What the Creation of $10 Billion Option Care Enterprise Means for Senior Living 

The last week brought major health care business news — including the creation of a new home health giant valued at nearly $10 billion — that bears careful consideration by senior living providers.

The new at-home care organization is being created through the merger of Option Care Health (Nasdaq: OPCH), a major provider of home infusion services, and Amedisys (Nasdaq: AMED), one of the nation’s largest home health care, hospice, palliative care, and acute care-at-home providers.

The announcement of this all-stock transaction — which will combine the two enterprises under the Option Care name — occurred a week after health systems Kaiser Permanente and Geisinger announced they are joining forces and launching a new venture called Risant Health.

In this week’s exclusive, members-only SHN+ Update, I analyze this recent news and offer key takeaways, including:

• The changing competitive dynamics between senior living and at-home care
• Increased urgency for a wellness-driven value prop in senior living
• Health care consolidation demands more concerted senior living efforts to thrive in a value-based care world

Changing competitive dynamics

The Option Care/Amedisys combination highlights that aging in a traditional residential home is rapidly becoming an easier option for older adults. This obviously has implications for senior living providers, given the truism that home care represents their biggest competition.

Together, Option Care and Amedisys offer a full range of capabilities, from prevention and maintenance of chronic conditions through end-of-life care, delivered by a current workforce of more than 16,500 clinicians across a national footprint.

 Furthermore, the two companies anticipate that the combined entity will be able to lower the total cost of care by providing more integrated services for more than 720,000 patients, informed by “intelligent insights” gleaned through data aggregation and analysis.

Source: Option Care/Amedisys investor presentation

Option Care and Amedisys execs believe that they will be able to expand upon their companies’ existing payer relationships with commercial and government entities, which are looking not only for providers that can lower the cost of care, but that can be a single partner delivering services across the continuum.

The increasing ability of organizations like Option Care/Amedisys to deliver high-acuity care in people’s homes — such as through the hospital-at-home and SNF-at-home — means that the bar for needs-based senior living move-ins is likely to be raised higher than ever in the coming years.

Furthermore, the senior living population is surely part of the “additional whitespace opportunity” that the newly combined entity considers as part of its addressable market. Senior living providers must consider how the delivery of more robust at-home services within their communities could affect core aspects of their business, including acuity and length-of-stay.

Take the booming active adult rental market. One major question has been whether residents will age in place, transforming active adult communities over time into properties that are more like independent living or some other variety of senior housing. Last year’s landmark NIC report on active adult pronounced “age creep likely but may be mitigated,” largely as residents opt to move out when they can no longer keep up with their peers.

But age creep could become likelier in active adult thanks to organizations like Option Care. A new move-in to active adult today might be receiving light services to facilitate an active lifestyle, but as chronic conditions worsen or emerge over time, Option Care might make it seamless for the resident to receive more ancillary services and personal care at home, return to the active adult unit immediately after an acute care intervention, and so on right through the end of life. Resistance to transitioning through the continuum into settings like assisted living could become stiffer — driven not only by consumer preference but payer pressure — resulting in active adult providers facing sticky situations related to the average age and acuity of residents.

The provision of more complex services within independent living and assisted living communities is almost certain to occur. Hospital- and SNF-at-home providers such as Inbound Health already are serving IL residents and see further growth in these communities as desirable. And while the demand for infusion therapy currently is limited in private-pay senior living settings, Medication Management Partners Co-Founder and CEO Labinot Avdiu sees the potential for pharmacy providers like his own to build out infusion capabilities in the future, and for an organization such as Option Care/Amedisys to also fill the need as it arises.

IL and AL providers might see upside in this, as a way to increase length-of-stay and deliver needed care to increasingly acute resident populations — but this trend also raises the issues of how senior living providers can best take advantage of the evolution of at-home care to attract and retain residents, and maintain control over their operations while gaining financial upside. To my mind, these objectives can best be achieved through the shift toward a personalized, tech-driven, wellness-focused senior living model.

The growing case for wellness

When I’ve asked executives how senior living can woo older adults away from their residential homes, the most common answer is that providers need to tout the benefits of socialization.

But “socialization” has never been a particularly compelling value proposition to consumers, judging by senior living’s stagnant penetration rate of around 10%, and the persistent findings — in survey after survey — that older adults want to age in place where they currently reside. As at-home care becomes even more robust and easier to access, “socialization” is going to be even less effective as a selling point, even though Covid-19 dramatically revealed its importance.

Instead, senior living providers need to offer a much more robust value proposition to consumers, and I believe that the most compelling version of that comes from providers that are finding ways to offer personalized wellness, informed and supported by technology. Socialization is just one element in this model, which offers residents a multi-faceted plan meant to extend and improve their lives — what Juniper Communities CEO Lynne Katzmann refers to as their “wellspan.”

