The ink on ProMedica’s deal to acquire the operations of nursing home giant HCR ManorCare was barely dry, but the health system’s David Parker already had his eyes on further expansion.
The Toledo, Ohio-based ProMedica made a huge splash in the post-acute and long-term care world in 2018 when it teamed with real estate investment trust Welltower Inc. (NYSE: WELL) to buy ManorCare’s real estate in a joint venture, with the health system assuming day-to-day control of the facilities.
But about two years ago, Parker approached Welltower’s then-CEO Tom DeRosa and then-chief investment officer Shankh Mitra about an intriguing group of post-acute facilities: Genesis HealthCare’s (NYSE: GEN) PowerBack rehab centers.
“I’ve known those PowerBacks for many years,” Parker — now the president of ProMedica Senior Care, the new brand for the operator’s former ManorCare assets — told SNN this week. “I’ve been in almost all of them.”
During those tours, Parker saw serious future potential in the purpose-built post-acute facilities, with an average age of about eight years and strong leadership teams at the helm.
At the time, folding the Medicare-heavy PowerBack properties into ProMedica seemed unlikely, CEO Randy Oostra said — if they ever had the chance, they’d jump on it, but the timing just wasn’t right.
“I think if you’d asked us a year ago if this opportunity to get the PowerBacks was going to happen, we would have said: Absolutely not,” Oostra said.
But a lot can change in a short period of time. The COVID-19 pandemic brought clinical and operational disaster to nursing home providers across the country, and Genesis emerged from the early peaks of the crisis particularly wounded. The Kennett Square, Pa.-based giant last August publicly announced doubts about its ability to continue as a going concern even with additional federal support, citing its geographical concentration in early COVID-19 hotspots and skyrocketing clinical costs.
Meanwhile, at ProMedica, Parker was determined not to let the pandemic derail the system’s long-term senior care plans. After waking up in the middle of one night in April 2020, thinking about what the future might hold, he assembled his team to plot a post-COVID future for the portfolio.
“We looked at our entire portfolio, looked at what consumers are going to want in a post-pandemic environment — managed care partners, acute-care partners — across our entire footprint,” Parker said.
The team quickly identified what those stakeholders likely wouldn’t want in the wake of a deadly pandemic: triple and quad rooms, properties in states with difficult Medicaid reimbursements, nursing homes with high Medicaid populations, and facilities that had been chronically difficult to staff. That prompted the ProMedica team to identify a list of non-core assets that fell into those categories, with the goal of maximizing the value of the health system’s annual capital outlays for renovations and redesigns.
“We spend about $75 million a year in capex on the senior care division of ProMedica,” Parker said. “I want to make sure that I’m utilizing that to its fullest potential, and the right portfolio.”
Those two long-term efforts converged last week with the announcement of a sweeping deal that saw the Welltower-ProMedica joint venture shed 25 non-core nursing home assets with an average physical plant age of 41 years — while also picking up the nine PowerBack properties from Genesis as part of a larger uncoupling between the REIT and the operator. The following day, Genesis announced that it would be voluntarily leaving the New York Stock Exchange after reaching a separate deal to restructure and secure a $50 million private investment.
With a total price tag of $880 million — including Welltower’s 51-building Genesis disposition — the transaction marked a rare major portfolio deal in the wake of the pandemic.
“With COVID, it probably accelerated the opportunity,” Oostra said.
The JV primarily funded the PowerBack pickup, with a price tag of $292 million, through the sale of the legacy ManorCare assets; the PowerBack properties are also generally located in existing ProMedica markets, Parker said, largely eliminating the need for additional expenses to fold them into its existing framework.
“From the standpoint of the improvement in our portfolio, and the way that we have coupled these two transactions together, there is no capital outlay from the health system at all,” he said.
Welltower’s Mitra — now the CEO after DeRosa stepped down last October — just this week touted the possibility of using the PowerBack facilities as feeders into ProMedica’s wider network of post-acute services, which include long-term care and home health.
“Anything you know about skilled nursing, you have to forget and rethink,” Mitra said of the properties.
Oostra echoed that sentiment, referencing ProMedica’s ongoing attempts to design “the facility of the future.”
“I think the PowerBacks fit right into that,” he said.
The COVID-related growth of home-based services — prompted both by consumer fears of coronavirus infection in nursing homes and aggressive attempts by home health providers to expand their offerings — has become a major question mark for the long-term financial health of skilled nursing facilities. But Parker framed the trend as the culmination of a long-simmering shift, pointing to significant length-of-stay declines for Medicare patients even over the last eight years.
“We love the continuum,” Oostra said. “We have no doubt that the acquisition of HCR was absolutely the right thing for our organization to do. We’re very focused on the home; we’re very focused on the whole continuum.”
The continuum play also includes a partnership with fellow system MetroHealth to build a 96-bed skilled nursing and rehabilitation facility in Cleveland. Set to feature private rooms and other high-end amenities, the building will represent another angle for ProMedica’s growth over the coming years: partnering with other health systems looking for ways to better manage their post-acute options, which Parker said can often be an afterthought for major hospital providers.
The ProMedica-branded facility will sit on a campus with MetroHealth geriatric and mental health clinics, along with supports for social determinants of health.
“I think that there’s a lot of opportunities around these joint ventures, where systems look at us and say: Okay, we don’t have to own the whole thing, but we need an expert,” he said. “And the partnership opportunity allows us to leverage our strengths, but also ensure that we have the ability to tap into that volume, and drive quality care in those marketplaces.”
COVID-19 may have slowed down that side of expansion push a bit, Oostra said, but he was optimistic about the potential for more partnerships in the years ahead.
“We expect we’ll see a lot of these opportunities,” he said. “We’ve got several underway right now, and we believe over the next 10 years, we could definitely do dozens of these.”