Bottom Line: How A Turnaround Consultant Finds Nursing Home Upside Amid COVID-19

June 18, 2020, Maggie Flynn, Skilled Nursing News - Skilled nursing facilities have seen spikes in operating costs with the onset of the COVID-19 pandemic, putting increased pressure on already-tight budgets.  But the increased aid to SNFs from the federal government might help keep some of them afloat, as long as they can survive the broader trends that were playing out even before COVID-19.

Derek Pierce, managing director at the turnaround and consulting firm Healthcare Management Partners, has seen struggling nursing homes of an array of shapes and sizes.  For him, the COVID-19 pandemic has in some ways put more resources in his path to help them — while making the day-to-day work of receivership much more of a challenge.

Healthcare Management Partners at the end of May entered into a joint venture with the investment banking and advisory firm SC&H Capital and the consulting firm I3 Healthcare Consulting, to help health care organizations — both acute and post-acute entities — weather the storm.

SNN caught up with Pierce to talk about financial considerations for SNFs both before COVID and during- and what’s going to come.

This interview was recorded on June 3 and has been condensed and edited for clarity.

Let’s start by going over your work with SNFs — going back before COVID-19, if we can remember that far back.

Yeah, it seems like a lifetime ago.  I cut my teeth in the business as a Medicare auditor for a Blue Cross plan in the South 30 years ago.  A lot of the auditing we did was a cost-based reimbursement methodology for hospitals and nursing homes, and hospitals were being phased out, nursing homes phased out a little further down the timeline.

From there, I started really getting into nursing homes about 15 years ago as a restructuring officer, worked in the CFO role of a large faith-based nursing home in Syracuse — 670 beds — and then did a 31-facility CFO role, a turnaround also in Tennessee, kind of closer to home for me. 

Since that CFO turnaround assignment, I’ve been doing a lot of receiverships in the nursing home space, nursing homes and a lot of assisted living care.

I’ve seen a large, almost institutional type setting in the Syracuse market, down to smaller rural, 60-bed or maybe up to 120-bed nursing home facilities in Tennessee and had several assignments between all of that.

But that’s a high level of what I’ve done in the space.  It’s usually in financial, reimbursement, operations, and now these receiverships — which is akin to a bankruptcy although it’s a little less complex. 

I’ve been appointed receiver over a lot of these facilities in a fiduciary-type capacity, where I’m over not just financials but over the overall building itself.

Can you talk about some of the financial issues in the SNF space that you saw in this work – even pre-COVID-19?

What comes back in my mind a lot of times when I think through the timeline of payment methodologies is: You hear people talk about businesses, saying, “Just tell me what the rules are, and I’ll play by those rules, and I’ll learn to live within my means.”

But when the program changes — back in, I guess it was the Clinton administration, what happened is they basically changed the rules.  You know, the government has such a presence, as far as payers go, in the buildings that you’re living by the whims of a regulation that could take them up or down — or out of business, in some extreme cases.

If you imagine that — “just tell us what the rules are, and we live by them” — and then suddenly those rules keep changing, that’s kind of what I’ve seen in nursing homes, more than probably any other [setting].  Hospitals, it’s been pretty steady, but [not] in nursing homes.

A really good example, in just the last 10 to six years, it’s become more prevalent: managed care, long-term care programs where states are actually kind of pushing the fee-for-service concept, a per-diem payment, to the managed care organizations (MCOs) and saying, “Okay, we want you to manage, and we want it to be multiple payers, not just one, like in the old days.”

It’s now multiple MCOs saying: We’re going to divide up the Medicaid population, and we’re all going to pay you our own way on our own claim form.  And we’re going to limit services.

As an example, Virginia went through this about two years ago, and I had a building that I was responsible for.  It was really difficult.  You went to the state and cried: “We’re not getting paid by these MCOs!”

It was this transition period; slowly they worked through the transition, but what you have is now a ratcheting down of utilization.  So, these MCOs do what they do, which is manage cases, manage the patient, find alternatives for them, like home care, age-in-place.

They find these alternatives that are less costly, and now suddenly facilities that are essentially a fixed-cost business are struggling with occupancy rates, declining occupancy rates.

That’s probably one of the big examples, is the managed care coming into play for these for these Medicaid populations.  [With] Medicare, it has has been in place for a while, but that’s relatively new for Medicaid.

