Pennant CEO: Labor Market Demands Different Type of Leaders in Senior Living

Since becoming CEO of Pennant Group (Nasdaq: PNTG) in August 2022, Brent Guerisoli has been focused on one area above all else: leadership.

“We don’t really see ourselves as a health care provider or a senior living provider only — we see ourselves as a world-class leadership organization,” Guerisoli said during a recent SHN+ TALKS appearance. “What I mean by that is our primary responsibility is to provide life-changing opportunities for the people that are part of our organization and the people that will join our organization.”

Meeting this responsibility is particularly hard — and critical — in the current operating environment, which Guerisoli believes is the most difficult in the last four decades. Huge shifts in the labor market are contributing to these challenges.

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“The labor market at large is demanding a different type of company and a different type of leader, and so we have to develop and change and become not only operationally excellent but excellent in our leadership as well,” he said.

This effort to change began even before Guerisoli took the CEO title. With Pennant’s senior living portfolio struggling last year, Guerisoli led an effort to turn the tide. That involved changing some leaders within the organization, elevating others, and instilling confidence and increasing clarity for leaders across the board.

We are pleased to share the recording and this transcript of the SHN+ TALKS conversation with SHN+ members. Read on to learn about:

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  • Pennant’s model of empowering — and incentivizing — local leaders
  • The future of senior living within value-based care frameworks
  • An M&A market that is “all over the map”

Eagle, Idaho-based Pennant was formed in 2019 through a spin-off from The Ensign Group (Nasdaq: ENSG). Pennant has a portfolio of 89 home health and hospice agencies and 48 senior living communities located throughout 14 states.

The following has been edited for clarity.

Tim: You just took on the CEO title on August 1st, I believe. What have been the first priorities that you have pursued over the last two or so months since that took place.

Brent: Great question. I think one word comes to my mind, what the priorities have been, and it’s been leadership.

As you shared, we have home health, hospice, home care operations, we have senior living operations, but we don’t really see ourselves as a health care provider or a senior living provider only. We see ourselves as a world-class leadership organization. As such, we take pride and we take a significant amount of responsibility in executing on that mission. What I mean by that is our primary responsibility is to provide life-changing opportunities for the people that are part of our organization and the people that will join our organization.

Our focus over the last couple of months and continuing into the future is, how do we continue to build and develop into what we want to be? Which is that world-class leadership company.

The last three years have been really difficult. You mentioned that we spun in 2019, in October of 2019, to be exact. Roughly six months later, the world encountered a pandemic, unlike anything we’ve ever seen. As a result of that, the way that care is provided, the way that our labor, our staffing, our economic environment, everything has changed in the last three years. It’s been tough. Anybody that’s listening knows this is probably the most challenging operating environment that we’ve experienced in our history, for sure, and probably in the last 40-plus years.

Leadership is critical in all of this. One of the things that is so important for us is to understand who we are and what we’re all about. Do we understand and see why we are special and why we are different as an organization? Then do we also recognize the potential that we have and the impact that we can have and the lives that we can change based on the mission that we have.

Part of that leadership focus is creating real momentum around that belief and recognizing what that potential is. We break it down into two different categories.

One is operational excellence. For years, we’ve been really strong operationally. That’s the hallmark of Ensign, and it’s been our hallmark as well, but we’re in a different environment now. Operational excellence can only get us so far. The next step is leadership excellence.

The labor market at large is demanding a different type of company and a different type of leader, and so we have to develop and change and become not only operationally excellent but excellent in our leadership as well.

Tim: I think it’d be great to hear just a little bit more about your story, your background. How did you first come to senior care, and what is your journey then to where you are today?

Brent: If you’ll allow me, I’m going to go back a little bit further than that because I think it helps to frame who we are as an organization.

My experience is, hopefully, a similar experience that many of our leaders and many of our partners are experiencing every day as part of The Pennant Group. I actually joined Ensign, which was the precursor to the spin, in early 2012. I’d had a career. At that point, I’d worked in telecommunications. I had been able to experience a lot of great things. I went through an executive training program, and I was able to experience what it was like to live in the corporate environment and really had a great career opportunity ahead of me.

There were a few things that were lacking. A couple of those things were, one, my ability to impact the organization was fairly limited. There were 300,000 employees in the company that I was working with. It was a great company. I loved what I was doing, but that impact was just missing. I’d studied leadership for an extended period of time, and I wanted to be able to lead in a different way.

