Over the past few years, the skilled nursing sector has seen significant changes as the industry transitions to value-based care. In order to better understand how this evolution is impacting operators, and talk about the role that we play as lenders, I recently had a discussion with one of our long-term clients, Naveed Hakim, CFO of Plum Healthcare. We’ve worked with Plum for more than 10 years and our relationship has continued to grow with the company. What follows is an overview of our conversation…

Dague: Naveed, could you please start by sharing some background on Plum Healthcare and the key factors that make Plum a successful skilled nursing operator?

Naveed: Plum serves approximately 11,000 employees assisting them in the provision of skilled nursing care. Our 63 affiliated facilities are recognized for their clinical care and quality of service. Plum facilities are located in California, Nevada, and Utah. 

The company was founded in the mid-90’s on a philosophy of enriching the lives of our patients, one patient at a time. Our success is steeped in that principle, which is driven by superior clinical care, innovation, and a focus on our patients’ quality of lives.  

Dague: Throughout our portfolio we’re seeing some pretty big challenges for the skilled nursing industry. The evolution to a value-based care model means operators are being rewarded for providing quality care—things like 5 star ratings are more important than in the past. In your opinion, what are the biggest issues facing the sector today?

Naveed: Absolutely. As you mention, the sector today is dealing with this ongoing transition and the privatization of care. Operators are also trying to decipher new Medicare and Medicaid-related regulations looking to tackle payment reform and meet the nation’s budgetary constraints. In addition, the industry is contending with higher acuity and lower length-of-stay demands. Finally, industry headwinds such as the nursing shortage are being amplified by near full employment in our economy.  

All of these events are creating pressure on our operations and are coming at a time when investments in care and in improving aging facilities are needed — more than ever — to address patient needs.  

Dague: I completely agree. From our perspective as lenders, these pressures mean that we have to be even more diligent as we evaluate opportunities to make sure we are working with best-in-class operating companies. The shrinking length of Medicare stays and the wage pressures are having an adverse impact on operators’ bottom lines, and investors and lenders need to take these issues into account as we underwrite new opportunities.

How is Plum preparing for pending reimbursement changes nationally or in the states you operate in?

Naveed: Driving and measuring effective clinical care has been a key component of our success in the past, and we feel, will be a keystone of succeeding in a world that exists after the implementation of pending reimbursement changes. We continue to invest in clinical care resources and talent, enhanced analytics and systems, and enhanced processes to help drive improved levels of care while maintaining low readmission rates and higher patient satisfaction. We feel that these investments will also help us to deal with the increased throughput of higher acuity patients without compromising results.  

Dague: I think those are all important steps and — again, from a lender’s perspective — this really highlights our desire to partner with operators that are constantly, proactively looking to adapt, rather than just reacting to changes, when the reaction might come too late.  

Amidst this changing environment, it’s also critical to have a financial partner that understands both the regulatory and reimbursement aspect of the skilled nursing business, so we can work with them rather than overreact when changes might cause a temporary decline in performance.

Just looking at the industry’s current financials, it might be easy to panic. But because we fully understand your business and the skilled nursing sector — including many challenges that are beyond operators’ control (we know that the operators we work with, including Plum) —are doing everything they can to adapt. With that in mind, we will probably act much more prudently and be a better partner for them than someone who doesn’t understand the sector.

Where do you see the most opportunities for growth in the skilled nursing sector looking ahead five to ten years?

Naveed: Opportunities for growth will come through strong partnerships with hospital systems, Managed Care Organizations and other providers to better partner on patient care design. We also see growth opportunities as we improve our ability to drive effective care at higher acuity levels (and participate in that population of patients), and look to enter into narrowing networks through differentiated care driven by ongoing innovation. We believe these actions will allow us to achieve superior results faster and more effectively without sacrificing patient satisfaction.

Dague: Definitely. We agree that it all starts with quality of care, particularly in today’s environment, and we look to partner with operators that share your commitment in providing quality health care for their residents.

Thanks to Naveed and Plum for giving us a glimpse in to their strategy.

Dague Retzlaff is a senior vice president at Capital One Healthcare.