Skilled Nursing Finance Vet: If CMS Isn’t ‘Measured’ on Medicaid Crackdown, Operators Face ‘Quite a Blow’

When it comes to the buying, selling, and financial backing of skilled nursing facilities, the new chief development officer of Senior Living Investment Brokerage has seen all angles.

Steve Gilleland, who joined the Glen Ellyn, Ill.-based SLIB at the beginning of the month, worked on the lending side of skilled nursing and senior housing in his 16 years as managing director and head of the health care finance group at CapitalSource.

At SLIB, which logged more than 60 transactions in the long-term care and senior housing space last year, his new position will entail business development, client outreach, and strategic planning.

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Gilleland joined Skilled Nursing News to talk about his new role, how he develops and builds his relationships, and some of the key areas of concern for SNF transactions in the coming year — including a controversial crackdown on Medicaid funding rules that could prove disastrous for operators in many states.

First of all, congratulations on the new role. How has the first month been?

I’m excited about joining the SLIB team. It’s sort of a new chapter for me; I’ve been in the industry, for 26, 27 years — and mainly as a lender for the last 16 or 17 with CapitalSource. So this is a new frontier for me to go and jump into the brokerage.

They’ve got a team of 22 folks, and they’re very good at what they do. I’m just here to perhaps open up a few more doors that maybe they couldn’t, and go a little higher and deeper.

Can you go into that a little bit, and maybe talk about some of the ways this will be different from your prior work?

For some of the differences and some similarities, both when I was a lender and now— I think it’s like everything in life, things come down to relationships. Fortunately, I’ve had the chance to meet so many people during my 26, 27 years, and have mutual respect back and forth with a lot of industry contacts. I think that’s why these guys brought me on board, because I can pick up the phone and get people to call me back — and learned a lot through the years by shooting straight with people.

The group I’m with now, I liked them a lot because they shoot straight. They’re [what] I would call expert brokers, and some of the brokerage shops out there might not be as well-versed and as knowledgeable about all the different nuances of our wonderful skilled nursing industry.

The locality of skilled nursing is one of the first things I had to learn covering this space; it varies so much from region to region.

Very true. This business, I think it’s going that route right now. You’ve seen this; a lot of the big players are unloading, a lot of the [real estate investment trusts] have unloaded some of their assets, and some of the main buyers are these small- to mid-size — even the regional players that know their specific state, one state, two states. And they stick to the knitting. They get the blocking and the tackling; they are experts themselves in those states, instead of trying to be one-size-fits-all, which really doesn’t work in this industry.

How are you thinking about business development and client outreach? And can you talk about how you just want to approach those two areas as you head into this into this role?

Logically, I’m going to go to a lot of the same industry folks that I had dealt with as a lender. I think as long as we get a seat at the table to try to bid on any business — either we bring them a facility or two that we’re representing to sell, or we would like to represent those guys if they’re disposing some of their outliers, or some of their non-strategic assets.

Once some of the relationships that I know — that some of the SLIB guys don’t know — get to meet with them, they’ll see how knowledgeable they are and how they hold someone’s hand through all the way, the end of the transaction.

What has worked for me when I was on the lending side is doing some more high-touch marketing so to speak, where we go to a certain area — whether it’s California, whether it’s Florida, whether it’s in the Northeast — and try to go entertain clients with the I call it high-value marketing events, where we would take them out to play golf, or a tennis tournament, stuff like that. I think that’s another way we’re going to be able to say hello to folks.

When it comes to this process in the SNF world, what are some of the trends that are going to affect transactions this year? It’s the first time we’ll really see the effects of PDPM; will that be a major concern, or are there other factors that haven’t gotten as much headline attention?

I think you’ve certainly highlighted something that has been on everybody’s radar, and it’s going to be interesting to see the full effects. Now it’s almost going to be six months in, and maybe wait until spring to see how that first half of year on PDPM has come out. Everybody that we’ve talked to is saying that it’s positive — I’ve heard no one say it’s gone the other way.

So the only concern would would be the potential for CMS to decide to claw back some of that rate. So, as far as whether a buyer is going to get a seller full credit, that’s to be determined. I’m sure that’s a case-by-case basis.

Then the other thing that I would think that’s front and center, always in the skilled nursing world, is the concern about the [intergovernmental transfers]. We’ll have to see how that plays out. Never a dull moment in our industry — always something cooking.

How have you approached IGTs in the past, and how are you thinking about them now that CMS has proposed a rule that could substantially hinder these Medicaid-boosting programs?

I think it’s very state-specific. Indiana has had theirs for so long — it’s very entrenched. Some of the other states are a little newer to the IGT plan. I think it just depends. In my lending days, some lenders like myself would not give much credit for IGT revenue and cash flow, but then you see certain lenders give credit, as well as [the Department of Housing and Urban Development]. HUD was giving partial credit when they were doing — and still do — for their debt underwriting.

So I think it varies. It depends on how comfortable that the buyer is in assuming that that’s going to be a go-forward, certain and stable cash flow screen. So, once again, it’s part of the underwriting process, and I think “deal by deal and state by state” is the best way to answer that.

Have you seen it have any effect on transactions, or is it still too early?

I think it’s just too early to tell. I don’t think it’s even really entered many folks’ minds. We’ll see how it plays out after the February 1 deadline and the comments. Let’s hope that CMS is very measured with their approach, because it would be quite a blow to some of the states and some of the facilities within those states.

Are there any other patterns that affect how people are buying and selling, that aren’t related to PDPM or the IGT rule?

The complexity that this industry has — some folks, they’ve been doing it a long time. You see them coming to a transition, whether they’re going to hand it off as a family business — we see a lot of that — and the one- to two- to three-facility owners, sometimes it’s just too much. We see a lot of that.

And I think some of the REITs have been certainly disposing of their outlier skilled nursing assets, and then some of the bigger players as well. So it’s an opportunity where some people see a lot of complexity that other folks have embraced. I’ve seen a lot of younger operators come in and embrace technology, and really go deep in their specific markets — and know the discharge planners and the state rules and regulations and reimbursements like the back of their hand. So they they have certain advantage over folks that are not embracing the technology.

When you say ’embracing the technology,’ are you referring to telehealth, or something else they’re focusing on that’s helping?

I think it’s more about capturing the data, right? You get reimbursed based on how well you capture the data, about how well you take care of the patient, and then document it. So it all comes to that, and then being able to show your outcomes. It’s certainly incumbent upon the industry to show that they know what they’re doing. And I think a lot of folks have been doing that on a really good scale.

This interview has been condensed and edited.

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