Then the other part of it that was missing was influence. I could have a small influence on maybe the team that I was leading or the group that I was a part of, but a broader influence on the community in the organization was just lacking. I actually had a good friend of mine that was working for Ensign. I was familiar with the model, but I wasn’t necessarily really intrigued by skilled nursing. I was introduced to Danny Walker, and you’ll know him as our chairman, and he was our former CEO. We’re in the midst of a startup, essentially. That was a home health and hospice startup.

What was presented was, “Look, you can come and you could run an operation. Essentially, you’re the owner of this thing. You can move back to your hometown, and you can build a team and create something special.” That was my introduction to really Pennant, was Ensign there. From that point, we came in, and our goal was to just change the way that health care was delivered in our local market and to change our home health and hospice agency and to partner in the community in a way that had a positive impact on our employees but also on the community and the patients that we served.

We grew and we grew, and with growth comes leadership opportunities. I was asked to take on more responsibility to lead a market and then a portfolio company. Eventually, I was asked to lead our home health and hospice business in the entire service line. That was the 2018/2019 timeframe, right about the time of the spin. All of those opportunities came from this idea of local leadership. The ability to have impact and drive change at the local level and then to influence the organization more broadly.

Fast forward a little bit, now we’ve gone through the spin. I’ve stepped into the role of Pennant president. Gosh, our senior living business was really, really struggling. Just to give it a little more perspective, I’ve been close to the senior living business for several years. We’re going to talk a little bit later, probably about our model. I was a cluster partner with the president of our senior living business, and we worked closely together, but I’d never really jumped into the business to fully understand how it operated and all of that.

By 2021, it became very apparent that we needed to change. We’d been really hit hard by the pandemic, and we weren’t executing the way that we knew we should have. We needed an overhaul.

At that time, I actually jumped in informally as the president of our senior living business. That’s when a lot of the change began. A lot of what we talked about at the beginning, or I talked about at the beginning, that leadership, one of the things that was really hard was we had this home health and hospice service line that was performing exceptionally well. We had record performance and growth in 2020. Then we had the senior living business that was hit so hard by the pandemic. Our occupancy had dropped. There was just a lot of discouragement. Nobody really knew what we were going to do, or at least our leaders didn’t believe in what we were doing.

At that point, the opportunity was to create a real vision and clarity and to help our leaders understand what the expectations were, but also what our potential was and what we needed to become so that we could create those life-changing experiences at the local level in our buildings but also in the communities that we served. Really, from 2021 until now, I’ve been heavily involved in the operations. We’ve seen tremendous turnarounds in many pockets of the organization. We’re not out of the woodwork yet, but we’re making great progress. I’m really excited about the trajectory that we’re on and the progress that we’ve made.

Tim: That’s an interesting arc that the company has had. I want to hear more about the local operating model. Before we get to that, as you were talking about the senior living challenges and some of the changes that you undertook, was there one that you would highlight in particular that made the biggest difference? Was it a number of smaller changes? Any examples you can provide of what has made the difference?

Brent: We talk a lot about profit and accountability. It’s important to talk about the model in order to talk about the changes. We believe that health care is a local business and that decisions have to be made at the local level because where I’m sitting– I understand in my local market what’s going on. I don’t know how the players are all responding and what needs to happen. The best way to have an impact is to impact where we are, to have local leaders making decisions and have the flexibility to make those decisions. That requires a great amount of accountability.

The best way to really think about it is a franchise model. You’ve got a leader that steps in, they build their team, and they have to operate successfully. Then you couple that with, you’ve got partners, and we call it a cluster of three, four, five usually geographically located partners that work together, and they’re actually tied financially as well. All of our leaders have incentive opportunities, but those incentive opportunities are based on their own personal opportunity, but then also the opportunity, the broader performance of the cluster that they’re in. They’re tied to help each other to want to get better, to share best practices, their accountability peers.

I would call it the secret sauce of Pennant. We have local leaders that have accountability within a cluster. Where we have strong clusters, we have success. You ask the question, what’s been the change? Well, it’s primarily been leaders that have owned their businesses like true owners would. They’re not just managers. They’re not just trying to do something that they think their boss wants them to do, and they’re treating it like this is my business. I’m responsible and accountable for the success here locally to create a vision, to build a team, and to create something special.

Then you’ve got cluster partners, like-minded cluster partners that are doing the same thing, and that accountability network can create real immediate change. We’ve seen it, like I said, in multiple pockets across our senior living portfolio. That’s it. You’ve got those local leaders that are making the changes.

