November 5, 2017, Tim Mullaney, Skilled Nursing News - A new CEO is set to take the helm at one of the nation’s largest senior living and skilled nursing organizations, and honing the company’s post-acute strategy is among his top priorities. As of January 1, 2018, Joel Nelson will become the CEO of Des Moines, Iowa-based LCS, after Ed Kenny’s 11-year tenure in the role.
As the operator of about 140 communities, LCS is one the largest senior living companies overall and is the No. 1 third party manager of continuing care retirement communities (CCRCs) in the nation. Largely within those CCRC settings, it operates skilled nursing facilities and is the 22nd largest SNF operator in the nation, according to 2016 American Health Care Association data. Nelson is a licensed nursing home administrator.
While CCRC management will remain a core of the business, Nelson is planning to lead LCS in some new directions, which he recently discussed with Skilled Nursing News. Significantly increasing its proportion of owner operated rental communities is one objective, while rising to the challenge of providing and coordinating post-acute care is another. Nelson also wants to make the company into a well-oiled “sales and marketing machine.”
SHN: How did your career in senior living start?
Nelson: After one year in acute care, I joined LCS 31 years ago as an administrator in training. I came up predominantly on the operations side. Ultimately, when Ed Kenny was named president and CEO in 2006, I succeeded him as executive vice president of operations. Then 2010 was a transformational year for LCS, and my career. The board and Ed asked me to step out of the ops role, to start our capital deployment team, our investment team, to become more aggressive in the real estate space and to focus more on the rental senior living product. I did that for a number of years before stepping into my current role as president and COO.
Why did you make that initial switch from acute care to senior living?
I was here in Des Moines, and the LCS vice president of human resources at that time was in a business group meeting talking about the future of senior living and the opportunity to enter into the field, where you’re in the health care business, real estate, wellness, insurance and hospitality. I said, gee, there seems to be a lot more challenge and diversity and, at the time, more career opportunities in senior living. I followed up with the VP of HR and that led to going out and experiencing retirement communities and seeing what a wonderful lifestyle LCS was creating.
What was your first role with LCS?
I studied health care administration in college and had my nursing home administrator license, and my first role was executive director of a community that was going through a financial reorganization. I was in St. Louis in the LCS training program and asked to come back to the community in Ames, Iowa.
I have new trainees today who come in with more experience than I had in my first years as an ED, but the support structure I had underneath me as a young, energetic, passionate professional was a great recipe for success. LCS put me in a position that maybe I wasn’t quite ready for and surrounded me with a lifeline. Marketing and sales experts met with me every week and we developed a playbook. I had my plays to execute. We took it from 50% to 100% occupancy in just over two years and then added an expansion. We still manage the property today.
How do you think the industry as a whole does with cultivating young talent? What does LCS do well?
As an industry as a whole, we’ve come a long way and we’re growing more in tune with the need to develop and recruit young professionals as early as high school. It’s evidenced by the number of organizations out there, the university and college scholarships, the Granger Cobb Institute.
At LCS, every year, we have a class in our professional development program. We hire six to 10 professionals and they go through a very scripted, if you will, curriculum and training, become licensed. They work in every department and position, with the end goal of being able to step into one of our properties.
It’s been one of our best investments in our management side of the business. It’s paid off in spades and allowed us to grow, to have that corps of individuals with the knowledge and training to step into those opportunities when we get new business. Training leaders is not a new concept, but we do it in a very deliberate and disciplined manner.
Can you elaborate on that what makes the LCS leadership development effective?
What we look for, regardless of whether someone is young or older, is individuals who have true compassion for seniors and a passion to serve. Given the resources and structure of our organization, we think we can teach them the rest.
It’s continuous professional development, it does not start and stop with the new hire. As the incoming CEO of this organization, I’m in a professional development program. We do that top-to-bottom, and it’s evolving every year.
What professional development program are you in now?
I have, and many of our executives have, personal, professional coaches with personal development and action plans to develop our leadership skills on an annual basis.
What’s your leadership style and how would you compare or contrast it with Ed Kenny’s?
I would first say, succeeding Ed is like succeeding a football coach who’s been undefeated for three seasons and been a national champion. So, you try to emulate. I’ve worked side by side with Ed for 21 of my years with the organization. I think there are some similarities in our styles. My style is highly communicative, visible, and by nature I’m a competitor.
You have a lot of long-tenured leaders at LCS. What about the need to have a fresh perspective?
If you look at today’s C-suite and leadership team, it’s a great balance. Ed and I, and Rick Exline [Executive Vice President/Director of Senior Living Management, Not-for-Profit CCRC Division], are all lifers. Ed and Rick have 38 years each.