Such a model speaks to the rising consumer interest in wellness. The global wellness market was worth $1.5 trillion in 2021, with projected annual growth of 5% to 10%, according to McKinsey research. A survey of about 7,500 consumers across six countries found that nearly 80% of respondents said wellness is important, and 42% considered it a “top priority.”

The personalized wellness model also enables senior living providers to play a larger role in value-based care. That’s because extending “wellspan” — through technology-driven wellness plans and integrated care models — lowers health care costs by preventing hospitalizations and other costly medical interventions. As Juniper, Lifespark and other wellness-focused organizations demonstrate, senior living providers can own Medicare Advantage plans and ancillary services businesses, creating ecosystems of care and payment to go “at risk” and reap the potential financial rewards.

Even if they do not launch their own health plans, senior living providers with a tech-driven wellness model should be collecting data showing their value to payers, which is needed if they have any hope of negotiating for fair financial rewards.

More concerted action needed

But even if providers have the right data, I’m becoming more pessimistic that senior living will thrive in a value-based health care system, unless there is more rapid and concerted action across the entire industry.

That’s because the health care sector’s giants are becoming even more gargantuan. Option Care and Amedisys executives said one driver behind their merger is that greater scale should increase their influence with managed care payers, hopefully yielding more favorable rates. Consider that Amedisys and Option Care individually dwarf basically every senior living operator in business today, and yet they still believe they need to join up and gain more scale for a value-based future.

Granted, Option Care/Amedisys is more dependent on managed care reimbursement than senior living is, but senior living providers will be affected by the general push for scale that value-based models are driving across the health care sector. Health systems and payers also are getting ever-larger, with Kaiser Permanente’s acquisition of Geisinger as the latest case in point.

Kaiser Permanente reported $94.5 billion in revenue last year, and maintains a network of nearly 40 hospitals and 12.6 million insurance plan members, the Wall Street Journal reported. Geisinger reported about $7 billion in revenue last year and 600,000 health plan members, according to the WSJ.

And their combination is just the beginning of an even larger push. The concept is for Geisinger to be joined by other health systems under the Risant umbrella, with the goal to “expand access to value-based care.”

Transforming the delivery of care to older adults will be a key part of this push. Risant is being led by CEO Jaewon Ryu, who spoke to Aging Media Network about the future of aging care and services in our Vision Series. Here’s what he had to say in that 2021 interview, when he was CEO of Geisinger:

“What we’re focused on for the next chapter for Geisinger is to build clinical programs and take them to where the people are; whether that’s in the home or closer into the communities, in the clinic setting and otherwise, getting upstream of these clinical conditions so that before [someone] needs to be hospitalized or go for an ED visit, we’re able to address them in an easier environment.”

Geisinger already took steps in that direction by launching its 65 Forward primary care clinics, and began collaborating with Welltower and the REIT’s “independent living light” partner Clover Management, to provide health care to residents.

And of course, Kaiser and Geisinger are far from the only “payviders” to gain scale in recent years. In two other obvious examples, Humana acquired Kindred at Home and UnitedHealth’s Optum arm acquired LHC Group.

In other words, payers are getting more massive, in part by acquiring providers upstream and downstream of senior living. Senior living providers appear ever-smaller by contrast, which means less leverage with the payers.

I hear some providers talk about “partnering” with payers to gain increased length of stay and some other benefits; such talk often makes me think of an analogy in which insurance companies are sharks and senior living providers are remoras, the small fish that clean parasites from sharks while eating scraps of their prey. It seems to me just as likely that senior living providers are looking more and more like the shark’s victims — smaller fish that will be swallowed by the bigger ones.

The solution lies partly in scale. The combination of Discovery Senior Living and ISL — and the intentions of Coastwood and Lee Equity to further expand the platform — is an interesting development in the space, particularly if the platform’s ancillary services businesses expand and create a more integrated care system. The operator with the most scale, Brookdale, already has made an interesting move by selling 85% of its home health business to hospital system HCA — which I argued could set the stage for a larger value-based strategy. And groups such as the Perennial Consortium have brought together smaller providers to gain the scale necessary for meaningful participation in value-based care.

But so much of the industry remains fragmented and in disagreement over what a smart value-based strategy looks like for owners and operators. Some semblance of a more unified approach to value-based care is needed, I believe.

There already are moves in this direction; the most recent NIC conference basically was organized around the theme of population health, for instance, and NIC’s new fall conference focused on data sounds promising. Perhaps it’s time for senior living to mimic the skilled nursing industry, where the American Health Care Association hosted an entire population health management conference last year, and has on staff a VP of population health management.

I’m not sure whether any moves at the association level would actually make a difference, if providers remain so disparate in their views on the best path forward. But the sharks may be circling, and it’s time for the industry to come together in the interest of self-preservation.