consolidation and its impact on quality, accessibility & cost of care bomi parakh, phd senior...
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Consolidation and Its Impact on Quality,
Accessibility & Cost of Care
Bomi Parakh, PhDSenior Director, Managed Care
59,026 52%
14,055 12%
34,449 31%
5,164 5%
Post-Merger Profile of a Large LTC Consolidator
Brookdale’s merger with Emeritus created the largest owner-operator of senior housing in the U.S. with approximately 1,200 properties and 113,000 units
With $5 billion in combined revenue
4 Congregate Settings of Care Delivery + Post Acute Care
Independent Living (IL)
Skilled Nursing
Assisted Living (AL)
Memory Care (MC)
2
Units% of Total
Geographic Coverage in 46 States
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503015_1.WOR (NY007LA7)
BrookdaleEmeritus
Combined portfolio reaches 330 markets, covering 81% of the U.S. population
presence in all top 31 markets, with a #1 position in 18 markets
presence in 88 of the top 100 markets
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‘Critical Mass’ in Top 15 States
Rank State Community Count IL AL ALZ /
MCRehab / Skilled
Unit Count
1 Florida 141 6,197 8,693 1,962 1,105 17,9562 Texas 132 5,803 6,457 1,383 975 14,6173 California 94 1,989 7,580 943 525 11,0374 Washington 55 1,190 3,120 691 0 5,0015 Ohio 60 781 3,286 740 120 4,9276 Colorado 39 1,813 1,780 487 467 4,5477 Arizona 39 1,437 1,818 664 401 4,3208 Illinois 22 2,590 1,161 147 142 4,0409 North Carolina 63 836 2,261 724 34 3,854
10 Oregon 45 831 1,986 436 20 3,27311 Michigan 39 1,549 904 544 172 3,16912 Virginia 19 974 1,316 306 0 2,59613 New York 35 567 1,429 553 0 2,54914 Tennessee 36 770 1,376 359 0 2,50415 Georgia 29 487 1,225 432 0 2,144
IL: Independent Living; AL: Assisted Living; ALZ/MC: Alzheimer’s/Memory Care
Positioning Relative to Peers
The only national provider of senior living solutions
3x larger than next largest provider
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Brookdale 3 5 7 9 -
20,000
40,000
60,000
80,000
100,000
120,000
Number of Units
Top 10 Operators – Number of Units
Post-Acute Care: 25th Largest Nursing Facility Chain
Brookdale became the nation’s 25th largest Nursing Facility chain by bed size 76 locations
Maintains patient profile different from the typical Nursing Facility Higher Medicare, Managed Care and Private census Lower Medicaid census
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Post-Acute Care: Ancillary Services
51 Home Health Agencies; 500 Outpatient Therapy Clinics Expansion of existing home health & therapy services to
Emeritus markets (512 new communities) will generate rapid growth over next 3 years
On top of 212% revenue growth from 2007 to 2013
152 Private-Duty Home Care Agencies
14 Hospice Agencies
Brookdale at Home; Nurse on Call
5,000 Nurses
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Linking Housing and Healthcare in LTC
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Highlights Company Payor Mix
Medicare Ancil-lary8%
MedicareSNF6%
Med-icaid3
%Managed Care 3%
Private Pay 80%
20% of company revenue is from traditional healthcare (Medicare, Medicaid & Managed Care)
All 20% is post-acute care Post-acute accounts for
5 to 24% of total Medicare program spend
Additionally, as much as 50% of the housing revenue is for LTSS
• Most of this is private-pay
LTSS: Long Term Services & Supports
Integrating Housing and Healthcare in LTC
Assisted Living
Independent Living
Specialized Alzheimer’s
Skilled Nursing
Consumer Choice
Leve
l of C
are
Low
Hig
h
Wants Needs
Sub-acute
Hospitals
Active Adult Housing
Therapy, Home Health and Hospice
Brookdale
CCRC
Brookdale at Home
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The LTC ‘Cottage Industry’
58,600 paid, regulated long-term care service providers served 8 million people nationwide:
• 22,200 assisted living/residential care providers • 12,200 home health agencies• 15,700 nursing homes• 4,800 adult day services centers• 3,700 hospices
Each day, there were• 713,300 residents in residential care communities• 1,383,700 residents in nursing homes• 273,200 participants enrolled in adult day service centers
During the year• 4,742,500 patients served by home health agencies • 1,244,500 patients received services by hospices
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Source: Long Term Care Services in the US: 2013 Overview, NCHS
2012 2015 2018 2021 2024 2027 203015.0
20.0
25.0
30.0
35.0
Future Growth Potential
Senior population estimated to grow 3 times faster than base population
Need for assistance increases progressively with age
Strong Population Growth
Millions of People
65-74 75-84 85+0%
10%
20%
30%
40%
50%
7%15%
40%
Need for Assistance Grows Dramatically
% of Population with limitation in 3 or more Activities of Daily Living
Population projection for 75 and older
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Per Capita Medicare SpendBy # of Chronic Conditions
# of Chronic Conditions
$2,025 $5,698
