‘Show Me the Money’ Moments Come for Middle-Market Senior Living, Value-Based Care

Value-based care and the middle market represent two of the biggest opportunities for senior living providers and were hot topics at the recent NIC Spring Conference. But with operators more cash-strapped than ever — thanks largely to inflation and labor disruption — I believe that the sector is at a “show me the money” moment with regard to these two opportunities.

While many providers are still dragging their feet on value-based care, pioneers in that space are now able to share more bottom-line information, and are sharing lessons learned from failed experiments as well as seemingly successful ones.

Middle market appears to be a different story. Some providers are pursuing exciting innovations, but their money-making potential remains a question at present — in at least one case, that is actually by design.


In this members-only SHN+ Update, I will analyze these opportunities as I see them and offer key takeaways, including:

— How the middle market opportunity is still ripe for the taking

— How “real money” in value-based care can make a difference


Stuck in the middle

Among the senior living industry’s biggest opportunities this decade is the middle market. According to the most recent edition of the groundbreaking “Forgotten Middle” study from NORC, by 2033, 15.9 million seniors will be considered middle market consumers.

Many of those older adults won’t be able to afford senior living as it is today, but even capturing a small portion of that demand could dramatically change senior living penetration rates from where they are today at about 10% nationally. In 2023, that opportunity is moving ever-closer, and the window for meeting the initial wave of that demand is narrowing with each passing year.

There are senior living organizations forging ahead with models that could be considered middle-market — mostly on the low-acuity end of the care continuum, if there is care provided at all. For example, many active adult communities can set monthly rates at a rate much closer to that of multifamily apartments than independent living.

Even so, the options for middle-market senior living haven’t changed much since I wrote about the opportunity last year; nor have the companies pursuing such projects, such as Merrill Gardens’ growing Truewood model. On the higher-end of the care continuum are companies like Priority Life Care, which is building a middle-market model for full-service assisted living and memory care.

But compared with the size of the opportunity, there are still relatively few companies exploring middle-market senior living. That is a product of the fact that doing so is hard, especially given where expenses and margins are in 2023. New middle-market models also take time to plan and implement.

An argument I sometimes hear is that the industry still has plenty of demand on the more traditional private-pay senior living on which to sustain itself in the coming years. At the same time, the cost of construction is making middle market projects harder to pencil out, even when buildings are repositioned from prior uses rather than developed from the ground up.

One of the organizations helping to lead the middle-market charge is 2Life Communities in Boston, which is forging ahead with a trailblazing middle-market concept called Opus that in some ways challenges foundational aspects of senior living operations.

I find the Opus model exciting and full of promise, but for operators and investors fixated on financial costs and benefits — and who recently have raised resident rates by double digits to maintain margin — the model might not be one they are rushing to emulate.

One thing that makes the model unique is that 2Life CEO Amy Schectman sees herself as a steward tasked with keeping resident’s rates where they are in perpetuity so they have an affordable place to live for the rest of their lives.

With planned monthly rates ranging from just under $2,000 to the mid-$5,000s, depending on unit size and layout. Residents receive housing and a slate of services including some dining and care coordination as part of their monthly fees.

“We’re charging less than we can,” Schectman told me in a recent interview. And that is by design.

She told me her initial goal is to simply regain the organization’s equity investment on the project over the next 14 years. By year three, 2Life expect Opus to be cash-flow positive.

2Life anticipates keeping resident rates steady through a mix of resident volunteering and going over project details with a fine-toothed comb. An upfront entry fee of between just under $400,000 and $1 million is part of the equation; and the model is only meant for residents who need just some or no care, which is typically the most labor- and cost-intensive part of senior living operations.

I have talked with a handful of for-profit operators who have flirted with a semi-volunteer model where residents might handle tasks here and there as a way to cut down on staff and keep rates more affordable. What they usually tell me is that resident volunteering is likely great for the bottom line but likely not great for resident satisfaction.

Somewhat surprisingly, Shectman said that is actually among Opus’ biggest selling points with prospective residents.

“We thought, ‘Oh, well, they’ll [move in] it in spite of that’ — but it’s been the opposite,” she said.

Despite her passion and enthusiasm, Schectman will be the first to tell you she is unsure how well Opus will do in the end. As of Opus’ groundbreaking earlier this month, the project had fewer than 20 of its 174 units still available. Today, just one unit is not reserved by a future resident.

