A skilled nursing operator or investor could be forgiven for running toward the exits when presented with the opportunity to take over buildings in rural West Texas. Between persistently low Medicaid rates in the Lone Star State and the general operational difficulties that rural buildings face in markets across the country, the combination may not seem like it could ever add up to a winning formula.
But that’s exactly the kind of mix that enticed Mark McKenzie, a veteran nursing home executive with stints at Senior Care Centers and Fundamental LTC, to launch Focused Post Acute Care Partners in 2017.
The company now boasts 31 communities and about 2,300 residents across Texas, with a delicate balance of buildings in select metropolitan markets helping to offset the challenges of operating in rural areas where labor and ancillary services are scarce — but the need for care remains.
SNN sat down with McKenzie, the Fort Worth-based company’s president and CEO, at the National Investment Center for Seniors Housing & Care’s (NIC) spring investment conference in San Diego last week to learn more about Focused Post Acute’s model, and how operators can still succeed amid a variety of financial stressors.
Despite the company’s early success, McKenzie emphasized the looming threat that his company faces in Texas as the federal government mulls a potentially sweeping overhaul of supplemental Medicaid payments.
“For our West Texas homes, that’s kind of the difference between them keeping the doors open and not keeping the doors open,” McKenzie said.
Tell me about the focus of your business — is it mostly transitional care?
Really more Medicare and Medicaid, because probably two-thirds of my communities are in more rural settings than in the major metropolitan areas. I kind of looked at Houston and said: that’s my major metropolitan distribution. We have eight or nine in what you would consider the Houston or Houston catch market. And then the rest start getting out into the pretty rural [markets] in Texas.
How do you make that work? Everyone says rural markets are difficult, and Texas is kind of notorious for being a tough place to operate, at least among skilled providers.
Oddly enough, my overall strategy was to go address rural markets. When I ran Senior Care, and I was the president of Fundamental in Texas, our rural markets were our loss leaders. We specifically kept them because we thought it was our mission there, locally, to have some loss leaders out there, and to make sure that there was access. When I started this company, I thought: There’s an opportunity out there. If we can get the right communities … it would work for us.
When I first started the company, that was what I wanted to do. I wasn’t going to be able to bring all of the array of services that I had in metropolitan markets, but I could pocket enough of the correct ones that I could change what they received in the rural market. They would have a compelling argument to let their residents stay in the post-acute care markets in the rural communities that we were in, as opposed to moving, or having them transfer into whatever their local metropolitan area was — whether it was a secondary metropolitan market in the state, or a traditional one of our major metropolitan areas, so that they could be comfortable and receive as close to like services as possible.
Now, I will say I had to adjust a little bit. That’s why you see I’m in Houston, some of the metropolitan markets — I have to have some of them to let me continue to focus on that mission. … We use that to lever up to be able to serve in West Texas, which is very difficult for us as a state due to the oil and gas [industry].
That’s a market where truly the oil and gas has created a material adverse change in the operators’ position. We’ve been there roughly two and a half years, and labor’s gone up 40% to keep pace — just trying to get someone to come work within our community. The other challenge we have is all of our hospitals, because they are rural-based, have flipped to critical access. They’ve now taken on Medicare patients — so they’ll have five of our patients in the hospital, from two of our communities, and that’s all they have. And they flip them to Medicare, and they come back to us [under] private-payer Medicaid.
I anticipated wage creep due to the oil and gas; I didn’t anticipate a wholesale change in the philosophy of the hospitals that had been in the community. I specifically targeted those communities because of the nursing home or hospital, and they had been working collectively together.
When they started actively participating in Critical Care Access, it changed what we do. If you look at our West Texas market, they’re a struggling organization; you look at the rest and you go, “Hey, they’re a pretty smart organization.”
But those people still need care.
They still need care, so we’ve been able to make it work. Our REIT holder has been pretty patient with us. We took over at the end of ’17, and there was a little dip in the oil and gas industry out there — in the ancillary pieces of the oil and gas industry, put it that way. Literally overnight, we signed the dotted line, and January 1 shows up, and then jeez, all these industries have cranked back open. So that’s how we ended up with a 40% increase of wages.
Just based on competition for staff alone?
For any staff. We pay $17 to $19 per CNA out there — and delighted if somebody shows up. I kid you not; I’ve never seen it.
Those are so different — you hear a lot about nursing homes and other senior care providers competing with Amazon, Walmart, or Starbucks, but oil and gas is such a different industry.