$12,174
$32,658 0 to 1 2 to 3 4 to 5 6+
CMS, 2012 Chartbook Chronic Conditions
Senior Housing: Lowest Cost, ‘Inpatient’ Provider
IL rate/day: $83 - $117
AL rate/day: $107 - $133
Memory Care rate/day: $140 - $183
Nursing Facility Private Pay rate/day: $200 - $400
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Efficiencies of Scale
Cost synergies Cost savings from scale Operating expense reduction
National Branding Campaign Multi-layered approach that combines national and
local marketing activities
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Operating Leverage Drives Cash Flow
(1)Calculated as 82,922 consolidated units times $4,305 revenue per month times 1% times 12 times 70% (2)Calculated as 82,922 consolidated units at 87% occupancy times $4,305 revenue/month times 1% times 12
Key Drivers
1% of incremental occupancy growth produces approximately $30 million of Cash Flow, assuming 70% incremental margins(1)
1% of incremental rate growth produces approximately $37 million of Cash Flow(2)
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Population Health, Expansion Segue
Population health for 113,000 residents LTSS Spend Medicare Spend
Other Growth Opportunities: Ancillary expansion to Emeritus communities
Expansion “outside the walls” to provide services in seniors’ homes
Further expansion of hospice and other post-acute services
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Historical Ancillary Growth
(In millions)
$-
$50
$100
$150
$200
$250
$300
$103
$190 $225
$260
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Opportunities for New Product Development
Products,Services,Assets
Customers
New
New
Operational EffectivenessExamples:• Automated asset
management• Resident security and
activity monitoring• Fitness and wellness
New Markets and ProductsExamples:• Brookdale at Home• Low income senior housing• Population health
management
Increase Share of WalletExamples:• Healthcare – on-site clinics,
pharmacy, audiology services
• Products – DME• Services – insurance,
financial
Leverage AssetsExamples:• Senior Day Program• Transportation services• Meal services
Existing
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Repositioning relative to
Payors Providers Consumers, and Government/regulators
General Drivers of Consolidation in LTC
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LTC is a very heterogeneous space in terms of populations covered, providers/care settings, payors, and care needs
Populations Covered Temporary Assistance to Needy Families (TANF), Disabled &
Elderly, Developmentally Disabled, Special Medicaid Waiver Populations (Assisted Living, Medically Fragile, AIDS), Other
Providers/Care Setting Nursing Facility (acute, custodial), Home and Community
Based (HCBS), Assisted Living, Ancillaries (Therapies, Chronic Pharmacy, Other), Hospice, Other
Unique Drivers of Consolidation in LTC
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Payors Medicaid, Medicare, Private, LTC Insurance Fee-for-Service (FFS) Vs. Managed Care Partitioning of service payment by payor
Care Needs Acute, chronic, behavioral, special needs populations,
institutional, Home and Community Based, inpatient, outpatient
Unique Drivers of Consolidation in LTC
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All these LTC drivers interact with each other to create discrete segments within LTC market
Consolidation drivers impact different spaces differently Payor Example: Medicaid Largest payor of LTC States cannot balance budgets without bringing Medicaid
under controlMedicaid is single largest portion of total state spending (1
in 4 dollars)Medicaid is the 2nd largest component state general fund
spending (after K-12 education)State spending on Medicaid increased by double digits in
past decadeFeds are interested in containing Medicaid costs
Unique Drivers of Consolidation in LTC
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Consolidation drivers impact different spaces differently Payor Example: Medicaid States aggressively moving Medicaid to Managed Care
First TANF populations, now LTC/Waiver populations HCBS emphasis Other
Centene, Molina, Amerigroup, United, Aetna: emerging regional/national payors
Nursing Facility consolidation (estimated loss of $21.20/day in 2014* on LTC patients)
Growth of Medicaid in Assisted Living
Unique Drivers of Consolidation in LTC
* A Report on Shortfalls in Medicaid Funding for Nursing Center Care, AHCA
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Consolidation drivers impact different spaces differently Payor Example: Medicare Most profitable payor of LTC
Medicare Managed Care penetration at 31% and growing steadily
United and Humana account for 39% of all Medicare Advantage enrollment; 3 other firms and BCBS affiliates account for another 33% of enrollment in 2015
In 15 states and the District of Columbia, more than 50% of all enrollees are in plans offered by one company
Medicare FFS (69%) moving to Accountable Care • Accountable Care Organizations(ACO), Bundled
