Mainstreet Unveils New Model, Ushers In New Execs

Changes are afoot at Mainstreet.

Mainstreet Property Group, the nation’s largest developer of skilled nursing/transitional care properties, has seen significant churn in its top leadership over the past several months. At the same time, the skilled nursing sector as a whole has been struggling through stiff industry headwinds.

However, these issues are not holding back Mainstreet from rolling out a new type of building and service, CEO Zeke Turner told Senior Housing News.

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These new “Rapid Recovery Centers,” are slated to be the first properties operated by Mainstreet itself, through its Mainstreet Health arm. While the Carmel, Indiana-based company will keep developing its NextGeneration Medical Resorts—hotel-like, short-stay rehab centers typically triple-net leased to an operator—the new model is one indication that the status quo of the past several years has shifted, and Mainstreet is seeking growth through new channels and with some new types of partners.

Filling a Market Gap

A potential repeal-and-replace of the Affordable Care Act is a hot topic these days, but the 2010 law created some changes in the U.S. health care delivery system that are likely to be lasting. Among these are payment models meant to incentivize greater coordination of acute and post-acute care—for instance, by subjecting hospitals to financial penalties if too many Medicare patients are readmitted.

As a result, many hospital systems now are avid for post-acute partners that can deliver high-quality outcomes for diverse patient populations while maintaining high customer satisfaction, Turner told SHN. A lack of such post-acute options in many markets has created a “gap” that Mainstreet’s Rapid Recovery model is intended to fill.

Mainstreet CEO Zeke Turner
Mainstreet CEO Zeke Turner

The Rapid Recovery concept is based on four “pillars.”

One is clinical excellence. The goal is to have physicians at the properties daily, for over 90 hours a week total, Turner said. Full-time physical therapists and acute-care nurses also will be directly employed, to create a competitive advantage over post-acute providers relying on contract workers—and to enable these centers to treat more disease pathways than a traditional SNF, while expanding to younger patient populations as well.

The second pillar relates to technology. Having a fully integrated electronic medical record will be essential for maintaining communication with hospital and health system partners, and technology for facilitating communication with family members also will be implemented.

The third pillar revolves around the patient experience and culture—an area that Mainstreet has built its reputation on through its transitional care centers with high-end hospitality elements. The fourth pillar, having beautiful buildings purpose-build for these operations, also is an area where Mainstreet has credentials, after developing design-forward transitional care properties.

Market selection will be important for the model, given that its success will rest not only on the ability to execute on these four pillars, but tap into steady referral streams from nearby acute-care partners. Early interest is strong in the Southwest markets targeted for the first openings, Turner said.

Currently, the plan is to open 11 Rapid Recovery Centers in the next 18 months. The first is scheduled to open in the next 30 to 45 days, with others opening this summer in Arizona and Texas markets such as Phoenix, Austin, and San Antonio. The average size will be around 70 units; Mainstreet did not disclose typical development or construction costs.

Many skilled nursing providers with significant post-acute operations have reported that labor markets currently are extremely tight, and they have been struggling with recruitment, retention, and high wages. Mainstreet is betting that by differentiating its buildings from traditional rehab and skilled nursing, the company can attract the labor pool it needs to meet its clinical goals.

And those goals are ambitious, as the Rapid Recovery Centers are meant to take higher acuity patients than a typical rehab facility yet lower the average length of stay to 14 days or fewer, Turner said.

Mainstreet is not putting all its eggs in this basket, given that more than 90% of the company’s revenue still comes from the traditional Mainstreet properties, he added. But in terms of where the company can grow, Mainstreet has high expectations for this new platform.

“We think it’s going to be a really important part of our business on a go-forward basis,” Turner said.

Changes and Challenges

While the launch of its new operating platform is one big change in the works for Mainstreet, another change has come in the form of new executives.

Over the past several months, a slew of the company’s leaders either left or transitioned to a recently formed public company, Mainstreet Health Investments.