I would say the other piece of this is we do have to have good systems and processes in place. Part of these efforts goes back to that operational excellence. We’ve had systems and processes in place, but as we’ve grown bigger, we’ve also had to make some changes to that, and so that’s been an area of focus as well, is to create. We call it freedom within a framework, the ability to operate but also have the parameters around how do you make the right decisions? How do you invest in the right way? You’ve got that framework, you’ve got your cluster partners, and then really the drive of the local leaders that make the change.

Tim: Got it. I guess I’m curious, when you just talk about leaders really making that shift from it sounds like to be a little bit more entrepreneurial and empowered at the local level, and that really helped drive that improvement in the senior living, did you bring in new leaders that had a new mindset? Was it that new systems and processes needed to be in place to empower them, or was it really coaching them into shifting their mindset to achieve that change, or was it a combination of all those things or other things that I haven’t thought of that might have been happening?

Brent: It’s more a combination of all of those things. There were some tremendous leaders and there are tremendous leaders in our senior living business right now that we’re just discouraged because there’s momentum, there’s a flywheel, and when you’re successful, it creates more momentum and it really gets you rolling. The opposite is true as well. If you’re going backwards and it’s a struggle and– it seems like nothing is going right. Even your best leaders can become discouraged. It’s understanding who those best leaders were and elevating them and giving them opportunities to have an influence on the organization and change us in a positive way.

Those leaders, we had to instill confidence, going back to those questions. Do we know who we are? Do you know what opportunities are in front of you, and do you understand, or do we understand the potential that we have? Okay, we know what we can become. What do we need to do today to start changing that narrative? What do we need to do today to demonstrate that we’re not a failure, we’re in the process of becoming something spectacular? That group of leaders has really led the charge in bringing the turnaround.

This is where accountability and trust really comes in, is you have to be honest and you have to understand who the leaders are that can do it and who are those that can’t. We asked many, many of our leaders, many of our key leaders to either do something different or to leave. It’s not that we don’t love them and care about them and want them to be wildly successful, but they didn’t believe or they didn’t feel like they were capable of making the change, and that’s okay. That’s being honest and accountable, but we have a core value of “love one another.” I believe that’s what “love one another” is all about.

We’re here to help each other improve and recognize where we’re strong and where we’re not and allow people to make decisions based on that honest feedback, but you have to do that in order to create a pathway. There’s a concept in the book Multipliers, removing the blockers. That’s part of it. You’ve got to remove those people that are holding us back, and that’s part of what we’ve done. We had to identify anybody that was holding us back and either ask them to change or ask them to leave. All of that was part of the process.

Tim: That makes sense. Pennant and Ensign I think are pretty famous for this local model that you’ve been describing, and I think there’s a lot of admiration in the industry for both companies and the success of this approach, but it’s not the most common approach in senior living. I’m curious why you think that is if Ensign, and now it sounds like Pennant really believes in this for having success.

Brent: Well, first, it’s really hard. It’s a really difficult model to implement because it requires an incredible amount of trust with the local leaders. We are handing the keys over to multimillion-dollar businesses. Two, in some cases, leaders that have fairly limited experience or limited experience in the industry or they may be very experienced but they haven’t had the type of ownership expectation that you have as a– when you run a business like it’s your own. That’s where it’s tough.

In a top-down model, there’s this idea of command and control the ability to– If I make a decision. I can make sure that every single operator across our portfolio is doing what I want them to do, but that’s not how we operate. It’s through persuasion, it’s through influence, it’s through leadership, it’s through love, it’s through sharing of best practices, and ultimately, creating inspiration and opportunities for people to change because they believe it, not because we told them to. That’s the first part of it.

Then it requires a lot of organic change. That’s why it can happen very quickly because if that momentum happens and people see it and they’re sharing best practices, very quickly, I can adjust in my environment and make needed changes immediately that have a tremendous impact, not just on my operation, but it can have an effect really rippling across the organization. If everybody gets on the same page and does that, that can respond very quickly or that can be the response.

In many ways, we’re talking about senior living, but that’s why we were so successful in 2020 on our home health and hospice side, is we encouraged and invited our leaders to make changes quickly and to adapt to a very difficult COVID environment. We did that and we were highly successful. Then we encountered other things that made it even more difficult. We’re still working through that. We’re working through that in both service lines.

Anyway, that’s why it’s hard, because it’s not only unique, it’s our culture. It’s who we are. It’s not something you can just implement. It’s something you have to believe in and you have to change everything about you. That makes it really tough.