Payments for Care Improvement Initiatives (BPCI), Coordinated Care for Joint Replacement Programs (CCJR)
• Episodic, Value-Based, Risk-Reward Systems
Unique Drivers of Consolidation in LTC
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Capturing the Episode of Care
Redfoot, D. “Assisted Living: The Next Generation”, July 2006, AARP; Post-Acute Care Collaborative interviews and analysis
Hallmark #2: Comprehensive, Efficient Service Delivery
Integrated Post-Acute Episode
Senior LivingCommunity Services Skilled Nursing Hospitalization
Wellness Programs
Geriatric Assessment
Case/DiseaseManagement
IndependentLiving
Assisted Living
Home Health Care
Palliative Care
Hospice
InpatientRehab
Home Care
Subacute Rehab
Outpatient Therapies
Long-Term Acute Care
..with Appropriate Reward/Risk Sharing
Degree of Shared Risk
Care Continuum
Pay-for-Performance
Hospital-Physician Bundling
Episodic Bundling
Capitation/Shared-Savings Models
Courtesy: Advisory Board Company
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Consolidation drivers impact different spaces differently Payor Example: Medicare
Medicare Advantage HMO clout in negotiating rates and use of provider services
Impact on post-acute margins Control over Accountable Care episode
Kindred Strategy, Brookdale Health Options, Ensign, Home Health Agencies, Other
Smaller, under-capitalized providers under Accountable Care Managed Care provides one roadmap for Accountable Care
Unique Drivers of Consolidation in LTC
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Torrid pace in 2015
A Record M&A year* 2015 promises to be a record year for healthcare in particular
Overall healthcare market has seen 1,076 mergers & acquisitions thru the first 3 quarters of 2015
Worth a total of $358.7 billion Compares to 959 transactions and $249.2 billion for same
period in 2014
2015 Merger & Acquisition Activity
* The Senior Care Investor
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Record set for number of transactions for Q3; total of 87 announced M&As
Represents 23% increase over previous quarter For first 9 months, 226 transactions or 6% increase over last-
years’ record-setting pace Dollar volume down 57% from $9.7 billion in Q3 2014 Buyer makeup in Q3 (deals not dollars):
Most active buyers were operating companies (42% of deals)
Second largest group was REITs (33% of deals) Private Equity firms (17% of transactions) Not-for-profits (5 % of deals)
Q4 may top Q3 with 100 transactions
M&A Activity in Senior Housing & Care Market*
* The Senior Care Investor
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Home Health & Hospice in Q3 2015 After drop in Q2, pickup in Q3 Most transactions small For disclosed transactions, volume was $241.9 million Kindred, HealthSouth, Extendicare; post-acute beefing up
their Home Health & Hospice business for Accountable Care episode-based payment
Chronic Pharmacy Omnicare merger with CVS
– Post-acute/chronic pharmacy integrates with other service sector, particularly for the Senior/LTC population (with high Rx use)
M&A Activity in Other LTC Areas
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Feeding the interest in buying, building, lending, investing are:
Current market returns Supply of capital Low interest rates Solid returns in past 5 years
Investor Interest*
* National Investment Center for Seniors Housing & Care
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I. M&A
II. Formal Systems of Care Delivery..e.g., ACO, BPCI, CCJR, Managed Care
III. Informal Collaborations Exchange: Communication, Care Transitions, Data Sharing Affiliation: Cooperation on an initiative or product launch on a
local, regional or national basis Geographic Coverage: Network adequacy Complementing: Core competencies Population Health: Triangulating on common referral base
M&A Vs. Other Types of LTC Consolidation
Remaining Autonomous While Accessing Benefits of Scale
Courtesy of The Advisory Group.
Independent PAC Networks an Accessible Solution
Networks Offer Economies of Scale on Value Investments
Post-Acute Network
• Administrative and back-office support services
• Clinical quality enhancement services
• Auxiliary medical services
Network governed by external organization, usually LLC, with network members forming board
Shared Investment Areas
Independent PAC Providers
Network investments funded either by scaled member fees, or by owned revenue-generating companies
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The New Purpose of PartnershipIntent of Partnerships and Affiliations Rapidly Evolving
Courtesy of The Advisory GroupObjectives of Partnership
“New Market”
Partnership Value
Scale Scope Reach
Geographic
ClinicalOperational
Financial
Consolidate local position
Centralize supply purchasing
Merge back office functions
Increase operational efficiency
Integrate services across care continuum
Develop care management competencies
Stake regional footprint
Establish national network
