MIAMI — Providers looking to scale their skilled nursing businesses face an uphill battle in an economic and regulatory environment that is chewing up even some of the sector’s best-known operators. 

McKinsey and Company has found that just 22% of all new businesses are able to scale — or achieve operational efficiencies that increase revenue without necessarily requiring more resources.

But a panel of owners gathered at the eCap Summit this week was remarkable not just for its members’ ability to scale and grow over time, but also for their willingness to share successful strategies with others looking to succeed in the sector.

Most stressed the importance of strong vendor relationships, capturing economies of scale and shifting strategies if and when it makes sense for a given market or model.

“We do know how to scale and we do know how to expand our business. They do go hand-in-hand, but you have to be very agile,” said Gary Blake, president and CEO of Creative Solutions in Healthcare, which has amassed 163 Texas skilled nursing facilities since launching in 2000.

While the company first worked with family-backed assets, it has since begun developing its own and working with real estate investment trusts.

“We’ve become kind of a chameleon,” he added. “We buy, we own, we lease, we build and we develop.”

For Creative, scaling begins with investing in buildings and the 14,000 people who staff them. The company, Blake said, still has its first seven employees in its ranks. Focusing on retention and human resources practices has been a critical driver of his success.

“That’s how we get the quality of care where we need it in a low-reimbursed state,” he said. “It’s by treating people [well] and giving them something their last three, four and five employers never gave them. That’s respect and dignity. Give them some accountability and it’s amazing what really happens.”

That theme was echoed by Bill Weisberg, owner and CEO president of Saber Healthcare Group, which has 142 nursing homes and about 15,000 employees in six states. He still meets with every administrator or director of nursing as part of their five-day corporate orientation.

“It’s not just sticks-and-bricks in the building but it’s part of a whole environment you’re creating,” he said. “The building and the staff translates to the resident. … We start at the top, we spend the time with our staff and we make sure that our care-first model is in everything we do.”

That even applies to bonuses, Weisberg said. Instead of making net income the threshold for earning a bonus, those are tied to services and outcomes in his company.

“If you start by controlling expenses, it’s always going to go backward,” he said.

Vendor relations

Several panelists highlighted the conflict between getting the best prices from vendors and keeping quality consistent as a business scales. 

“When you’re scaling at such a rapid clip, you have to recalibrate with your vendors,” said Jack Segal, chief financial officer of Noble Care Consulting. The company, he said, has scaled while acquiring new SNFs in a “responsible and deliberate manner.”

Segal said it’s “incumbent” on employees within an organization to know reasonable rates and to make secure enterprise pricing as growth occurs and ordering increases.

For his part, Blake has tried to assemble vendors “that are like-minded, mission-critical and just as ethical and forthright as you are.” Those familiar with the ebbs of flows of skilled nursing payers are also more likely to work out favorable payment terms.

But he also cautioned providers who might see cost-cutting as the best way to bolster the bottom line. He remains hands-on in many cost decisions within the Creative Solutions network. Should company leaders want to change food service providers, he samples the goods from potential new vendors.

After all, he said, what good would it do to reduce food costs, only to find skilled nursing residents are eating less because they dislike new items — then have to spend more money on nutritional supplements?

“Getting the right product at the right price delivers the right outcome for the patient. That’s what’s really important,” he said, also noting that standardizing good products can be a good way to maximize savings. “We just have to be smarter humans and have the human aspect in everything.”

Lending partners

“The lender is not your vendor. The lender is your partner, and arguably your most important partner,” Segal said. “The more you invest in that relationship with your lender, the more it’s going to bear fruit.”

Given needed access to capital during a growth period, Segal noted that strong relationships with an array of lenders would “put you ahead of the pack” when it comes time to close deals.

In its early days, Weisberg said, Saber leaned on partnerships with Omega and Welltower to grow because the REITs had the cash to execute a close.

“You didn’t have to worry about the working capital. You never want to go into a deal and figure out your working capital on the fly,” Wesiberg said. “You need to be prepared to have cash flow.”

But over time. Saber has shifted to owning all of its real estate by building relationships with HUD and other lenders.

“My advice would be, your bank should never be surprised,” he said. “You should be full disclosure and having full conversations with them about what’s going on in the landscape.”

Asked during a question-and-answer segment, one audience member cited challenges faced by Genesis and Consulate and others who had attempted to scale “too quickly” over the last decade. He asked moderator Jess Dalton, vice president of strategic alignment and innovation for Ensign Services, about his company’s ability to sustain a “mom-and-pop” model but also be successful in each of its markets.

Dalton said the “secret sauce” was not making growth goals.

“We simply grow talent and then, when we have that talent in place and where we have that talent in plane, that right person at the right time, then we’ll proceed,” he said. “It’s a disposition. It’s an entrepreneurial angle that our leaders bring to the table.”

Weisberg also cautioned providers against growing “just to grow.”

“Grow your company first, your people first, and then add buildings, versus adding buildings and then having to catch up to that,” he said. “That’s a bad way to go. And own as much of your real estate as you can. Sometimes it’s OK to say no to a deal that’s going to hurt your portfolio.”

There’s not a buying formula for Saber, he insisted.

“We’re not a rate shopper. We’re not a state shopper. We like our footprint,” Weisberg said. “It’s really making sure that you can get it financed and then do it responsibly.”