Tim: We have a question from the audience which maybe is pertinent to this part of the discussion since we’ve been talking about the differences between this operating model and what’s standard in the industry. I think a little earlier in the conversation, you brought up the incentives you offer your leaders as well. This question is about wondering if you can talk about the company’s compensation structure and how that differs from its competitors.

I’ll read the whole thing and then let you tackle it however you think is best: How does the company’s compensation structure differ from its competitors with or without incentives? Is the pay of local leaders significantly higher than competitors? Do you think the industry’s local compensation structure isn’t adequate as part of that? Curious what you think about the typical structure with 5% of revenues as management fees?

Brent: I’ll say it this way. I think I’ve seen compensation structures across the board in terms of how our leaders are compensated, not ours but leaders across the industry. Is it significantly different? I don’t know. What I can share is that it’s a profit-sharing model. I mentioned my decision to leave a really up-and-coming career with a large corporation to join this new agency in southern Utah and frankly take a major pay cut to do it. The reason why I did it was because there was tremendous upside. That tremendous upside was whatever I built, I got to participate in. There’s a high percentage profit-sharing model.

In addition to my salary, I also had an opportunity to take a percentage of what we earned. There’s alignment. One of the things that I think is so critical to our model is that our leaders are aligned. If you have an operation that maybe three out of the five key areas of focus are performing well, but one of those two that isn’t is financial, at the end of the day, that’s not sustainable, and so the financial piece has to be a critical element of the compensation and of the performance in an operation.

We offer up a profit-sharing model, a very generous profit-sharing model, and then we do that not only with our local leaders. If you run a building, you have that, but then we have what we call market leaders that run broader markets. They have a number of different buildings in their markets. They operate in the same type of model where if we perform well financially and we are compliant and we have great clinical outcomes, there’s a tremendous earning opportunity.

As they build the company– We actually say, and it’s not just a saying, it’s a reality, we call it their company. That’s why none of our operations take on a name like Pennant. It’s the name of the local operation. Usually, it’s the name that it was before when we acquired it or we inherited it. Then when they form a portfolio company, it’s a totally owned subsidiary. That portfolio company is that leadership group that is the president and the CEO of that portfolio company. It’s a way to make sure that our leaders are aligned with the expectations. You are the president, you are the leader, you are the one that’s accountable to all of the various metrics.

The incentive piece is just a part of that, but it’s a critical element to make sure that there’s real alignment and the impact that we’re having, you’re rewarded or you’re hurt by that impact. If you’re not performing well, then you probably won’t perform well personally from a financial standpoint. If you’re performing really well, then you will be performing very well from a personal financial standpoint.

Tim: Great. You said something a little interesting earlier I thought that I just wanted to follow up on. It was that you can’t really implement the Pennant model of local empowerment. When I hear senior living CEOs all the time that they want to do that or at least they say that they think the solution to whatever challenges they’re facing at the moment is, empower the local leaders. I’m curious, I guess, do you have any advice for other companies that maybe are operating in a different model for steps they can take to do that, or is it a hopeless endeavor?

Brent: I wouldn’t say it’s a hopeless endeavor. Obviously, it’s a little bit of our secret sauce I shared before. It’s not so secret. Most people are familiar with the model, but I guess what I would say is that it requires a significant amount of relinquishing of control. That’s where the trust comes in. If you can fully trust your local leaders to do the right thing, and you set up a framework to be able to do that, then you can be successful.

That’s not for everybody. Again, that’s why I think it’s a unique model, is because most people feel more comfortable, and especially where we’re in a highly regulated environment. Now, senior living isn’t as regulated as home health and hospice, but it’s a highly regulated industry. The idea of giving up more control is really difficult to really consider for an executive that has never done that before.

I think that’s the first step. It’s a paradigm shift and to understand what it is that you want to accomplish. Frankly, it’s harder. It would be a lot easier for me to just tell people what to do and to just say, look, you’re failing here. You need to do this, this, this, and this. That doesn’t extend trust. That diminishes trust. We’re building leaders and we’re extending trust and we’re creating opportunities for our leaders to achieve their potential, and by extension, their operations can achieve their potential.

Again, that’s the dichotomy of building a company like we have. We’re not perfect at it by any stretch of the imagination, we’ve got a long way to go, but it’s what we believe in and it’s who we are. It’s fundamental to the future of our organization.

