The $350M IPO That Could Drive Senior Care Transformation

When the White House released its $2 trillion infrastructure plan on March 31, I thought the news could not have come at a better time for one company: InnovAge.

Denver-based InnovAge is the largest provider of the Program of All-Inclusive Care for the Elderly (PACE), and last month executed a $350 million initial public offering (IPO).

Now, just as InnovAge is poised to grow with that major capital infusion, the Biden administration is pushing for a $400 billion investment in expanding home- and community-based services (HCBS) as part of its American Jobs Plan infrastructure push.


Broadening the scope of the PACE program almost surely would be a key route toward meeting that HCBS goal. This week, the Milken Institute put out a report highlighting potential routes toward PACE expansion, including greater involvement of senior living providers.

PACE historically has not served a part of the older adult market targeted by private-pay senior living. But that could be changing, with InnovAge at the forefront of the program’s evolution and the transforming senior housing and care landscape.

The future of PACE


Senior living providers could be forgiven for paying scant attention to PACE — the program currently serves a demographic group that cannot afford market-rate, private-pay rents. PACE predominantly serves high-need, high-cost older adults who are eligible both for Medicare and Medicaid, allowing them to avoid living in nursing homes:

But senior living providers should read the tea leaves carefully before being too dismissive of PACE.

First, senior living communities already are home to some residents who qualify for PACE. Out of the 3,500 PACE participants that InnovAge serves in the Colorado communities of Denver, Loveland and Pueblo, about 34% reside in assisted living, InnovAge CEO Maureen Hewitt told me. Overall, 17% of InnovAge’s referrals come from IL and AL providers, according to the company’s S-1 filing.

The PACE penetration in Colorado is due in part to the state’s Medicaid waiver program, which enables assisted living services. Medicaid is emerging as a more prominent payer for assisted living around the country. For senior living providers in the Medicaid sphere, PACE offers a potential way to increase length of stay for residents who can tap into the program to avoid a nursing home transfer. PACE participants who have housing needs are among the most expensive for the program to care for, meaning that PACE providers may be eager to work with senior living providers that can help manage needs — and keep costs down — for these older adults.

Even if they are not interested in the Medicaid program, senior living providers should be keeping close tabs on PACE due to the growing demand for more middle-market senior living and the potential changes to the PACE program.

In terms of meeting middle-market demand, the PACE model is similar in many ways to the programs that Welltower (NYSE: WELL) is creating with health system partners. In these models, such as one involving Clover Management and Geisinger Health, senior living residents can access interdisciplinary care teams and visit clinics that resemble PACE centers, with services paid for through Medicare Advantage. Such programs enable senior living providers to charge lower rates while still supporting residents’ health needs.

Currently, the relatively healthy residents of a mid-market independent living provider would not qualify in large numbers for PACE, which only serves people who need a nursing home-level of care. But, there are signs that PACE eligibility rules could be relaxed.

LeadingAge is calling for PACE expansion under the American Jobs Plan. And even before the Jobs Plan was introduced, a budget report from the House Appropriations Committee identified PACE expansion as a priority:

“The Committee urges CMS to move forward expeditiously on PACE-specific pilots, authorized by the PACE Innovation Act of 2015, specifically testing the innovative, comprehensive, integrated and fully risk-bearing PACE model of care with new Medicare or Medicaid beneficiaries.”

The Milken Institute, a think tank, this week released a report that proposed expanding PACE to allow for more Medicare-only enrollees, perhaps through a framework of tiered services.

In a “flexible subscription model,” these Medicare-only enrollees could add services as needed, which could broaden the risk pool and reduce average costs per participant for PACE providers.

The Milken report also floated the idea of new financing partnerships, including using “shared site models” for PACE providers that partner with institutions like the YMCA — or senior living providers.

“PACE could be offered in assisting living facilities, continuing care retirement communities, or other senior living environments for those who need more complex care,” the report states.

Potential PACE expansion demands senior living providers’ attention as a potential avenue of opportunity but also as a threat, if the program enables a significant number of older adults to age in their own homes rather than move to a communal setting.

Even without government action, the PACE of tomorrow might be different from the PACE program that senior living providers have gotten used to over the program’s nearly 50-year history. InnovAge’s moves suggest where PACE could be going next.

The InnovAge model

InnovAge began as a nonprofit in 2007, and in May 2016 underwent a reinvention by becoming a for-profit corporation, thanks to rule changes put in place by CMS and the state of Colorado.

In becoming for-profit, InnovAge leaders wanted to obtain capital and expand, and the company has done so. Private equity firm Welsh, Carson, Anderson & Stowe (WCAS) took an initial $196 million stake in InnovAge in 2016, and last year, Apax Partners acquired joint ownership. Through the recent IPO, Apax and WCAS have maintained their majority ownership, securing about 87% of common stock.

Obviously, the investment firms are betting on InnovAge’s PACE-centric model, which includes:

— Care teams covering at least 11 disciplines, including primary care and social work, to manage all aspects of participants’ care, including social determinants of health such as access to food and transportation.

— A “multi-modal” delivery model, in which members of the care team interact with participants across various settings; prior to the Covid-19 pandemic, an InnovAge participant typically visited a PACE center six times a month, received daily in-home support, and had 24/7 virtual access to an interdisciplinary team member.

— A technology suite to collect and analyze data and drive decision-making and interventions to improve participant outcomes.

Through PACE, InnovAge receives capitated payments from government programs such as Medicare and Medicaid, and has succeeded in lowering costs for those programs and building its own bottom-line.

For the six months ended Dec. 31, 2020 the company’s consolidated center-level contribution margin, expressed as a percentage of revenue, was 27.3%. Its adjusted EBITDA margin for those six months was 14.8%.

On the growth front, InnovAge estimates its total addressable market to be $200 billion — a number that would only get bigger if PACE expands its eligibility requirements. Already, InnovAge has grown revenue and its footprint since becoming a for-profit:

As part of its recent expansion, InnovAge forged a joint venture in California with health system AdventistHealth and Eskaton, a nonprofit senior housing and services provider that operates CCRCs, independent living, assisted living and memory care communities in the Golden State.

The three organizations created InnovAge’s largest PACE center to date, in Sacramento. The concept is to enable older adults served by Adventist and Eskaton, including senior living residents, to access the PACE center for an “inclusive care package” that “wraps services around the seniors,” Hewitt told me.

“We kind of hit all points there,” she said.

The JV with Eskaton will only be able to fire on all cylinders after the pandemic, when the center can operate as intended. But, the JV hints at the future of PACE as a cross-continuum play, and the potential for private equity-backed PACE providers to scale rapidly and nimbly.

Now that InnovAge is public, its disclosures will make it easier to gauge its progress and stumbles. But while many industry leaders say that innovation is badly needed to serve the rising generation of older adults, few companies in the space have moved as quickly and boldly, and transformed themselves as thoroughly, as InnovAge has in the last few years.

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