“Wild” and “crazy” are adjectives that describe aspects of the skilled nursing business at the moment, according to Health Dimensions Group (HDG) CEO Erin Shvetzoff Hennessey.
Labor is “just wild,” she told Skilled Nursing News during an interview at the recent National Investment Center for Seniors Housing & Care (NIC) conference in Washington, D.C.
And the high prices that skilled nursing facilities have commanded in M&A transactions have been “crazy,” she said.
Attractive prices were one driving factor behind two recent SNF dispositions that HDG completed. But those deals were also part of a larger, ongoing strategy to rebalance HDG’s book of business, which Shvetzoff Hennessey has been pursuing since she became CEO in 2018.
That effort has involved expanding the company’s private-pay senior living portfolio to create more balance with its SNF management. But skilled nursing remains a core part of HDG and is of special interest to Shvetzoff Hennessey, who has been connected to the sector since even before she was born.
“My mom’s baby shower for me … was in the activity room of a skilled nursing facility,” she said. “During Covid, I went and worked as an aide in the communities, because I just love skilled nursing. They’re the ones who need us the most — but the world is changing.”
Adapting to a changing world
Five years ago, HDG’s operations were about 90% SNF and 10% private-pay senior living. Today, that is closer to an even split across a portfolio of about 30 communities in seven states. However, the Minneapolis-based company continues to add skilled nursing units on a strategic basis.
For example, HDG recently took over management of five communities owned by St. Louis-based hospital system SSM Health. One of those is strictly skilled nursing, while the others are a mix of care levels, including skilled nursing, Shvetzoff Hennessey said.
The decisions about where to add skilled nursing beds and where to trim them are driven by several factors, including the state of local labor markets. But bigger-picture, Shvetzoff Hennessey believes that the SNF business will continue to be challenging not only from a reimbursement and workforce perspective, but due to the fact that consumers will gravitate toward assisted living and other alternatives when they can.
This trend has been ongoing, contributing to rising acuity in assisted living. While some providers are concerned about serving a higher-needs AL resident base, HDG views this as an opportunity.
“When I looked out at what made a great senior living operator, it’s now becoming more regulated, it’s becoming higher acuity … and high staffing,” she observed. “We’re good at all those things.”
HDG has had to build its bench more on the hospitality side, and so the organization has brought in experts in dining and resident services, strategically creating a private-pay offering rather than “just throwing our name on an assisted living,” Shvetzoff Hennessey said.
Still, there is plenty of demand for skilled nursing, and HDG — in part through its consulting arm — is active in working with SNFs and hospitals to strengthen and modernize their relationships and shore up their ability to provide needed care.
The flow of patients between hospitals and SNFs currently is jammed up, as has been widely reported. Staffing shortages at nursing homes have curtailed their ability to take new patients, and are leading some facilities to “cherry pick” individuals, Shvetzoff Hennessey said. SNFs may avoid more labor-intensive situations involving, say, someone who would need a two-person lift or who has behavioral health diagnoses.
Resolving these situations demands all parties come to the table to hammer out solutions, Shvetzoff Hennessey emphasized. Such solutions might involve the hospital providing staff or training related to particular conditions or diagnoses. Payment models also must be considered, which might involve the SNF being rewarded for quality outcomes or involved in upside-sharing through at-risk payment frameworks.
And when it comes to placing individuals in the most appropriate and cost-effective level of care, meeting psychosocial needs of older adults is an area of tremendous challenges and opportunities. That’s because certain patients end up in a SNF not because of their medical needs, but because they are unhoused or don’t have the support of family and friends to assist with meals, dressing, bathing and other activities of daily living, Shvetzoff Hennessey observed. And on the behavioral health front, skilled nursing operators are already facing daunting statistics; 85% of nursing home residents have a mental or behavioral health diagnosis, not counting dementia, according to research findings unveiled during the NIC conference.
This indicates that nursing home operators must find staff or partners with the skills to identify and support behavioral health needs, but also shows the increasing need for dedicated geri-psych facilities, Shvetzoff Hennessey believes.
“I think we have to figure out where we take care of people where they’re comfortable,” she said. “ … How do we use existing assets, how do we use existing staff to meet that need? It’s only going to get bigger.”
Labor: A matter of control
Workforce pressures have been intense across skilled nursing, and the situation is not likely to improve in the near-term. HDG is planning for labor costs to increase over the next 12 months, and for worker shortages to be chronic.
“I don’t think there’s any silver bullet — it’s U.S. workforce participation, it’s labor rates, it’s reimbursement,” Shvetzoff Hennessey said.
In skilled nursing, one of the most troubling aspects of the labor crisis is that labor costs and reimbursement rates are both essentially fixed, so there is little that operators can do to alleviate financial pressures. Adding further woes, rates for agency labor have sometimes skyrocketed over the last year.
This has led to some unusual situations, including decisions to intentionally shrink occupancy.
“We’ve gotten in situations where the cost of agency has gotten so high that it’s actually more profitable to shrink occupancy, which is different than all of us have ever been taught, which is everything’s about occupancy, occupancy; well, at the end of day it’s really about cash and operating income,” Shvetzoff Hennessey said. “So we purposely shrank capacity at one of our really large communities, because we were able to run it without agency and we had better quality outcomes.”
In this environment, the key is to manage all the elements that are under HDG’s control, she added.
“What we control is paying as high as we can to still be a feasible business, treat our employees well, and work on retention, engagement, satisfaction,” she said. “We do same-day pay. We really work on our hiring process and employee appreciation.”
It is possible that if inflation continues and the economy enters a more marked downturn, labor pressures could ease, she noted — although this would create other pain points across the country.
Despite the labor quandary facing the senior care industry, Shvetzoff Hennessey is fundamentally upbeat about the ability to weather current challenges. In part, her mindset is the result of being tested by Covid-19. Having come through the darkest days of the pandemic, she is confident about finding solutions to more conventional business dilemmas.
“Someone asked me about what scares you,” she said. “Nothing scares me. I ran nursing homes during Covid.”
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