Tim: Right. Well, I’m fascinated with this model. I want to ask another thing that I think distinguishes Pennant is that you do have both a home health and hospice and a senior living portfolio, so curious, what synergies do you see either today or in the future do you hope to realize between those two sides of the business?

Brent: We’ve talked a little bit about this. We have what we called our Pennant Care Continuum. The idea that there’s a lot of overlapping cares to take place in our senior living buildings and with our home health and hospice services, and we have home care services as well. I would also add, we have an Ensign Pennant Care Continuum. You add to that the Ensign relationship. We’re very close with our Ensign partners, and that relationship has been paramount to, as we transition and we’ve spun, that we continue to build and create value there.

If you may recall, earlier this year, we spun back a handful of buildings that were part of campuses. That was part of the idea of, look, our responsibility ultimately to our patients and to our residents is to provide the right type of care in the right setting at the right time. If there’s something that impacts that in a negative way, we need to come up with solutions so that that model is effective. Part of that decision was just that. Like, you’re in the same building. You’re sharing in many ways the same elevator. We’re stepping on each other’s toes trying to provide skilled nursing services and assisted living services.

That was a decision that we made there to really make the lives of our patients and residents better but that just really emphasizes the importance of the care continuum.

I think from a growth and an opportunity standpoint, there hasn’t been a ton of overlap. We haven’t worked really closely together historically between our different service lines. Our home health and hospice have, but our senior living hasn’t. What we’re doing now, and as we’ve started to come together in a more unified way and in our senior living and our home health and hospice, we’re starting to see better utilization. We’re seeing better outcomes. We’re seeing better resident and patient experiences because they’re getting the care that they need at the right time in the right way.

I just think it’s important that we’re constantly looking for opportunities to enhance those synergies and collaborate. There are plenty, and we will continue to push that.

Tim: On the home health side, you have partnerships with a lot big health systems and payers. Do you see either increased interest from those types of organizations, or do you anticipate increased interest from those groups in senior living and the potential of senior living providers and communities to help achieve a lot of the goals I think that these payers and systems are pushing for from a population health lowering health care costs standpoint?

Brent: Do I see a lot of movement right now? Not a ton. Do I anticipate that there will be in the future? Yes. I think what you’re seeing right now is a lot of payers are recognizing the varying levels of care, especially the in-home, and I would consider senior living in-home care. It’s much more cost-effective, and oftentimes, the outcomes are better with residents and patients when they’re in their home environment. I wish we were seeing more and frankly, we do have some of these relationships, but they’re primarily driven through a Medicaid reimbursement model.

Oftentimes you’ll have a managed Medicaid group that steps in, but there’s real value there. I think that the discussion is what is the value proposition. Is it more effective to treat a resident in a senior living environment? Maybe there’s a way for more home health and hospice cares to be provided there, or other types of care to be offered there, as opposed to in a nursing environment or a hospital environment.

I don’t want anybody to misconstrue this as we don’t believe in our hospital partners and we don’t believe in our skilled nursing partners. That couldn’t be further from the truth. It’s all part of the continuum. What we have seen, and we’ve seen it progressively over the last 15 years, the acuity of care is moving downward. The types of patients that we took care of in skilled nursing facilities 15 years ago, are wildly different than the types of patients that are being seen now.

The same thing is true in home health. Frankly, the same thing is true in our senior living communities. It’s no longer just a hospitality business. There is real clinical necessity that’s taking place in our senior living buildings. Really, it’s a matter of understanding the needs of the communities and recognizing where services can best be rendered, and then matching the reimbursement up with what those needs are.

I think that’s part of the challenge is right now, and I’m sure my colleagues that are listening to this would attest to this, the pressures right now are really difficult because you’ve got labor challenges, wage challenges, margin challenges, clinical high– the acuity is going up and the cost is going up. That’s not a good combination or a good trend. More is required of each of our buildings.

It’s going to create opportunities, but that just creates opportunities. Eventually, we’ll get it right. Unfortunately, in health care, we tend to be a little bit slow in reacting. I think there’s a lot of great solutions, but I guess what I would say is the reimbursement doesn’t flow as quickly as would be beneficial to drive the right results.

Tim: Just in terms of the growth strategy, I guess I’m shifting gears maybe a little bit to ask a few questions about growth. The first one is just about the growth strategy in general. I was interested in looking at the investor presentation. There was this broad five-step strategy. The fifth step was to strategically invest in and integrate other post-acute care health care businesses.

