, Oostra revealed, the companies needed 30 board meetings to convince leaders that the plan was a good idea.
Growth for ProMedica, investment for ManorCare
For ProMedica, one of the major motivators for the deal — though not the only one — was the fact that it gave the hospital system the opportunity to double in size. That was a potent consideration, given that there’s a been a general spate of hospital closures — a trend that is projected to continue, Oostra noted in his presentation.
The deal — which saw real estate investment trust (REIT) Welltower Inc. (NYSE: WELL) partner with ProMedica to purchase the real estate associated with ManorCare in a joint venture, while ProMedica purchased the operations — made a splash last year when it was announced.
But executives at all involved parties have been keeping details on the integration of ProMedica and ManorCare close to the vest since the deal was announced. Some details emerged at Welltower’s investor day in New York in December 2018, where Oostra took the stage with ManorCare president Steve Cavanaugh to talk about the future of the new system. And a few more hints of what’s to come emerged at the LTC 100 conference, as well as in a phone interview with Cavanaugh.
Specifically, ManorCare plans to reinvest $70 million to $75 million back into its business this year, Cavanaugh, the president of HCR ManorCare at ProMedica’s post-acute division, told Skilled Nursing News. And the operator estimates that it will do $70 million to $80 million in reinvestments in the business going forward, Cavanaugh added.
That ability to reinvest in the business is something that ManorCare wasn’t able to do under its prior owners, the private equity firm Carlyle Group, Cavanaugh said.
“Because of our capital structure situation — and really, we had operations, if you looked at them, we had a profitable business,” he told SNN. “Our margins were probably better than the vast majority of participants in the industry, our payer mix was better … we just had a ton of leverage, and because of being a privately owned company and the changes that happened with reimbursement, we were just not in a position to reinvest in the business.”
That echoes what Welltower CEO Tom DeRosa argued last year, when he characterized the deal as a rescue of the skilled nursing operator.
“These are very good assets — great real estate that’s been run by a very effective management team with one hand tied behind its back because they’ve been capital-starved,” DeRosa said during a presentation at the National Association of Real Estate Investment Trusts’ annual REITweek conference in New York City.
That effectively froze some aspects of ManorCare’s facility and operational maintenance, and the ProMedica deal will allow the operator to move forward on both capital and technological investments. One specific step that ManorCare will be taking is funding “significant renovations” at 40 to 50 facilities this year, followed by another 40 to 50 facilities next year, Cavanaugh told SNN. ManorCare has 225 facilities in all.
Another step is to continue working on an electronic medical records (EMR) rollout that had been hamstrung by ManorCare’s lack of capital.
“We were probably about two-thirds of the way through the process of having the company up on a full EMR, and essentially we got to the point where the liquidity crunch, because of our leverage, was so high we had to freeze,” Cavanaugh told SNN. “Just to be clear, we were not on a paper-only system in any of our facilities; this was more about the final leg.”
That effort included the integration of nursing notes, physician orders, and pharmacy documents onto the EMR, which will likely be finished for ManorCare’s home health and hospice businesses in a couple of months — while the SNF side will likely wrap up in the middle of next year, Cavanaugh said.
Combining the systems with data and tech
ManorCare will also use the cash influx to help integrate its systems with ProMedica’s Epic EMR software, a program more commonly used in hospitals — with the eventual goal of creating an entirely new business line.
If the combined systems can develop a way to exchange data beyond look-only mode, Cavanaugh said, they could offer it to third-party clients around the country, both hospital systems and skilled nursing facilities that work with hospital systems.
“We’ve already got the ability to create portals and look-ins,” he said. “We’re really trying to get to the next level, where the systems are truly integrated, and truly working together.”
That extends to more than just technology. ProMedica’s insurance plan offers some opportunities for examining payment strategies, Cavanaugh said during Welltower’s investor day. But in other respects, the insurance data allows the combined system a unique window into the needs and claims of patients, Oostra told SNN at the LTC 100 conference. And the findings from that data could be applied to post-acute care.
“I think it gives us the ability to target high users, do some research around those users,” he explained. “That’s kind of what we’re doing right now on the social determinants side — we’re targeting high users to try to figure out why.”
Some of those social determinants of health include food security and where a patient lives. While that research is still in its nascent stages, it can provide some illumination for ProMedica, particularly when it’s tied to claims data, Oostra told SNN.
In the meantime, the combined ProMedica-Manorcare has launched a pilot program in Detroit where meals are provided for patients at discharge, along with information about food resources in their communities. And that comes directly out of becoming part of the nonprofit ProMedica, Cavanaugh told SNN.
“That’s kind of a good example of something that as a for-profit, we never would have done,” he said.
The first time I suggested it, I thought they were going to fall off their chairs. But then they started to do the math.
Randy Oostra
Progress overall
The road to integration hasn’t been perfect, Oostra acknowledged at the conference. Even after those 30 board meetings that ProMedica needed to be convinced of the merger’s merits, it “still takes some convincing for our board,” he said.
But overall, “it’s actually gone exceptionally well,” Oostra told SNN. ManorCare is making money, up year-over-year in every business line, and in terms of savings, it’s benefiting from the conversion to a not-for-profit. But even that took some convincing, Oostra noted in his presentation.
“The first time I suggested it, I thought they were going to fall off their chairs,” he said. “But then they started to do the math.”
That math works out particularly well on taxes, which is expected to result in “millions or tens of millions”* in savings, Cavanaugh told SNN. But outside of the non-profit status, there are supply chain categories where the two companies overlap, he added.
And the combination of the two entities means they can draw from each other’s skill sets. By virtue of the combination, ProMedica’s post-acute side can tap ManorCare’s resources in areas like human resources and legal, where the teams are familiar with all the intricacies of the long-term care space, Cavanaugh said.
For ProMedica, the insurance plan it offers is another example of symbiosis — this time of how ManorCare can benefit from the acute care system. The insights it can glean from claims data and high-users could be particularly useful for skilled nursing operations, especially given a challenge all long-term providers face: reimbursement.
“We’re seeing more and more people go into Medicaid,” Oostra told SNN. “So the question is that the new normal, or is it a matter of doing a better job of marketing to Medicare and other payers to try to balance it out? And so that’s the question: Is it clearly just a shift, or is it a matter of we just need to do a better job improving facilities, and making sure we have the right mix to make it financially viable?”
*Editor’s Note: An earlier version of this story misquoted Steve Cavanaugh as saying that ManorCare’s non-profit structure would result in “billions or tens of billions” in tax savings. In Cavanaugh’s view, the new model will actually lead to “millions or tens of millions” in tax savings. SNN regrets the error.
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