Sabra CEO: National providers 'can't do it anymore'

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Rick Matros
Rick Matros

CHICAGO — It's official: bigger is not better when it comes to investing in skilled nursing facilities. Instead of building mass by stringing together operators with national reach, owners should instead concentrate on finding smaller, nimble partners to mold into agile units with flexible limbs.

That was the message Wednesday from Rick Matros, chairman and CEO of Sabra Health REIT, at the annual fall meeting of the National Investment Center for Seniors Housing & Care. One of the most influential long-term care executives of the last several decades, Matros repeatedly declared an affinity for smaller, regional players as a panelist at the session “The Evolving SNF World: Where Are the Investment Opportunities?”

“We think the national groups can't do it anymore. There are no advantages, just disadvantages. Not long ago, the REITs aggregated assets. I don't think they can anymore,” Matros declared to a full house.

His comments, and part of the reason for the crowd, undoubtedly were grounded in Sabra's announcement Monday that it planned to sell its remaining operations run by Genesis HealthCare by the end of the year. The REIT also announced it was acquiring a smaller group of 24 skilled and transitional care properties. The deal complements other recent acquisitions that have given the REIT greater mass but no single part with the vast scope of Genesis.

Matros said providers with “two to five” properties can be very good investments.

“Focus on regional or smaller-market operators,” he advised. “Now some of them are sophisticated and quite smart. They don't necessarily own the market, but they know it well. They're always in the buildings. There's not these layers of management with hired hands on the ground. Markets are changing. Referral sources are changing. You need to be nimble.”

He said Sabra has put smaller operators into group purchasing organizations and boosted their buying power in other ways to help them thrive.

“I see no dis-economies of scale,” he noted. Smaller operators “have personal relationships that bigger guys can never have," he added.

Panelists also endorsed renovating properties, as opposed to feeling compelled to build new.

“It can cost upward from $500,000 per bed to start,” noted Jacquelyn Kung, principal at Atruya LLC. “Why do that when you have old bones you can update?”

Matros agreed, stating that even 40-year-old facilities can be renovated successfully. Upgrade resident rooms slowly and update bigger, common areas, he said.

“You can put smart dollars to work and modernize facilities,” he explained. “It's almost impossible to build new now.”

Good operators will have no problem finding suitors, if they desire, he added. And despite certain “headwinds” and geographic rough spots, he stressed that many providers are doing well — and would “no matter where they are.”

Clinical outcomes remain a huge driver of success, said the session's other panelist, Avalon Health Care Executive Vice President and CFO Anne Stuart. Referral sources are considering them more, and quality indicators emphasized by the Center for Medicare & Medicaid Services are “all” clinically oriented, she noted.

“You must make sure the line staff sees good information to make good decisions,” she advised. “Good operators will have a culture that gathers intelligence to make good decisions.”

Whether it's rehospitalization rates, medication management or quality measurement scores, “that's your calling card,” Stuart stressed. And clinical data is relatively easy to gather and use as a comparison tool, all the panelists agreed, sounding a warning as much as an informational notice.

The NIC meeting concludes Thursday.