Welltower CEO: We Must Figure Out Affordable, Profitable Senior Living Model

A combination of new technology and vertical integration of payers, providers and capital could drive more affordable senior living in the United States, Welltower CEO Tom DeRosa believes.

Toledo, Ohio-based Welltower (NYSE: WELL) has developed a successful business based on owning Class A senior housing properties in affluent markets. But the real estate investment trust is actively exploring more affordable senior living models. DeRosa elaborated on the need for these models, and how they might be created, while speaking at health care tech incubator MATTER in Chicago on Wednesday, and in a separate interview at MATTER with Senior Housing News.

“It’s an imperative, absolutely an imperative,” he told the crowd at MATTER, referring to a version of senior living that would be accessible to a middle-income older adult.


DeRosa pointed to Welltower’s forthcoming senior living project at 56th Street and Lexington Avenue in New York City, which will be a state-of-the-art building for assisted living and memory care — with some rents exceeding $20,000 a month.

“You can’t put those on every corner,” DeRosa told SHN.

Coming up with a version of senior living that is affordable enough to put on every corner has long been an elusive goal for the industry. However, DeRosa thinks it is becoming possible to create more affordable senior housing that is as profitable as the higher-end product that dominates the market currently.


Tech innovation

Technology innovations will be crucial in the effort to create middle-market senior living, in DeRosa’s view. More advanced tech can help reduce staffing costs, which are the primary driver of operational expenses.

New lighting is one example. By helping regulate people’s circadian rhythms, next-generation lighting products can help residents who are frail or have cognitive impairments to sleep more soundly and regularly. This in turn should lead to fewer disruptive behaviors, easing staff burdens and even allowing for leaner workforces.

DeRosa foresees monitoring technologies, predictive analytics and a variety of other products will have similar effects.

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“I’m not content to think the future [of senior living] is all about a high human labor-component business,” he said.

DeRosa has been on MATTER’s board since its founding, as part of an effort to find entrepreneurs creating the most promising tech to support senior living, both in the future and today.

“I’m not engaged here because I think it’s fun and cool,” he told SHN. “I’m engaged here because there’s a lot that’s happening that will drive net operating income of the built environment that we own and operate.”

Looking northward

In conceiving of a middle-market senior living product for the United States, DeRosa does have an example in mind.

“We look to Canada,” he said.

In particular, the province of Quebec boasts moderately priced congregate-care senior living, where 20% of those who are 75 and older live, he said. This model has been made possible by alignment between payer and provider — in this case, the Canadian government — and modest but meaningful tax incentives for people to move into this type of housing.

The tax breaks are an “effective use of nudge theory,” he said during his talk at MATTER.

A version of this model could work in the United States, DeRosa argued. He does not believe the government will play the same role here as it does in Canada, but rather a similar alignment in interests can be created in the private sector.

“It’s going to take some cooperation between providers, payers, and capital providers like Welltower to come together to figure that out,” he told SHN. “That, to me, is possibly where we’ll see new business models developing.”

Such vertical integration is being made possible by changes to the U.S. health care system, where business models are increasingly based around population health — keeping groups of people well, and out of high-cost settings like hospitals.

Last year, Welltower entered into a joint venture with Toledo-based nonprofit health system ProMedica to acquire the large portfolio of HCR ManorCare skilled nursing facilities, senior living communities, and home health and hospice businesses.

“Now [ProMedica is] in acute care, post-acute care, senior living, home health, hospice, and they have a payer,” he noted.

The theory is that this type of integration will enable more efficient and affordable care delivery, as payers — notably Medicare Advantage (MA) — can ultimately subsidize senior living services, and health systems can leverage clinical and other resources to keep these populations well for longer, and out of hospitals.

Much like the tax breaks in Canada, Medicare Advantage could provide nudges. Through the benefits packages and incentives they put together, MA payers can guide older adults on a “health and wellness journey,” directing them to the appropriate care or housing settings while also influencing a range of behaviors, from eating to exercise, DeRosa said during his talk.

While it remains to be seen how the ProMedica JV plays out, other health systems are already exploring similar vertical integration, and fundamentally this concept has gained widespread acceptance in a short period of time. As recently as five years ago, a major health system “basically threw me out” for suggesting ways for Welltower to collaborate, DeRosa said during his talk at MATTER.

“That’s changing,” he said.

Welltower’s focus on middle-market senior living comes at a time when an increasing number of companies are beginning to target this opportunity — which is sizable. There will be about 14 million middle-income seniors by 2029, and 65% will not be able to afford senior living at today’s market rates, according to research findings released in April.

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