SPAC Disruption Coming to Senior Living in 2021

With the first vaccine clinics now occurring in senior living communities, the new year is starting on a hopeful note.

But while the vaccine rollout promises to make 2021 a year of recovery for senior living, the news of another big SPAC deal foreshadows that the next 12 months could also bring significant disruption.

Current SPAC activity might seem one or two steps removed from senior living, but these companies are already bringing massive amounts of capital to bear on the market serving older adults, and they have only just started to execute on ambitious strategies to shape the experience of aging.

Supercharging health care disruptors

A new breed of health care company rose to prominence over the last several years. These startups — including Oak Street Health, Cano, Clover and CareMax — are now coming of age and going public, notably through eye-popping SPAC transactions like the recently announced deal involving CareMax.

The infusion of massive new capital could supercharge the growth of these companies in 2021, presenting opportunities for senior living providers to forge creative partnerships.

But the rapid expansion of these disruptors — and other SPAC activity — also could pose a serious threat to the industry by making it much easier for older adults to avoid senior living communities.

Each of these startups has a slightly different model, but they all provide an array of services to seniors, such as primary care and assistance with the social determinants of health, often based out of concierge-style health care centers. They work closely with Medicare Advantage payers — or offer their own MA plans — because coordinated services are proving to be an effective population health strategy, lowering costs by keeping older adults healthier.

So far, many of these companies have grown within a limited footprint. Cano Health, for example, operates about 70 centers in Florida, Texas and Nevada. Oak Street is in 11 states, but the majority of its centers are in Illinois, Michigan and Ohio.

Now, they have a tremendous amount of SPAC capital to fund growth. The CareMax deal will create a company with an $800 million market cap and $300 million in cash to expand the platform into new markets outside its current Florida footprint. Cano and Clover are going public through even larger SPAC transactions — the Cano deal valued that company at $4.4 billion, and the Clover deal was worth $3.7 billion. Meanwhile, Oak Street opted for a traditional IPO and raised $328 million.

As these companies expand, senior living providers may be able to partner with them. Oak Street already is working in some assisted living communities in Illinois. That partnership was a long time coming, involving years of groundwork laid by Innovative Health Principal Brian Cloch. But times have changed, and now Oak Street and its peers appear more eager to work with senior living.

Oak Street’s S-1 said that the company is engaging senior living providers to obtain referrals of older adults who can benefit from its services. And in another example of how partnership can work, Welltower (NYSE: WELL) drove a connection between independent living operator Clover and Geisinger Health, which offers an Oak Street-style product in its 65Forward centers.

These partnerships are a way for senior living providers to expand their health offerings and extend length of stay, which are critical imperatives in light of Covid-19.

But such partnerships might make the most sense for active adult or independent living providers, like Clover, that do not have substantial clinical capabilities. Providers offering higher levels of care face more complicated calculus.

An assisted living provider could partner with these companies like Oak Street or CareMax, even bringing their services on-site to supplement care in communities, as is happening in Illinois. But doing so is not easy; it requires constant communication and careful alignment of duties and priorities. And while the Medicare Advantage payers will benefit, the senior living provider likely will be cut out of any direct financial upside related to reductions in expensive hospital stays and other cost savings driven by these partnerships.

Still, some assisted living providers might opt for these partnerships rather than putting the time, effort and capital into alternatives such as starting their own Medicare Advantage plans and retaining more ownership over the network of providers.

But these are the types of choices that more assisted living companies across the country will be weighing, as these MA-driven senior care providers pop up in new markets and are more focused on how to tap the senior living resident population for business, and as consumers come to expect more tech-enabled, coordinated services.

The bigger picture

The deals with Cano, Clover and CareMax are just the starting point for senior-focused SPACs. With further acquisitions, they plan to create an ecosystem of companies responding to the various needs and wants of older adults. And avoiding senior living communities entirely could be among the consumer “wants” that SPACs try to fulfill.

This strategy is exemplified by a recently launched SPAC from UnitedHealth founder and former CEO Richard Burke. That company’s S-1 name-checks all sorts of potential acquisition opportunities and states: “It will be a strategic focus to identify business combinations that together exceed the value of the individual parts.”

Those acquisition targets could run the gamut, with the S-1 identifying companies that address social determinants of health, senior lifestyle, home-based services, health platforms, and financial and legacy services.

A SPAC like Burke’s might even consider acquiring a senior living provider, perhaps recognizing the resident population as a built-in consumer base for the technology and service companies also owned by the SPAC.

With his insurance expertise, Burke might also be drawn to senior living providers that can keep costs down for payers through integrated care. But he also certainly is aware that most older adults say they want to age in their own homes, and that the home is the least expensive site of care. On the face of it, those are powerful factors that could lead his SPAC and others to invest primarily in businesses to improve the quality of home care and enable older adults to avoid senior living communities as long as possible.

And despite their interest in working with senior living providers, the companies that the SPACs have targeted so far — the Canos and Clovers of the world — exemplify the effort to keep older adults living at home. They provide robust home-based services, including primary care that has reduced hospitalizations and skilled nursing usage.

Only time will tell what SPAC platforms ultimately look like, but with occupancy at historic lows due to Covid-19, now is a bad time for the dramatic growth of companies that could reduce needs-based moves to senior living. So, even as they focus on recovery in 2021, senior living providers must also take steps to carve out a position in this changing market.

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