I was just curious, does this mean that ultimately you’re thinking of Pennant as investing in businesses beyond home health and hospice and home care and senior living?

Brent: We already have some of those. We have a physician services business. You mentioned home care. Home care is up and coming. Our Ensign partners have invested in things like mobile labs and X-ray and non-emergency transportation. Really, what this is about is recognizing the patient and the resident experience and investing in the right way to ensure that we’ve created a continuum of care where we can find success.

I think there’s a lot of technology that’s being implemented right now and it’s a focus of ours and sometimes it’s tough for what I talked about before technology and these advancing solutions aren’t reimbursed up front. It’s hard to implement sometimes because you have to hope that eventually, they’ll come around. The way that I see it is you’ve got to look at it from a patient and a family member experience. If you’ve ever sat across the table from a family and an individual that’s had really tough news about a change in their life, maybe an event happened or there’s a diagnosis, there’s a lot of fear and there’s a lot of concern and there’s a lot of just hoping for somebody to be an advocate.

Our health care system right now is very siloed. You have that conversation in the hospital and then you transition to a skilled nursing facility potentially, and then you go through the experience there, and then it’s another transition to perhaps, home health or maybe it’s senior living or a combination of both, and then you transition again, and again, and again. Every time you’re having to go through that same experience over and over.

That’s a really tough thing to ask, especially when you’ve got a senior population that may be not as savvy in navigating some of these waters if family isn’t involved. I think all of this is going back to the conversation around our health care continuum, the post-acute care continuum. That’s where that focus is. Look, we know who we are. We know that we are right now home, health and hospice, home care, and senior living.

That’s where our focus is from an acquisition standpoint. We have to get healthy and strong and build those in a very effective way over the next few years, but we’re also going to be considering what other avenues, what other opportunities, what other technologies, what other needs there are in our communities so that we can complete that continuum and really create a life-changing experience for the people and the families that are a part of it.

Tim: I have an audience question here: Do you plan on driving new clinical spaces within your communities, i.e., the different acuity will force different in-house medical spaces and maybe new funding derivatives?

Brent: Yes, that’s a possibility. I guess the way I would answer it is, probably, and it’s going to be a local leader that does it. They’re going to say, “Hey. You know what? I need an outpatient clinic.” Or, “I need to create a space so that our residents can get certain types of care.” Whatever that could be. Somebody is going to be entrepreneurial-minded and they’re going to come up with a solution and they’re going to take it to their partners and their partners are going to say, “That’s a great idea. You should do it.”

The answer is, likely, yes, but it’s not going to come from me. I’m not that smart. I need to rely on our local leaders to make those decisions and see those opportunities and to make those changes.

Tim: Curious, just generally, what is the acquisition market like right now, specifically for senior living communities, thinking about dynamics like pricing and deal availability, obviously interest rates are going up, what do you sort of anticipate for 2023?

Brent: It’s all over the map, frankly. There are great deals to be had. There are a lot of really bad opportunities out there and everywhere in between. I think there’s a lot of consternation if you will because funding and access to capital has been– it’s been free-flowing for many, many, many years. You see that with new builds. With all the rage over the last few years was building new senior living communities and creating these beautiful spaces and it’s great. Those are needed.

There’s a huge demand that’s coming down the pike, but at the same time that’s slowing down and it’s slowing down because capital access is slowing down and the cost of capital is going up. There’s sort of this reckoning happening. You’re seeing certain groups that are trying to get out right now while there’s still a reasonable return on some of those investments.

You’ve got others that are sitting tight and saying, “Okay, we’re going to wait for a little more stability.” Then you’ve got others that are like, “You know what? We’re in a good spot. We want to transition or we want to turn these things over.” There’s good opportunities to be had as well. I think what happens though when there’s an environment like that, you will see a lot of change and there will be significantly more transactions taking place in the coming months and years because of that dynamic.

We’re very disciplined. You mentioned our earnings call last time, we talked a little bit about our acquisition model. We’re disciplined. We know what makes sense for us, and we’ll continue to be disciplined. We look for the right community partners, we look for the right opportunities and places where we can have a real impact. Then the other piece of this is you’ve got to have leadership. That’s really what drives most of our acquisition decisions. Do we have leaders in place that can step in and be successful?

Tim: In most acquisitions, are you bringing in your own leader to take on the new community or portfolio?

Brent: Yes, that’s typically the case. I’ll say it this way, usually, the executive director is a new leader that we bring in because we put all of our leaders through a CEO and training program. We ask them to learn, if they’re not familiar with the industry they’ve got to understand and learn the industry, but then this whole model is very different.

