Two senior living leaders have spoken of “self-disruption” in recent weeks.
Bickford Senior Living Executive Vice President Alan Fairbanks used the term during his appearance on the SHN podcast, Transform. And HumanGood CEO John Cochrane gave an entire keynote presentation on the concept at the LeadingAge Illinois conference on May 17.
Cochrane summed up the case for self-disruption this way:
“There are a lot of people out there looking to eat our lunch … this is one of our HumanGood-isms: ‘If someone’s going to eat our lunch, it might as well be us.’”
Other industry leaders, including Juniper CEO Lynne Katzmann, have warned for years of the potential for disruption and pushed for providers to adapt — to “self-disrupt” — more quickly.
“I really believe that if people don’t get off the mark soon, we’re going to be disrupted by Apple or Amazon,” she said in a 2019 interview for our Changemakers series.
In this week’s exclusive, members-only SHN+ Update, I analyze the case for “self-disruption” in senior housing and offer key takeaways, including:
- Why self-disruption is more urgent than ever
- How senior living owners and operators are taking steps toward self-disruption
- What factors are needed for self-disruption
Replacing ‘mainframe’ senior living
In his keynote, Cochrane provided several examples of companies that self-disrupted. IBM, for instance, hadn’t changed much in 50 years and was thriving on the strength of its mainframe computers — but company leaders saw that much smaller computers would be the future, and pivoted.
Furthermore, former IBM CEO Ginni Rometty said that the company should prepare to self-reinvent every seven years to keep up with the pace of change.
“Ask yourself a question: When did we last reinvent our business?” Cochrane said. “For almost a century, this is what people [have] associated with retirement communities.”
Covid-19 alone would be reason enough to rethink the traditional senior living model — but the pandemic is just one of many major changes and challenges that the industry is facing, he pointed out.
Among other factors creating an urgent need for self-disruption in senior living, he cited:
- rapid inflation
- unprecedented labor woes
- racial reckoning
- global conflict and its effects
- the aging of the boomer generation
- changes to the U.S. health care system
- powerful tech companies eyeing the older adult market
I agree with Cochrane’s assessment; day by day, we see the operating environment become more challenging, and more signs emerge that alternatives to the well-established, “mainframe” model of senior living are being created.
Last week, my colleague Tim Regan wrote about the boom in “deconstructed senior living.” I wrote recently about the expansion of home care company Honor and the launch of an Honor Expert platform. And on the same day that Cochrane delivered his keynote, Humana (NYSE: HUM) and private equity giant WCAS announced plans to commit $1.2 billion to develop about 100 primary care clinics focused on older adults.
Humana and other insurers are committing vast sums of money to change the way that care and services are delivered to older adults, with the idea that they will boost profits by enabling more people to live in their single-family homes for longer periods of time.
With these mounting threats and challenges, “many of us want to just pull the covers over our heads … and stay hidden away from it,” Cochrane observed. He pushed for providers to instead self-disrupt, saying, “This is our opportunity.”
Organizations will have to develop strategies rooted in their own goals and market assessments, but I believe that self-disruption already is underway in certain quarters of the industry, pointing toward how the sector as a whole could reinvent itself.
I believe these are three ways that senior living already is “self-disrupting”:
- Reaching new parts of the market
- Devising new capital structures
- Forging new partnerships
Reaching new parts of the market:
Cochrane believes that the growth of the older adult population is “masking a significant amount of weakness in our core products,” he told me in a conversation following his keynote.
“We need to disrupt what we’re currently doing, rethink what we’re currently doing, and find entirely new ways of reaching people who simply are outside our orbit today,” he told me.
Home care is one way for senior living providers to expand into the older adult market, but such services are typically part of the “last mile of care,” Cochrane said. He sees a bigger opportunity in reaching older adults much earlier.
“That’s the piece of the business that I think is still ignored, is how do we get to people early, and enable ‘John’ to live the life he wants, independently — whether it’s bringing assessment, it’s making sure I’ve got access to activities and lifelong learning and spiritual engagement, and whatever else is important to me,” he said.
I think Fairbanks is aligned with this thinking as well, and I’m curious how Bickford’s home care arm will evolve, given his comments like this one about older adults:
“They don’t necessarily want care, they want independence. So how can we help serve them, and how can we bring that to them?”