So how has COVID-19 shaken up the landscape?  Has any of what you talked about been made worse by it, and if not, why not?

With the payment structure?  My sense — and I have just recently taken on four buildings in Texas, so I have a little insight into it; I’m still getting my arms around the buildings and what’s going on — but there’s a lot of press and a lot of money being thrown at the buildings.

Obviously, it’s being given with caveats, and making sure that people are following the rules, but the CARES Act, hospitals trying to be helpful to making sure that the nursing homes have access — for a restructuring officer, it’s kind of been a chance to breathe.

A lot of times I go into buildings where they don’t have days of cash — with minutes of cash, not days of cash on hand.  And here, because of some of the funding, it’s been very helpful until I can sort out what needs to be changing.

To your real question, for the business and industry as a whole, not just specific to my struggling nursing homes, I think it’s kind of steady-as-you-go for payments, the [revenue] cycle and whatnot.  If anything, it’s acceleration: How can the MCOs help get you paid quicker.

I haven’t seen much of a disruption on that side of it.  It’s the admission side of it, that’s really the challenge.  You can’t take admissions, so your occupancies are declining just as we sit here.

You said: If not, why not?  I think there’s just so many people trying to join hands to make sure we’re going to get through this.  I guess that’s my sense.  I’m not a payer expert, but my sense would be that, that they would be: What can we do?  And: We’ll figure it out later.

Even with CMS, when they went through this accelerated payment concept a couple of months ago for hospitals, it was a it was an effort of: Let’s get you some money, and then we’ll worry about how we would get back from you after we get through this crisis.

Is there anything about being a receiver that’s harder in the pandemic situation?  Are there any upsides?

Access to the buildings, obviously.  We’re non-essential, is how we’re defining ourselves, and being able to keep the staff safe, making sure there’s adequate PPE in the buildings.

It’s all about compliance in that regard, the clinical aspect, and you feeling the responsibility of it, keeping these people safe and the residents and patients safe in the building.

I think that’s the one that weighs on probably me the most.  I was on calls until about 9 p.m. last night from [certified nursing assistants] that were expressing concerns about issues in the building, some as basic as payroll issues.

What really troubles us in this, I think it’s with a third of all COVID-19 cases or deaths coming from nursing homes — you knew it was serious beforehand, but now you’re seeing it in the data.  The data is now coming back and saying: This is the most vulnerable group in our country.

And you’re responsible for them.  And so then trying to motivate the staff who were burned out and feeling overwhelmed and under-appreciated.

Shifting gears a bit, can you talk about what SNFs might expect in terms of issues of litigation?

In receiverships, you often have some immunity from that because it’s a court appointment from a government agent.  The building itself, we always cover ourselves with workers’ comp and malpractice, and we do make sure that the coverages are in place.

I do think it’ll become litigious.  I think that’s why hospitals got around the elective side of this so quickly; it was not worth the risk of infecting somebody.

We don’t have that option in the nursing home space, as a hospital would, so we have to do what we can.

[Families] can’t see their loved ones in the building; they can’t go in, and then they find out something has happened, and I just can’t imagine how grief-stricken they would be. 

This is nothing profound here, but I just can’t imagine it’s not going to be an issue in a year or two, when we get things kind of settled down.

As the joint venture among SC&H Capital, Healthcare Management Partners, and I3 Healthcare Consulting gets under way, what are some of the issues you’ve been hearing from SNF clients?

In most of my cases, I am dealing with the struggling facilities, but it’s trying to get economies of scale with services.  So if there’s something that’s being done in one building, and it’s being done by a different vendor or done in a completely different way in a second building, let’s try to come up with a list of initiatives to do the same thing at both buildings and create some savings.

That could be with the EMR. It could be with vendors, pharmacy vendors or food service vendors, but trying to come up with some commonality.

That’s not necessarily new in post-COVID or within COVID.  I do think some of the nursing homes that are struggling — and occupancy rates are continuing to decline — there is going to be at some point, I believe, mergers or divestitures.

A lot of these REITs [real estate investment trusts] that own the real estate have responsibilities to their shareholders.  I just think there’s going to be more changes. 

People are going to be trimming these facilities from their portfolio.  We were seeing it, obviously, prior, but I just think it’s going to accelerate something that was already in process.

Obviously technology: I think the increase in telehealth in the buildings is a must for the physician rounds.  I think it’s just going to continue in the ways of pushing acuity up in the buildings.