It probably makes sense by extension from what we talked about, if you took an industry professional and just immediately dropped them in, especially if they’ve been running an operation, they are probably running that differently than what we would expect them to do. Even in a situation where there is a strong local leader already in place, the expectation would be that they’re still going to go through our executive director in training program.

They’re going to learn the culture, they’re going to learn accountability, they’re going to learn what it means to be a cluster partner, they’re going to learn how to be accountable in a different way and to really take ownership and see their opportunity and really be motivated by what that opportunity looks like. That’s why we normally will see turnover at the executive director level.

I would also say that most everyone else stays. If they believe in what we’re about then from the wellness director all the way down to the frontline staff, in most instances, it’s a positive exciting opportunity because they see potential. If we’re a leadership company, especially if you’re transitioning from a small operation to part of a bigger organization like ours, gosh, I have the opportunity to develop in my career and to take on more responsibilities and if I can perform well and demonstrate a drive, I get opportunities.

That’s really welcomed by a lot of our team members. We try to keep as much consistency in the local teams as possible.

Tim: Right. Have you seen any improvement at all in the last few, I don’t know, weeks or months and the workforce pressures that everyone’s been feeling? Can you talk a little bit about what you anticipate from a labor perspective as we head into 2023?

Brent: Yes. I laugh a little bit because I would say define improvement. We’ve seen some relief that there’s not quite as much movement, especially in frontline staff. There’s a little more stickiness, but those pressures are still there. For whatever reason, millions of workers have left market and haven’t returned.

When you have an environment like that, there’s still a shortage. It certainly creates challenges. I’m probably a little more optimistic and we as an organization, we’re probably a little more optimistic than we should’ve been and maybe should’ve been a little more realistic in saying the impacts of the pandemic and the impacts of the labor market are going to subside sooner and then six months comes and nothing’s changed or it’s even worse.

I think realistically, it’s going to take years for the industry to recover from that standpoint. I don’t think all is lost. I think with that, it creates an opportunity to come up with different solutions. I’m optimistic that pressure is reducing and we’re going to see improvement in that regard. The other thing I would say, and this is pretty consistent for us across the board both. senior living and home health and hospice, where we have strong leadership, we haven’t felt at nearly the same amount of impact from a labor standpoint versus where we don’t have strong leadership.

That’s why the focus on leadership is so critical. The right leader will build a vision, will create a team, will create a culture and an experience where people want to stay, and ultimately that’s what the labor force wants right now. That’s what our employees are seeking out. The loyalty is there, but they’re loyal to the right experience. We have to be responsible at the local level to create the right experience.

If we can do that through strong leadership development and building the right teams, then that’s where we’re going to get relief from the labor pressures.

Tim: Leadership seems to be the keyword for this whole conversation and you mentioned that even earlier in your career, you had been studying leadership. I guess I’m curious, are there some key characteristics that you look for in a Pennant leader or that you are trying to cultivate? What makes a good leader at Pennant?

Brent: It’s a combination of humility, incredible humility, but also the personal will and confidence. The right leader is willing to look in the mirror and say, I have to change. I have to do something different. I am in control of this environment and so I need to recognize what I need to do differently to create a better environment, but then also the confidence to make difficult decisions or to have the courage to make difficult decisions.

When you have a leader, you could be humble, but without the confidence, it’s hard to implement change because there’s insecurities that come with being an inexperienced leader or you may just be an insecure leader and your team can see that. People are looking for leaders that say, I want to follow that person. I know that– even though this person may be difficult at times, may require an incredible amount of accountability and personal sacrifice or personal change, I like that because inherent in all of us is the desire to improve and to get better.

That’s what a leader will do. That’s where I think that personal humility, but that professional will and that confidence to make change. Those are two of the elements. There’s a laundry list of things, but that’s where I would start.

Tim: Another question from the audience, this is related to the labor question. Are you actively pursuing or seeing greater numbers of encore career employees, people who may have retired from a career, but are now coming to senior living.

Brent: Yes, we see a little bit of that and I think we would welcome all. It’s not so much what the demographic is and frankly, what the experience is, it’s what are you going to bring? Are you going to be part of this team? Do you want to be part of something special and help create something special? Frankly, there’s so much value that the experience from that group can bring to us that I would welcome that.