The Honor Expert platform is an attempt from a home care company to enable more independent living by facilitating access to services and products. Likewise, the “deconstructed senior living” offered by companies like UpsideHom is a model that places older adults in traditional multifamily apartments but provides wraparound services to support their independence and lifestyle goals.
As I wrote recently, former AlerisLife CEO Katie Potter also shared this vision for reaching older adults earlier and supporting them with a variety of services — although with her recent exit, the company seems to be moving away from that strategy. And others in senior living are making attempts to reach older adults earlier and in the community. The venture underway from Formation Capital, Generations LLC and their partners is one example, with a vision of bringing people from the wider community onto a senior living campus for programs supported by Medicare Advantage benefits.
On the other end of the spectrum, there may also be an opportunity for senior living providers to reach a population that typically has been served by skilled nursing operators.
With skilled nursing beset by financial and regulatory pressures and facility closures occurring across the country, senior living providers could find ways to step up, as I recently proposed. Cochrane also sees some opportunity in this part of the market.
Skilled nursing currently comprises about 40% of HumanGood’s revenue. Cochrane could see that shrinking over time — or, the source of that revenue might change as health care comes to be delivered “in a very different way than it’s delivered today — the value proposition to that customer might change,” he said.
Devising new capital structures:
Cochrane’s comments about the need for reinvention every seven years called Welltower (NYSE: WELL) to my mind.
I don’t know that the REIT has exactly “self-disrupted” that often, but since forging the first RIDEA deal in senior living, the company has continually iterated this model. Just two weeks ago, Welltower executives described “RIDEA 4.0.” And it sounds like this latest version of RIDEA might be more “self-disruptive” than past updates.
“Call it RIDEA 4.0 for now, but honestly, that doesn’t do our new approach justice as to the scale and impact we think [the] plans will have on the customer experience and value creation overall,” said Welltower CEO Shankh Mitra.
The new approach is anchored in work that COO John Burkart is doing, leveraging his deep experience in multifamily real estate.
“Although REITs are limited in providing care services, we can perform multifamily type functions like revenue management, capital management, procurement, provide IT expertise as well as leverage our data science expertise,” Burkart said. “By doing so, we have the opportunity to fundamentally change the potential of this business by creating a full-scale operating platform and bringing operational excellence to the senior housing business.”
I believe this does hold the potential to be a self-disruptive move for the industry, given Welltower’s scale and large number of operating partners — but the advent of RIDEA 4.0 is part of a larger trend toward updating the relationship of operators with their capital partners.
A growing chorus of provider executives is critiquing traditional management contracts, and industry leaders such as Katzmann are beginning to think about creative new structures to foster better alignment of interests. And Lifespark — which is owned in part by insurance company UCare — could be a harbinger of how senior living providers could increasingly tie up with payers or other ownership groups that have not historically been major investors in the space.
Forging new partnerships:
“We’re organizations that like to do everything ourselves … we try to be all things to all people, in all ways, in all circumstances — that’s got to end,” Cochrane said in his keynote. “We’ve got to do a better job of reaching out to people and saying, you’re better at assessment, you’re better at this intervention, you’re better at spiritual care … and use the power of partnerships to change our world and step up to and lean into the future of aging.”
One partnership that HumanGood has forged is with Pine Park Health, a company founded to bring a new model of primary care into senior living settings.
As the recent Humana/WCAS news underscores, a tremendous amount of money is backing efforts to reinvent primary care for older adults, driving more coordinated and preventive services to improve people’s wellness and reduce costs to the health care system. Other players include Oak Street, Cano Health, CareMax and Geisinger, to name just a few.
This large-scale disruption to primary care will have an effect on senior living. Providers have an opportunity to partner with these organizations to facilitate primary care for residents, but also should consider the threat posed by this new generation of primary care providers. If these companies contract with major insurers — or are owned by them — they could extract value for keeping older adults well, sidelining senior living communities from access to that financial upside.
