Having taken the role in Oct. 2016, Steve Kastner has now been CEO of Trinity Health Senior Communities for three years — and it’s been an eventful time.
With a portfolio rebalancing effort largely complete, the Livonia, Michigan-based nonprofit is pursuing growth in lower acuity settings, including an active adult model that could compete against what private equity groups have been building at a torrid pace, Kastner told Senior Housing News.
He also discussed the competitive advantages that come from being part of a larger health care system, Trinity Heath, which operates about 90 hospitals across 22 states. Trinity Health Senior Communities has a portfolio of 28 communities across seven states, with Michigan being its largest market. It offers a full range of care levels from subsidized apartments to skilled nursing. The organization also does third-party management in six states. It was the sixth-largest multi-site nonprofit senior living provider organization in 2018, according to industry rankings from LeadingAge and Ziegler.
Striking a new balance
Trinity’s senior living and care arm was skewed heavily toward skilled nursing when Kastner took the helm. This was not unusual for a Catholic health system, but the future called for a new approach, he believed.
Of particular concern: the forthcoming Medicare reimbursement framework known as the patient-driven payment model (PDPM), which just took effect on Oct. 1.
“Knowing PDPM was coming, we needed to find ways to be more agile and profitable,” Kastner said. “We made decisions around divestitures of our nursing home beds … we wanted the right numbers with our hospital partners.”
In some markets, Trinity was operating SNFs with 100 or 200 beds, which was too large given current labor pressures and payment rates. The organization began to divest non-core SNF operations, such as a 144-bed location in Warren, Michigan, which sold for $6.3 million in June 2017.
At the same time, Trinity looked for opportunities to convert SNF beds to assisted living or other purposes, and the organization began to consolidate in other areas of the portfolio. For example, it closed the Huron Woods assisted living and memory care community in Ypsilanti, Michigan, in early 2019. Although this was a “difficult decision” — and did spark concern among residents and the community at large — it was a business imperative, in Kastner’s estimation. That’s because Trinity had acquired the 34-acre Glacier Hills community in nearby Ann Arbor in 2016, and was cannibalizing its own business in Ypsilanti.
“Any time we’re having a competition with ourselves, we want to consolidate,” he told SHN.
Now, Kastner believes that closures and divestitures are largely in the rear-view mirror, and the organization is on a stable footing from an occupancy and margin standpoint.
The portfolio as a whole is 91% occupied, which beats the current industry average of 88%. Its margin as of June 30 — the end of its fiscal year — was about 2%, inclusive of its private-pay and Medicare/Medicaid business. Its number of skilled nursing beds sits at 1,765, down from 1,919 in 2016.
The active adult play
Skilled nursing is not the only area rife with challenges. Assisted living has also been battered, with some markets overbuilt, Kastner said. That part of Trinity’s portfolio has tended to be in the mid- to high-80% range, in terms of occupancy.
So, when evaluating expansion opportunities, lower acuity settings hold the most appeal. Trinity is hardly alone in coming to that conclusion.
This year has seen a boom in the active adult sector, with investor interest soaring. Significant capital has flowed into the space, with private equity giant Carlyle Group and real estate investment trust Welltower (NYSE: WELL) among the key players.
The goal for active adult developers is to capture a slice of the huge baby boomer demographic. This group now is in the 55-plus age range but is still not old enough to move into independent living in large numbers.
Trinity is still in the exploratory stages of creating its active adult model, but Kastner painted a picture of what the organization might create: buildings of 100 to 200 units, with relatively limited common spaces and light services, at a middle-market price point.
Ideally, these properties would be in locations near Trinity Health hospitals, doctors, home health agencies and other senior housing and care sites. This would allow Trinity to offer “wraparound packages” to its active adult residents, to support their wellbeing and allow them to age in place for longer periods of time.
These packages theoretically could include offerings such as on-site telehealth capabilities or discounts on home care or other services for residents who are enrolled in a Trinity health plan. Trinity offers a Medicare Advantage plan in Ohio and is in the process of launching one in Michigan in 2020. This will be an institutional special needs plan (I-SNP) initially geared toward long-term skilled nursing residents, but it could apply to the independent living and assisted living populations at some point, Kastner said.
By offering a more comprehensive, coordinated approach to residents’ health care, he thinks that Trinity can compete against the private equity-backed active adult product being built, which may have flashy amenities but lack the built-in care expertise.
Trinity is in the feasibility and business planning stage for an active adult pipeline. The company has done some preliminary market studies but has not yet announced locations or set timetables for its initial projects.
Merits of vertical integration
As a senior living organization embedded with a health system, Trinity may be well-positioned for the future.
The U.S. health care system has shifted more toward population health models, and large health systems and payers consequently have started to view senior housing and care settings as valuable locations where interventions can reach a large number of at-risk patients and beneficiaries.
Indeed, some nonprofit health systems have begun acquiring senior housing and care operations in the last few years. Notable examples include ProMedica’s acquisition of HCR ManorCare, in a JV with Welltower, and the Sanford Health tie-up with the Evangelical Lutheran Good Samaritan Society.
As Kastner’s vision for active adult makes clear, Trinity is looking to leverage its ability to coordinate care across the health system as a competitive differentiator. Already, it is taking steps in that direction; for example, by having nurse practitioners follow patients from the hospital to home, and having acute care case managers from hospitals go into the network’s skilled nursing facilities.
In addition, Trinity is in the process of integrating the Epic electronic medical record platform across the whole continuum, from hospital to home.
Kastner has an appreciation of how the different pieces of the health care continuum fit, and what potential pain points might be, from his own personal and professional experience.
His mother was the director of nursing in a life plan community. He began his career on the home care side, as an executive at St. Joseph VNA Home Care and then executive vice president of home care operations for St. Joseph Regional Medical Center. He went on to hold administrator and CEO positions at life plan communities and also was regional vice president of operations for Westminster Communities.
Even as he spends his days looking at the big picture, trying to maximize the benefits of vertical integration, he misses interacting with residents and caregivers.
“I do better when I’m able to visit with people on the front lines,” he said. “I can bring information back to the systems office. I’m very out and about with our teams on a regular basis.”
And he’s inspired by the knowledge that as CEO, he is pushing for changes that are crucial if Trinity is to continue in its mission to serve a large number of older adults.
“To be relevant tomorrow, we have to do those things today,” he said.