CarDon CEO: With Headwinds Contracting Nursing Home Margins, Survival Comes Down to Ancillary Services

The nursing home business is in a contraction phase, with continued increased labor costs, revenue draining government initiatives including but not limited to the minimum staffing proposal, and managed care diverting patients away from the space.

Operators must balance census and labor with innovative ideas to stay afloat, says Kent Rodgers, President and CEO of CarDon & Associates in Indiana.

With 90% occupancy on average across CarDon’s 19 properties and a “tolerable” amount of agency use among its workforce, the team has been able to make innovative moves, acquiring a pharmacy with plans to dive into the institutional special needs plan (I-SNP) world by 2025, Rodgers said.

“These innovative ideas, these bolt-on businesses … it’s not just a wishful thing. It’s a mandatory thing,” Rodgers said during SNN’s RETHINK podcast. “In order to protect the core business, you’re going to have to find revenue and income sources besides just taking care of the patient in a building as a government subcontractor.”

Innovation and progressive technology is nothing new to the CarDon team, with founders Carroll and Donna Moore having a great passion for technology from the very beginning. Carroll was a computer programmer before getting into the nursing home business, and actually bought the first desktop computer for nursing homes in Indiana, Rodgers said, adding that CarDon’s founders are pioneers in the industry.

“That’s been part of our DNA for 46 years,” he added.

Now, the company’s robotic process automation team – “bots” – help staff approve admissions in record time, among other tasks, Rodgers said.

Highlights of the podcast, edited for length and clarity, are below. Subscribe to RETHINK via Apple Podcasts, Google Podcasts, or SoundCloud.

On company growth and operations

“We have the benefit of being strong in our day-to-day, census and labor. We have achieved 90%-plus occupancy since 2021. Labor is reaching an equilibrium; I would not say it’s back to the old days, but it is certainly a tolerable amount of agency. You’ve got to have that as a core before you can start thinking about new initiatives.

“We’ve really shifted over the last two years, not growing through real estate, which is really what we’ve done over the [past] years, acquiring buildings – primarily nursing homes, but also assisted living and independent living. Our focus really now is providing more services to our existing customers. Our focus has been, from a growth standpoint, on ancillary operations and trying to find out ways that we can provide as many services to our customers as we can and not let others in our building do that. 

“We acquired 100% of a pharmacy that we formerly were in a joint venture with. That’s been a huge positive for us because for the first time in my career, we really have what’s best for the customer, what’s best for the resident, not what’s best for the nursing home, or what’s best for the pharmacy. It’s one company initiative working toward how we can best serve the customer and do that in a way that relieves the stress from the nurses.”

On new ancillaries and nurse satisfaction

“We had a partner that was a pharmacy company. They managed our pharmacy, they were not in our buildings every day trying to figure out what was best, what was most efficient for serving the customer. Nurses, your highest valued and highest cost employees in the facility, spent an inordinate amount of time passing [medications], prepping to pass [medications] and auditing [medications] to make sure that what we pass is appropriate, rather than being in a room with eyes and ears focused on the resident. There was so much time spent in [medication] pass. We’ve been able to bring pharmacy techs into the buildings and they do the preparation of the Cubex, they do the audit of the [medication] carts, they do the organization of all things medicine wise. They can’t deliver [medications] to the patient but now the amount of time the nurses spend on medication [prep] is replaced by a technician. We found some real efficiency and nurse satisfaction in that process so far.

“The other piece to that is having our medical directors, our directors of nursing and the pharmacy folks meeting on a regular basis and determining what the best approach is on medication changes. It’s a whole series of efficiencies and what the medical directors are now allowing the pharmacy to do with their permission. Again, the nurse isn’t spending two hours on the phone trying to get a [medication] change approved. It isn’t as important in terms of pure ROI, but it’s [nurse] satisfaction and working at the top of their license for the nurses.”

On managed care

“We have a number of our buildings with Optum today. One of my concerns with the current arrangement is you have the highest level practitioner, nurse practitioner in the building, serving a small percentage of your patients.

“We will be in the I-SNP business by 2025, we will have a focus on providing the highest level of care to all of our patients and not just a component. With our own care management company, our own nurse practitioner business, and the I-SNP coming together, we make sure that all of our residents benefit from having a nurse practitioner in the building on a regular basis. We are committed to having an I-SNP up and going by 2025.”

On innovation

“I think innovation oftentimes is viewed as a synonym for technology, and I don’t think it’s necessarily the same, although technology plays a large part. We have a business analytics department that is providing real time data to our management team. It’s amazing – the difference between managing census the next day versus managing census every hour – and the staffing that goes with that. Dashboard approaches were sold by many organizations to us, but we’ve found that building our own and giving ourselves real time data has been helpful.

“The thing that’s probably got the most discussion is, we have three members of our RPA group, the robotic process automation. And in an earlier discussion, I joked that I thought a bot was a Star Wars character. I call it a joke after the fact. Our Chief Technology Officer Tom McClelland,  he introduced this idea, what they could do for us. And we hired our first RPA. I saw pretty quickly that our bot, Toby (that’s the name of our bot, the personification of our bot) had the ability to report Covid testing to the 14 different organizations that wanted results through an automatic process – that showed me that there was something there. 

