Diversification is an increasingly important business tactic for many senior care operators, but those in skilled nursing need to ensure they view add-on services through the appropriate lens.
That’s the advice of Lisa McCracken, director of senior living research and development for Ziegler Investment Banking. The firm explored emerging strategic growth initiatives in a research report last week, highlighting ancillary businesses ranging from third party-management to addiction services.
“An additional conversation on the table for many organizations is continued diversification,” McCracken wrote. That may mean “diversifying to better manage risk across the organization, and it might be a need to supplement traditional revenue streams with alternate ones. … Before any organization jumps into strategies for exploring alternate revenue streams, there needs to be some up-front work done on the growth preparation front.”
Overall, senior care providers’ interest in ancillary services is growing quickly, but McCracken cautioned that skilled nursing operators may need to consider different factors than those operating primarily in senior living.
“Specifically related to skilled nursing, you do need to think about related business lines that align with the core skilled nursing services,” she told McKnight’s. “Pharmacy can be a natural one for sure. It is not an easy space to get into, but some have done so. There have also been some providers (that) acquired rehab companies. That certainly isn’t for everyone, but rehabilitation is a key component to short-stay rehab services within the skilled nursing setting.”
Adding pharmacy prowess
In the research brief, McCracken noted that pharmacy has been so challenging that some not-for-profit providers have launched a service and then “walked away.” Approach and scale are critical elements for skilled nursing providers.
Pharmacy “is a completely different business and you need to have leadership and staff that know what they are doing,” McCracken said. “Second, you need to determine if you are in the business to just serve your own communities or if you plan to expand out to be a pharmacy provider to other communities in a particular geographic marketplace.”
Some smaller providers may find they need to provide pharmacy services to outside operators to make the business model work.
Exploring mental health
The report also pointed to behavioral health services as another business area attracting strong interest, noting it is “ an entirely different vertical to senior living and organizations need to carefully do their homework.”
Just last week, CareTrust REIT said it would repurpose at least one of 32 properties it is transitioning into a behavioral health facility. It’s part of an opportunity to decrease risk at low-performing buildings.
While questions abound about skilled nursing’s long-term occupancy rebounds, there is no question that the demand for behavioral health services is booming. And much of the future demand will come from the same seniors skilled nursing providers already serve.
“Given the volume of the Baby Boomer population, the need is likely going to outpace the availability of specialists,” McCracken said. “Plus, the Boomers simply have higher rates of some of these mood disorders compared to previous older adult generations.”
While many nursing homes have added behavioral health components through telehealth, the business aspect of bringing these services in-house (or providing them for others) could make it more appealing as an ancillary in the near future.
“The opportunity on the bricks-and-mortar side of things is the dedicated unit for those with behavioral health needs,” McCracken said. “There are not a lot of those types of settings that have specific expertise in neuropsychiatry. … We are hearing more dialogue about providers exploring this as a possibility.”
Again, she cautioned that it’s not as simple as flipping a unit. Providers will need to find the right expertise and mental health providers to effectively and efficiently operate — no small feat given chronic shortages of both geriatricians and mental health professionals.
Ziegler also noted that the addition of home- and community-based services continued to thrive, with the bank’s CFO Hotline revealing that senior care organizations’ interest in such services doubled during the pandemic.
“While most not-for-profit senior living organizations who have HCBS platforms have annual revenue less than $10 million, for smaller organizations, this can be a substantial income stream,” Ziegler noted.