I think we just need to create opportunities where diverse groups can come and be part of the organization and change us for the better because that’s really where diversity matters. Diversity creates change and it creates opportunities and it creates discomfort at times. But being uncomfortable is a good thing because that means we’re changing. We’re addressing things that are different and so I would love for that group to come and help us improve.

Tim: Do you think the senior living product of today is appealing enough for the rising generation of baby boomers that are starting to age into senior living?

Brent: That’s a broad question and I would say that’s up to us. I think it depends on how we execute on that. What I do know, a couple of factors where I would more strongly just say yes, is the baby boomer group, the silver tsunami, it’s a group that’s fairly independent and that generation has taken care of themselves. I think you’re seeing different changing family dynamics.

Historically, you might be in a situation where the parents and the children say, I’m never going to choose to put mom or dad into a senior living building or into skilled nursing because I’m loyal and I need to take care [of them]. I think there’s a recognition that there’s an ability to be independent in those types of settings and to receive the right level of care. From that standpoint, I think there’s going to be plenty of opportunity.

I think there’s going to be more of an openness,it’s a safer environment for– I’ve had plenty of conversations with people that say, “Is this the right place for mom or for dad?” You want them to be safe? Do you want them to have the opportunity to have relationships and to build connections? Because that’s what you need. The worst thing that can happen if you’re in an environment where those aren’t happening or maybe you create an unhealthy relationship or family dynamics.

It’s not for everybody, but I think there’s plenty of opportunity out there. From that standpoint, I feel we need to be appealing though, back to your question. We’ve got to create solutions that are appealing and are satisfying the needs of our potential residents.

Tim: If you could snap your fingers and just change one common practice that’s in senior living today, what would that be?

Brent: Well, good question. I think I have two. This isn’t to offend many of the partners out there that are invested in senior living from a real estate standpoint, but just a real estate play in senior living, it’s tough because there’s a whole other component to senior living which is the operations, the clinical care and the beauty that takes place in a building.

There’s a lot of really great owners of senior living buildings, but sometimes it’s a real estate play. I’m going to create an arbitrage opportunity and that’s okay. There’s nothing wrong with that, but it can put pressure on the operators and so because of that what happens is that pressure has a real impact on the ability for the operators in the wrong situation. They have to make tough decisions that may impact the ability to provide quality care.

That would be one thing, is just creating more synergy and unity around those that are investing and also making sure that there’s a really strong operator associated with that building. Then the second one, you alluded to it or we talked about it with the value proposition with some of the other payers. We have to be able to create an environment where we can be reimbursed for the care that we’re providing.

There’s more payers and there’s more institutions that are benefiting from that. There’s a real value proposition there. The faster we could make that happen the better because I’ve seen it time and time again. If we do things the right way in a senior living building, we will prevent tens of thousands and hundreds of thousands of dollars in additional costs, health care costs because we’re able to take care of– it’s more of the prevention.

We have to be more preventative in our approach versus reactive. I think making investments now in senior living will help create more of a preventative environment so that our residents are healthier, they’re happier and they’re avoiding some of those more expensive events that we often see.

Tim: Terrific and then last question as we come right to the top of the hour, as you look ahead to 2023, what has you most excited from a business perspective and what has you most concerned about?

Brent: Actually, I think my answer is going to be the same. We are experiencing major disruption in our industry. With the disruption, we have to acknowledge that changes have to happen. Can we make those changes? Can we adjust, can we be creative? That’s scary because it’s hard and old ways are hard to change, but I believe that disruption breeds creativity. That’s what gets me so excited in many ways.

Going back to my initial story about stepping in and running an agency, that’s what I love. It’s the idea of taking a problem, addressing it, and coming up with a unique solution. That’s what we get to do as an industry, and then that’s what we get to do at each of our local operations. The more effectively we do that and the more quickly we do that, the better that we’ll be as a solution in that whole healthcare continuum.

That’s what I see because I think that creativity, that disruption ultimately leads to change and progression. We’re not perfect and there’s a whole lot more that we can do and there’s a lot of changes that need to happen, but gosh, isn’t it exciting to be part of an industry that we’re going to look back at this time, 10 years from now and say, this was a paramount critical moment in the history of senior living. Those that lead that charge are going to be the ones that are looking back and saying, “Look what we did. Wasn’t that great? Wasn’t that exciting?”

Tim: Great. Well, that is a great note to end on. I’ve really enjoyed this conversation. Thanks so much for taking the time and for all your insights and all the information you’ve shared and thanks to everyone who tuned in and best of luck to everyone.

Brent: All right, Thank you, Tim.

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