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Financing Implications for a Value-Based Approach in Senior Living

The ever-changing seniors housing landscape is transitioning to a value-based care model. Here’s what operators need to know when looking to finance this transformative approach.

In the rapidly evolving landscape of seniors housing and healthcare, the concept of value-based care is gaining ground as a transformative approach to healthcare delivery models. With the potential to improve outcomes and reduce costs, value-based care has become a hot topic across the senior living industry. Here’s what you should know about the value-based approach as an operator.

Understanding Value-Based Care

Value-based care, at its core, aims to reform healthcare delivery by optimizing outcomes in relation to the cost of services provided. Traditionally, the healthcare delivery system has been financially driven in terms of the amount of services being provided rather than in terms of value. Value-based care shifts the focus to the actual value delivered by the services.

Additionally, value-based care incentivizes providers based on the quality of service they provide to residents. For example, providers may be rewarded if a patient receives a higher rate of vaccinations for the flu or if wait times are lower in the fulfillment of service. In the context of long-term care, senior living facilities have resident populations that are using a high volume of healthcare services being delivered as a fee-for-service model. Value-based care puts the responsibility on the providers to ensure the residents receive the best quality of care possible. By transitioning from fee-for-service models to value-based models, there is financial incentive to reduce hospitalizations, enhance the well-being of residents, and deliver the highest quality of care possible.

The Value-Based Care Approach as a SNF Operator

Skilled nursing facilities have significant opportunities to save money and improve resident care through value-based approaches. Currently, SNFs have high hospitalization rates, averaging somewhere between 700 to 1,000 hospitalizations per annum. Within the general population for adults receiving Medicare benefits, the average hospitalization rate is closer to 300. Hospitalizations are expensive, costing residents thousands of dollars per stay.

By implementing primary care interventions and leveraging partnerships with accountable care organizations or Medicare Advantage plans, SNFs can reduce hospitalizations and achieve significant cost savings. However, the challenge for operators is ensuring that the financial benefits outweigh the costs incurred by the SNFs. This requires careful collaboration, risk-sharing arrangements, and alignment with primary care organizations that have value-based contracts.

For future information, listen to the VERSED podcast episode with Anne Tumlinson here.

Value-Based Opportunities in Assisted Living

While skilled nursing presents its own challenges, new opportunities for value-based care arise for assisted living operators. Assisted living communities can benefit from implementing value-based approaches to enhance resident outcomes and quality of life. The challenges of implementing value-based models in assisted living communities can be unique, but the financial risk is low relatively low.

“Assisted living is different. The challenges are really just persuading the population in your building to participate in whatever the program is. But there's no financial downside at all,” Anne Tumlinson from ATI Advisory explains in a recent episode of VERSED Podcast. “To me this is where the really exciting opportunities are because increasingly, the primary care organizations that are specializing in being in assisted living, they're expanding the way in which they can bring that value-based care to the building.”

By partnering with primary care organizations and other healthcare providers, assisted living communities can maximize care coordination, reduce hospitalizations, and improve overall well-being for residents.

Preparing for Value-Based Care

As a senior living sponsor or operator considering a value-based care approach, it’s important to be educated about the different solutions available and focus on having constructive initial dialogue with potential partners before jumping on board. It is critical to approach the transition to value-based care with a well-informed strategy and avoid rushing into partnerships without thorough evaluation.

According to Anne Tumlinson of ATI Advisory, operators have two primary choices when approaching the value-based care model. The first option focuses on improving care and performance without assuming significant risk, and the other involves becoming a population health manager by sharing risk and savings with primary care organizations and other partners.

Financing Implications for Value-Based Care

As an operator, it’s important to educate yourself and your team about value-based care models, potential partnerships, and the risk associated with implementing this new, transformative approach to healthcare. It’s also important to understand how pursuing a value-based care strategy can impact property-level financials and financing.

The successful execution of a value-based strategy should result in an increase in margins, whether through expense reduction and/or revenue enhancement. Minimizing expensive hospitalizations not only saves our healthcare system money, but also benefits property-level occupancy. Additionally, with higher quality of care and an increased focus on preventive healthcare, resident satisfaction should improve, decreasing unwanted resident turnover and aiding in resident recruitment and retention. And of course, a more satisfied resident population also assists in the recruitment and retention of staff, particularly nurses. Given our nation’s critical nursing shortage, becoming an employer of choice with a positive culture is as important to a facility’s bottom line as ever.

An operator not only needs to be able to execute a value-based plan, but they need to be able to concisely and accurately articulate that plan, particularly when seeking senior debt financing.

“We need to be able to clearly quantify the actual or projected results of a value-based plan when pursuing HUD or GSE financing,” shared Alison Lemle, VIUM Capital’s Chief Underwriter. “As the lender, we need to be able to tie each of the components of value-based care to how it is specifically improving cash flow, and therefore, debt service coverage. It’s important for the operator to work with us during the financing to help us accurately capture that cause and effect at the facility level.”

Finally, if a provider is not currently pursuing a value-based model, they should at least be able to communicate their rationale for not doing so, and why it is not necessarily in the property’s, and its residents, best interest. Like many things in healthcare, a value-based strategy is not a one size fits all solution.

For more information about value-based care and what this approach means for seniors housing and skilled nursing, check out the latest episode of VERSED Podcast with Scott Tittle.

Listen Here

If you are an operator looking for financing solutions to fund value-based care, connect with VIUM Capital.

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