The Truewood by Merrill model also seeks to control costs through novel approaches to staffing, including through the use of universal workers dubbed Resident Experience Partners. Merrill Gardens President Tana Gall touted the success of this position, when speaking at our BUILD event in 2021. But at that same event, she acknowledged that Merrill Gardens and its capital partners are “still working on” the financial returns of the Truewood framework, and that investors in the middle market likely will have to be “a bit more mission-driven.”

Gall emphasized the importance of taking the long view with regard to middle market products, pointing out the likelihood of steady returns in the years ahead, given incipient demand.

Schectman also stressed that middle-market operators must be thinking years ahead.

“If you’re thinking about doing a middle-market product that’s good for today … then you will attract people who can afford the middle market today,” she said.

Looking ahead, Schectman said 2Life is looking for “social lenders” willing to invest in the Opus model for a reasonable but below-market return. She is also trying to tackle a version of the model for residents who don’t have home equity to fund an entry fee.

In the end, Schectman believes that the driving force behind new middle-market models may not come from operators, but instead residents themselves.

“The people who move in to Opus are going to push us really hard to do it again, because they have friends who didn’t get in,” Schectman said.

And she said 2Life is “never going to go to where the market can succeed” by taking the lowest hanging fruit.

“We’re not interested — let other people do that,” she said. “Every time someone is denied an opportunity by virtue of not having enough … until we completely close that gap, we don’t rest.”

The 2Life and Truewood efforts are laudable. With owners and operators trying to weather tough market conditions while starting down shrinking margins, I hope that  middle-market trailblazers can share more specific and positive financial news sooner rather than later, to demonstrate not just hypothetical long-term value of investments in the space, but models that can at least start to pay off in a more immediate way.

Value-based care’s ‘real money’ for the taking

Value-based care is not a new topic in the senior living world, and it has been the topic of numerous NIC sessions before. But at the most recent conference, I sensed new urgency to build value-based care into the senior living operational model, spurred in part by the financial results that such efforts are yielding.

Among the operators at the leading edge of the value-based care trend is Juniper Communities, which through its involvement in the Perennial Consortium is able to supplement its bottom line and boost care quality.

Under the Perennial model, operators are paid $75 per member per month for care coordination based on a care model that Perennial developed and CMS approved. That’s in addition to annual quality incentives — “the real money,” Juniper CEO Lynne Kaztmann said at NIC during a panel’s question-and-answer session.

Based on the prize at stake, Katzmann believes payers should better ”recognize the value we create in IL and AL.”

Over the years, some senior living operators have dipped their collective toes into value-based care through small-scale experiments. But the clock is ticking and operators need to “cut the crap,” in the opinion of Dr. Sachin Jain, CEO of SCAN Group and Health Plan.

“Everyone just seems to have a really hard time getting started, and everyone wants to do a pilot project — we have pilot-itis in our country,” Jain said during a panel discussion at NIC.

The Springs Living is one provider that is espousing a “jump right in” mentality with regard to efforts to more closely integrate with providers across the continuum, with CEO Fee Stubblefield pointing out that this is the only way to learn lessons and discover what works, both operationally and financially.

For example, hospital-at-home is a topic that leaves some operators scratching their heads. But it is a trend Stubblefield is embracing.

The Springs Living is contracting with health system Providence, which is paying the operator an upfront fee to take on new resident referrals. The company also has explored and implemented telehealth with Providence since 2011. At the outset of that effort, The Springs Living was paying Providence for services. Now, the dollars are flowing in the opposite direction.

“We’re looking at it as this is a way to drive quality to our residents and then potentially reduce the cost increase to the top line,” Stubblefield said. “[It’s also about] getting compensated for things we’re already doing, that recovers our margin and puts less upward pressure on our residents.”

Not all of the company’s efforts have paid off. Stubblefield noted that The Springs Living had launched an in-house home care provider, but that low margins and a different worker profile ultimately made that effort a “fail.”

While other operators can learn from these examples, the real lesson is that taking risks is necessary, even if the monetary rewards are not guaranteed; and that operators must be willing and able to pivot quickly if experiments fail.

To Stubblefield, the senior living industry is in a “transitory period” that necessitates new approaches. And the best way forward now is simply that “we just have to go try.”

“We’re in conversation with Providence, Optima; there are different I-SNPs and C-SNIPS and so on — there are a lot of potential things,” Stubblefield said. “There are a lot of ways to look at this, and from our point of view, we’re just going to try them all.”

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