But in addition, David Laffey leads our real estate company. In the last 10 years, we brought David in from the investment banking side, and he really brought new perspective as our company began to evolve more toward real estate ownership.
We brought in an external CFO about 10 years ago, Diane Bridgewater. She challenged all of us to think differently. She came from the agricultural space, completely outside the industry, from a Fortune 500 company. Currently, today, LCS has launched a national search to head our rental company. I’m leading that process with a national search company. We have a lot of internal talent and they’re being considered, but we’re also going external to make sure we’re capturing the absolute best to run what I would argue is one of the most important growth companies in the organization.
Where do you see the company overall as you step into the CEO role? What are top priorities, opportunities and challenges?
LCS is in a very, very strong position.
We have a family of six great companies and great diversity in the space to manage the ebbs and flows of the economy and capital markets. When the economy is bad, we have a lot of opportunity in third-party management and acquisitions. When it’s good, we have a strong development organization that can continue to grow our company on the ownership side.
Where I think there’s real opportunity, let me break that into a few buckets.
On the life plan community/CCRC space, LCS is the largest third-party operator in that space, and I think there’s a lot of untapped opportunity for LCS to brings its resources and experiences to those organizations that want to keep their own identity and benefit from the perspective LCS brings nationally and locally.
On the rental side, that is an area that our organization is very focused on and presents great opportunity for growth. To date, our rental portfolio is more leveraged on the third-party management side due to the history of the organization, and yet we have ownership as an owner/operator in a number of communities. The future will be to evolve, to have the rental portfolio being much more dominated on the ownership/investment side than third-party management. I think you’ll see our organization remain very focused as a third-party manager of choice for life plan communities and CCRCs, it’s the core of our company.
Another shift is probably on the development side. With the aging product out there, there’s a great opportunity—maybe more on the life plan side but also on the rental side— to provide third-party development expertise to companies looking to reposition and expand and so forth. That’s a space we’ve played in, but maybe not as aggressively, or maybe we’re not as known to the industry.
Another bucket is LCS Real Estate. We’ll continue to be a competitor both on the ground-up developments for our own investments as well as for strong value-add acquisitions.
As for challenges, we’re in a very competitive market on the acquisition side, so we need to remain smart and patient … The other challenge is on our post-acute strategy, which is going to take more innovation and creativity, and more technology, to serve seniors in the future.
The last challenge is marketing and sales. We need to stay with the changing consumer.
When you say, Joel, what will you pour your energies into, I’ll pour energy into further strengthening the organization into a sales and marketing machine, and continue to fuel resources, human and capital, into our real estate ownership.
Can you elaborate on the plans to increase ownership in rental communities?
We currently own and/or operate 140 communities overall. That is broken out into about two-thirds being third-party managed and one-third owner operated. I think on the CCRC side, we’ll continue to predominantly be a third-party manager.
On the rental side, we’re currently about 30% owned and 70% third-party operated. I think that’ll flip and we’ll be 70% owner operated. We have the capital and the human resources to execute that plan.
Why do you want to make that flip?
We believe in sound alignment between owner and operator, and a way to achieve that is to have our capital invested into the assets. To have the risk but also opportunity to share in the value creation through our resources.
I think that’s the future of what the capital markets are looking for. The for-profit world especially is looking for the operator to have real skin in the game.
And can you elaborate on the post-acute challenges?
I think you can choose to not be in the business, like strictly independent living, or be a direct provider and take on post-acute care, all those levels of care. Or you can be in the middle and be the coordinator.
We believe, from the lowest to the highest acuity, that’s the market we need to be serving. We do have some post-acute, transitional care and high-acuity rehab, but our strategy is we’ll often partner and coordinate that care. As an example, home health is a really important element of the post-acute continuum. We’ll coordinate that home health in markets where we might not have licenses ourselves. We’ll be the leader in coordinating that.
Do you see financial upside in being the coordinator, is there reimbursement for those services?
Currently there’s not a coordinator fee for that service. You can do some of that through concierge services in the private pay market. I think where the real value is, if you’re coordinating care for your residents, it provides longer length of stay if you can keep them from moving out.
So the value add is in lower turnover, marketing those services in your building, and you can get some efficiencies on staffing. But in terms of having a direct reimbursement today, there’s very little of that available.
We remain bullish on the space.
There are markets with supply challenges and workforce challenges, but I see this as a cycle. We can go back as long as I’ve been in the business, and we’ve gone through multiple cycles that have challenges. If we have the ability to adapt and pivot, and really understand the consumer and the market, we can as an industry succeed.
Those companies that succeed will be nimble and have the depth of resources, both human and capital, to create great opportunities.