But in any case, senior living providers should be thinking about how to play in this new world. And primary care is just one area where new partnerships are being created. To name some other examples:
Juniper’s Catalyst model involves closer connections with community organizations to drive more meaningful and intergenerational engagement opportunities and programming. Bickford has partnered with HCAN rather than going solo in starting its home care business. EmpowerMe Wellness is rapidly expanding its model of delivering integrated care in senior living communities, and companies like DispatchHealth offer on-site urgent/acute care to residents.
Factors needed for self-disruption
While senior living providers are beginning to self-disrupt, I believe many organizations are pulling the covers over their heads, as Cochrane put it — but that does not mean that these businesses are idle.
Many leaders are working overtime to regain occupancy, boost margin and improve retention. But it’s increasingly clear that they are spending time trying to succeed in a model that is becoming obsolete, and as Bickford’s Fairbanks said, might already be “broken.”
For providers that are stuck in familiar ruts, these are a few factors that support self-disruption:
Simple, clear vision — and the conviction to pursue it: Cochrane used the example of Apple to make this point. When Steve Jobs returned to lead the company out of dire straits, he had a vision of creating tech products with “radical simplicity” in design. Every decision came to be seen through the lens of radical simplicity, which led Jobs to cut 70% of the products that Apple was selling at the time — even though the company was hemorrhaging money.
With this in mind, HumanGood has three strategic priorities. Cochrane has dedicated himself to putting his time and resources to achieving these priorities, and the entire enterprise likewise has clarity. Decisions are filtered through those priorities, even if they are difficult. For instance, the 40% of HumanGood’s revenue coming from skilled nursing and health care might seem sacrosanct. However, if these lines of business do not fit within HumanGood’s three priorities, the team cannot protect this revenue as a matter of course.
Structure for innovation: HumanGood plans to open an innovation center, led by a director of innovation, with someone in a data role focused on measuring the effectiveness of new technologies, Cochrane told me. HumanGood also has a venture capital fund that feeds its self-disruption efforts by providing early access to promising technology.
“I think if you’re going to be real about disruption and innovation and technology, you’ve got to be willing to make those investments,” Cochrane told me.
Other examples of making these investments include:
Watermark Retirement has an entire “strategic innovation” department, Chairman David Freshwater told me at ASHA last summer. That department is dedicated to investigating “everything” — technology, health care innovations, potential partnerships and affiliations, and ideas and inspirations from other industries and countries.
Other senior living providers, such as United Church Homes, have chief innovation or transformation officers.
“I think it is important to have the resources and structure and commitment to support innovation in a real way,” Cochrane said. “Otherwise, and I see a lot of this in our field, a lot of people talk about their commitment to innovation, but what they really mean is they’re just dabbling.”
Pursue scale: To invest in innovation that drives self-disruption, an organization needs resources. And that means a certain level of scale is necessary.
Cochrane has spoken for years about the need for nonprofits in particular to gain scale faster. HumanGood has been a leader in this regard, including through its affiliation with Presby’s Inspired Life.
Scaling up has historically been difficult in senior living, given the need for close management and the local dynamics driving success.
But companies like Atria and Discovery are pursuing new ways of scaling up through the creation of sub-brands. And smaller companies like Juniper have found ways to team up with other providers to pursue innovations, such as through the Medicare Advantage efforts of the Perennial Consortium. Finding ways to gain the benefits of scale without sacrificing quality continues to be one of the industry’s greatest but most important challenges.
Finally, self-disruption is never easy, but Cochrane speaks passionately about the confidence that senior living providers should have in their ability to reinvent themselves. That’s because of how quickly and effectively they responded to Covid-19, and how battle-tested they are now.
“Can you imagine what the future could look like, if we can navigate that kind of disruption and challenge and come through stronger than we went in?” he told me. “More than anything else, I think that’s what makes me so positive about the future.”
Companies featured in this article:
AlerisLife, Amazon, Apple, Atria Senior Living, Bickford Senior Living, Cano Health, CareMax, Discovery Senior Living, DispatchHealth, EmpowerMe Wellness, Formation Capital, Geisinger, Generations LLC, HCAN, Honor, HumanGood, IBM, Juniper Communities, Lifespark, Oak Street Health, Pine Park Health, United Church Homes, Watermark Retirement Communities, Welltower, Welsh Carson Anderson & Stowe