“More recently, our automation is really focused on two things. One is the ‘Getting to Yes,’ or how do we make a decision on whether we’re going to take a referral as quickly as possible. It used to be a situation where you had 24 hours to make a decision, and then it was hours to make a decision. Now we really need to be able to respond within about 20 minutes if we want to take a patient. There’s a lot that’s required to do that with background checks, insurance verifications, and sexual offenders databases, all these different things that we’ve got to review. Toby does that in a matter of minutes. That’s been the biggest impact for us and is a real component as to why we are at 90%-plus occupancy in our buildings.

“I would like to point out one thing – you don’t want to automate bad processes. We’ve married the RPA process with the process improvement. We take apart different processes first to determine what should and should not be done, and then figure out how the RPA guys can automate what we should be doing.”

On cost savings and margins

“I absolutely think the core [nursing home] business is in a contraction phase with the continually increasing labor costs, and the government is focused on decreasing our revenues, both through rate and by diverting patients to home and community-based services. “The managed care providers, while they’re limited somewhat in the ways that they can impact us, they certainly are diverting the patients or reducing the stay. The proposed staffing mandate [put pressures] too. All are negative trends to the margins of our business, which is already a very low margin business. 

“So what I’ve been focused on are these innovative ideas, these bolt-on businesses, or meeting more of the needs of our customers – it’s not just a wishful thing, it’s a mandatory thing. In order to protect the core business, you’re going to have to find revenue and income sources besides just taking care of the patient in a building as a government subcontractor.”

On the federal minimum staffing proposal

“I’m going to say a shocking thing, which is, I support a staffing mandate. I’m okay with a staffing mandate, but let’s be real about it. The mandate that’s been proposed is impossible to implement. You’re asking us to hire nurses that don’t exist. You can put a mandate out there, but what are going to be the teeth to it, what are the ramifications of failure, because there will be failure. If their goal is to close nursing homes, they could do it in a more direct path.

“I really have two primary concerns. I don’t like any measurement that is input versus output driven. I understand the concept of saying that, if you provide more input, it will provide better output, but for CarDon, every one of our buildings, when the new measurements come out, will be five star quality [buildings]. And yet our staffing ratings fall well below the Indiana average. We found a way to provide high quality care. I would hope that CMS would say, let’s try to raise the bottom and leave the top alone if we’re providing the high quality measures.

“The second piece is the subjectivity of the enforcement. It says there will be X number of hours and that number of hours is adjusted based on the patient’s acuity in individual buildings, but they’re not currently a matrix, there’s not currently a measurement system that says if your acuity is this, then your number is going to be that. It looks like they’re going to rely on the subjectivity of the surveyors to assess the staffing levels, and that’s unacceptable.”

On minimum staffing proposal changes

“I can’t predict what I think the changes are going to be because I never thought after the initial round of comments that we gave, as an industry, they were primarily ignored by CMS. They asked for help. They asked for our opinion and generally ignored the suggestions that were made.

“What do they do next? I don’t know. But I think they will issue a mandate because it’s good press during an election year. I don’t know what they’re going to change it to but I do believe they will issue a mandate. My hope is that it’s a long on ramp and that there is funding provided to hire the nurses and that there is something done to create more nurses. Without the creation of more nurses this is an impossible task to undertake.”

On Indiana’s shift to managed Medicaid

“It does have me worried. The state has put out a timeline where they’ve said the providers should be signing contracts with the [managed care organizations], and the [managed care organizations] are saying they can’t do that until the state approves [managed care organization] manuals. The state is not telling them when they’re going to approve their manuals, the state is saying ‘you’re going to enroll customers in between January and April.’ And yet [the state is] not going to approve the contracts with the [managed care organizations] until after that date. 

“I’m confused and worried about the process. Going forward, let’s assume they can make that happen by their July 1, 2024 deadline. My initial worry from there is, we’re not going to get paid. I can guarantee we’re not going to get paid on a timely basis, especially in those early months. We’ve been through this process before in different iterations. Our business, our industry cannot afford to go 30 days, much less than 90 days or six months without getting paid. I’m afraid that’s what’s going to happen.

“We have been asking the state to agree to some type of retainer or some payment that is guaranteed to come through to our organizations. The state is willing to consider that but that is a big concern that I have. It’s coming, there’s no stopping it. But you darn well better get us paid.”

On rethinking the industry

“I still hear a lot of folks in our industry and certainly the talking heads on TV that believe that this coming wave of baby boomers will be the salvation for our industry. They use the term silver tsunami. I’m not sure if you’ve ever heard of a good tsunami, but I haven’t. The government cannot afford to pay the same amount per patient as they currently do. There’s no way. If there’s 1000 residents and they’re paying $1000 a piece, then there’s 2000 residents, do you really think they’re still going to be able to pay $1000 a piece? I would say no. And, we don’t have enough staff to take care of those we’re caring for now.

“The good news is, a tsunami or a hurricane isn’t a tornado – you can see it coming, right? You can prepare for it, you can plan for it. Let’s do that together. Not just as providers, but let’s do it with CMS, let’s do it with the President, let’s do it with state Medicaid and plan ahead to generate the number of staff that are going to be necessary, and figure out how are we going to pay for all these people instead of waiting five years from now.”

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