Because the oil and gas [companies] will pay so much for work, one of two things is happening. Either they go — and you can’t blame somebody [that says], “Hey, I’m making 12 bucks an hour, and I can make 22.” That’s life-changing for them, and they know that it’s going to be an eight-year run or whatever it is.
But the bigger challenge is: We have people leaving the workforce out there, simply because their husband, or partner, or significant other makes enough money that they don’t have to [work anymore].
So we have people out of the market who are truly caregivers. Everybody competes with Amazon. But if you’re really a caregiver, you’re really not going to go to Amazon. You’re not going to go flip burgers for the same price, or 50 cents more, because it’s not what gives you value as a person.
Oil and gas is great — don’t misunderstand, I like the $1.77/gallon. But there’s a lot of unintended consequences of having that type of influx, and that type of production going on.
What are some strategies you’ve employed to really make the rural markets work? You hear a lot of providers float the idea of telehealth as a savior for isolated markets, for example.
We’re having to embrace technology simply because there’s a critical staffing crisis. One of the things that we use is called EarlySense, to help mitigate falls.
It’s a pad that lays under your mattress and can sense all these things — and then when you start to move, or show signs that indicate movement towards the edge of the bed, or movement towards trying to get up, an alert will go to a pager on the caregiver that is assigned to that building. And they know to get there — which is different than the alarms. The alarms are what you hear after they already hit the floor. This is designed to get your caregiver there before they ever get to that point.
We’ve changed our EMR out, now we’re layering in Real Time on top of that, so that we can start getting better data to develop additional programming. We’re doing a beta test in our Baytown market; because I have four communities that are out there, I can do some things. We’re bringing in — and it oddly connects with the infection control and prevention program that we had to put together: We’re creating a sleep experience, and so we put in 400 Casper mattresses in our community. You go from the little six-inch mattress to the nine-inch mattress, so you can have that same sleep experience that you get at your home.
But the other issue is we partner with this group called Certified Clean Sleep. It’s a group that’s worked a lot with the hospitality industry — Four Seasons, things like that. They’ll come and take your mattresses, and then they can run them through a process … that uses ultraviolet lights to kill diseases and MRSA.
Because most of our communities are older, we’re trying to create various experiences. We sunk quite a bit of money investing in the Casper mattresses, and if that works out, we’ll roll those systems out across the [company].
Are you concerned about the proposed changes to supplemental Medicaid payment programs? The impact on Texas could be severe.
If it happens as-is, I think it’s going to put Texas in a very difficult position. I think our legislative position has always been, we don’t necessarily as a state pay for [Medicaid] funding in the state. Even though we recruit all kinds of businesses, and we have a lot of people moving in, we want the young vibrant people — we don’t seem to really want you to bring [people] who may need associated care with you. In the last couple of years, we haven’t had great relief in Medicaid in Texas. We’re going on our fourth cycle, I believe, and we’re a bi-annum state, so I’m going to say six to eight years.
They’ve been able to kind of hide behind: “Well, you’ve got an opportunity for UPL [Upper Payment Limit], or QIPP, the Quality Incentive Payment Program.” The nice thing about it in Texas — there are certain metrics you have to meet to get it. You know, under the original system, it was really: You’re my hospital, we partner together, y’all send that money, and then we split the money, and nobody really had to do anything before that. At Senior Care, we didn’t participate, because we thought that was wrong.
But the challenge is: CMS’s position is that those funding mechanisms have to come from tax dollars, as opposed to the general revenue or some [other] places that it comes from. So if it goes away, I think it’s going to push the state into having to do something on an emergency basis — because for our West Texas homes, that’s kind of the difference between them keeping the doors open and not keeping the doors open.
We run a break-even proposition in our West Texas communities to some degree; if you give back management fees, we’re plus or minus 50 grand one way or the other in that portfolio, in those areas. But that includes my QIPP money, which for those buildings is a little over a million bucks. If QIPP went away for that portfolio, it’d be extraordinarily difficult. Obviously, I have to have a conversation: How are we going to partner to make this work?
I would like to think that some sort of solution will get there. Maybe I’m just a naysayer — I don’t think we will. We’re preparing that it will go away in our internal operations. So what do we have to do from that perspective?
That’s why we’re really in a hurry to get some of these other systems — whether it’s the bed process and sleep experiences. What are we doing in nutritional delivery that can really make your stay a more — not exciting, nobody wants to be in a nursing home — a more palatable stay? What is it that we can do to reinvest within the community as a whole, from a capital improvement structure, to make sure that there’s a compelling reason that you would want to stay in our property?