Among those no longer with Mainstreet are former COO David Stordy, former CIO Chris Atkins, former CFO Adlai Chester, former managing director Brian O’Grady, former Senior Vice President of Health Operations Gary Smith, and former Senior Vice President of Business Development Clint Mitchell. Former Executive Vice President of Investments Scott White and former Senior Vice President of Finance Scott Higgs went over to the public company.

None departed on bad terms, Turner said. Smith confirmed to SHN that his arrangement always was to work with Mainstreet for two to three years; the other recently departed execs declined to comment or did not respond to requests from SHN.

“Sometimes people choose to move on to other frontiers, other opportunities, and in other cases companies outgrow people,” Turner said. “A VP of a small organization may not be the VP of a medium-sized or large organization … that’s part of this equal balance of truth and grace that we try to strike in our company, of being honest with people about where they are and the role they play. My challenge as the CEO of this now-national enterprise is to consistently look to get the right people in the right seats at our company. It’s an unfortunate part of a growth company that sometimes the right seat for somebody may not be with your organization … as you grow and develop and add new opportunities, there’s going to be some natural turnover.”

There has not been significant turnover throughout the rest of the company, and all the executive positions now have been backfilled—none of the departures was due to a position being eliminated to cut costs, Turner said. He pointed to a recent AA- credit rating from Egan-Jones as further evidence of the company’s financial health.

Indeed, Turner is unstintingly positive in describing Mainstreet’s position and outlook, saying that the future “has never looked brighter” as far as he is concerned.

However, the overall environment for post-acute/skilled nursing providers is cloudy on several fronts, and some major operators have seen their share price in free-fall after posting several quarters of disappointing financials.

Those reading the post-acute tea leaves also are looking at Toledo, Ohio-based real estate investment trust Welltower (NYSE: HCN), which made a big play for Mainstreet-style post-acute care in 2014, acquiring a mix of Mainstreet properties—some already in development at the time, some in a future pipeline—as part of a massive $2.3 billion investment.

Now, though, with the post-acute sector under duress, Welltower has committed to reducing its post-acute/skilled nursing exposure. That apparently includes trying to offload some Mainstreet-developed properties.

The REIT has listed for sale a portfolio of 13 NextGeneration properties operated by Trilogy Management Services, with occupancy listed around 72%. Welltower also recently sold the purchase options to eight properties being developed by Mainstreet, and associated loans, to Mainstreet Health Investors.

However, these moves should not be taken as a lack of belief in the Mainstreet NextGeneration model, given that Welltower is changing its post-acute/skilled nursing position in general.

“Trilogy is a fantastic operator, and they’ve been a long-term client of ours, and we continue to do development work for them,” Turner said. “What you’re seeing with that [portfolio] package … that represented more a strategic shift in mindset for Welltower on figuring out what they’re going to do in this post-acute universe. As you saw on their earnings call, they’re still not entirely sure, and at different time periods they’ve been in or out of that space.”

Regardless of what is driving the sale, the publicized 72% occupancy on the Trilogy portfolio might raise some questions about whether Mainstreet properties are struggling to get patients through the doors. Those questions become sharper in light of Centers for Medicare & Medicaid Services (CMS) data obtained by SHN, showing average occupancy of around 60% for 26 Mainstreet properties up and running as of fiscal year 2015.

Those occupancy numbers are skewed by the fact that around 17 of those properties had only recently opened as of 2015 and were not yet stabilized, Turner stated. Mainstreet underwrites its properties to achieve 90% occupancy and has seen “really no issues” hitting that mark roughly within 12 to 24 months, he said. In addition, occupancy is a less relevant metric for judging properties that specialize in short stays, because with frequent patient turnover, occupancy can swing often.

That point also was made by the National Investment Center for Seniors Housing & Care (NIC), which released data showing a 180-basis point drop in average skilled nursing occupancy between 2011 and 2015, at which point it sat at around 83%.

Only time may fully prove out the Mainstreet models, but a “wait-and-see” approach is not in the company’s DNA, and Turner remains committed to aggressive growth targets.

“We are a growth company, and we’ve been a fast-growing company for a number of years now, so that is our mode of being,” he said. “When people join here, we tell them exponential growth is a way of life.”

Written by Tim Mullaney

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