After Adding 21 SNFs, Optalis Leverages Scale to Innovate

The changing nature of the skilled nursing business has enabled Optalis Healthcare to gain scale, adding 21 facilities through three deals executed in the last year.

“The business has changed a lot; it takes a lot more in terms of resource deployment,” Optalis CEO Raj Patel told Skilled Nursing News during an interview at the recent eCap conference in Miami. “There’s only so much innovation you can bring … unless you have a certain scale.”

And innovation is needed in order to create more specialized and advanced clinical programs while also achieving the key performance indicators that increasingly drive skilled nursing success, he said.

As a result of these heightened demands — and the toll taken by the Covid-19 pandemic — Patel is observing that more mom-and-pop operators are exiting skilled nursing, sometimes after decades in the industry.

In 2022, Optalis acquired two portfolios previously owned and operated by mom-and-pops: The Macintosh Company and Vrable Healthcare. The Macintosh deal added seven buildings to the Optalis portfolio and the Vrable transaction added five buildings.

Optalis is not exclusively targeting deals involving mom-and-pops. In Dec. 2022, the company acquired nine former ProMedica facilities, as the large health system pivoted away from SNFs. All the former ProMedica facilities are located in Michigan, where Optalis is based near Detroit, in Novi.

Now, Optalis is operating 35 buildings totaling about 4,000 beds, located across Southeast Michigan and Central Ohio.

Rules of the game are known

Skilled nursing providers such as Macintosh and Vrable enjoy strong reputations in their markets, but SNFs can no longer succeed based on reputation alone, Patel said.

“They tend to bet on their reputation to get business, and that’s great, but you still have to make progress toward the metrics you’re viewed by, and that’s where they’re falling short,” he explained.

Those metrics are numerous and include hospitalization and readmission rates, as well as outcomes related to a variety of clinical parameters. Payments and referral streams are increasingly tied to such key performance indicators.

The Optalis approach is to implement more structured operations with systems of “checks and balances” to maintain consistency of execution, Patel said.

“The good news is the rulebook is available to everybody — the rules of the game are known,” he said.

By adhering to the rulebook, skilled nursing operators can flourish despite all the challenges they face, Patel asserted. He pointed to the improvements in the Macintosh buildings, where star ratings have improved by an average of two stars, occupancy is up by about 18 to 20 percentage points, and margins have gone from barely break-even to “very profitable.”

The key, he said, is not only having the right systems in place but in committing to continuous oversight and adjustment.

“Buildings are never on cruise control,” he said.

Subspecialty SNFs

The Optalis approach is exemplified by the company’s admissions process.

Centralized reviewers evaluate every person admitted to an Optalis facility, assessing how well each individual aligns with a building’s clinical capabilities, which also are being continually reviewed.

This process is especially important as SNFs increasingly excel at particular sub-specialities, such as complex respiratory care, cardiovascular rehab, or neurology for post-stroke care.

“We’ve got integration with neurologists that can follow them via telemedicine and really comfort the hospital that they can transport or transition the [stroke] patient out of ICU sooner and still know that they’re being watched carefully,” Patel said.

A variety of factors — including the particular needs of nearby hospitals — explain how and why particular buildings develop their subspecialties. But there are some trends that are more global, requiring SNFs across the board to raise their clinical game.

Dialysis is one example, Patel said. With a shortage of transportation providers that can take patients to dialysis clinics, hospitals are leaning more on SNFs to deliver on-site dialysis.

Having the right ancillary service partners is a crucial component in being able to meet such needs, and Optalis has strategically invested in ancillary businesses including dialysis, rehab services and pharmacy, with transportation being an area of interest. Patel himself is a pharmacist and initially came to the skilled nursing world through the pharma sector.

The shift toward the Patient-Driven Payment Model (PDPM) has “opened the door” for taking more complex patients, by basing SNF reimbursements on a more holistic approach to patients’ needs, Patel observed. And Optalis’ more structured approach to operations, including documentation, also creates Medicaid upside related to payments tied to quality.  

But he does have concerns as managed care continues to play a larger role in skilled nursing. He would like to see more oversight of managed care organizations and the intermediaries that determine and “dictate” how much care and what length of stay particular SNF patients require.

Strategic growth

Patel is assessing further expansion opportunities in the “geographic radius of operating strength” that the company has established, and he has started to see prices “soften substantially” in the last two to three months.

He foresees a cooling off period for the M&A market after a “perfect storm” last year, involving low interest rates, investors needing to deploy capital, and more operators looking to sell after the height of the pandemic.

“Everything’s kind of coming back to normalcy,” Patel said.

Still, he is not rushing to ink deals. About 15 years ago, he formed Optalis with partners Charles Dunn and Hemant Shah, and the company remains privately held, with no pressure to expand at any particular pace.

He’s particularly concerned about not overextending staff and Optalis’ corporate team, and maintains direct communication with administrators and routinely visits buildings to keep “a good pulse on the business.”

“We’re here for the long run,” he said. “ … And every time there’s an opportunity to strategically grow, we’ll keep growing our company.”