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February 2008 issue
System With Varied Assets Focuses On LTC--
Benedictine Health System Reorganizes, Sheds Acute Care Operation
Since January, Benedictine Health System has focused only on long-term care;
its acute care interests have been moved to a new subsidiary of Essentia
Health.
...
Reinvent Your CCRC To Remain
Competitive--
The Evergreens Embarks On Its Second “Reinvention” In 10 Years
In its second “reinvention” in 10
years, The Evergreens in Moorestown, New Jersey, is focusing on services and
relationships, not bricks and mortar.
...
Q&A With Robyn Stone
Robyn Stone, Dr. P. H., executive
director of the Institute for the Future of Aging Services, talks about the
workforce crisis facing senior care providers.
...
Recent Not-For-Profit Transactions
and Sales
We detail some deals that closed in
the last few weeks.
....
Emerging Trends and How They
Impact the Senior Market
Focus on these 10 areas of concern, based on emerging trends, when
considering a repositioning project.
...
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Business.
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Steve's BLOG on Senior Care
Companies Mentioned in this issue:
February 2008
Symbols
3i Group p11
A
Abingworth Management p11
Accentia p15
Access Pharmaceuticals p15
Accuro Healthcare Solutions p4
Adept Technology p7
Advancis p12
Advantage Capital p11
AgeChem Venture Fund p10
Aisling Capital p10
Akela Pharma p3
Alder Biopharmaceuticals p10
Allscripts Healthcare p7
Alta Partners p10
Amelia Trace p8
American Capital p10
AppTec Laboratory p7
Aragon Surgical p10
Aravis Ventures p3
Arbor Surgical Technologies p11
ARCH Venture Partners p3
Arcion Therapeutics p11
Ardea Biosciences p4
Ark Therapeutics p7
Artes Medical p12
Ascension Orthopedics p11
Aspen BioPharma p4
Associates p10
AthenaHealth p4
Avalon Laboratories p10
B
Bay City Capital p10
Bayhill Therapeutics p3
Benvenue Medical p11
BG Medicine p3
Biodel p4
BioSpecifics Technologies p15
Bridge Laboratories p11
Brooke Private Equity p11
BTF B.V. p10
C
CafeScribe p16
Calistoga Pharmaceuticals p11
Caprotec Bioanalytics p11
Cardiovascular Systems, Inc. p3
Cardium Therapeutics p15
Cellectar p11
CellzDirect p7
Cerebellum Automation p7
Channel Medical Partners p11
Chengdu Tianyin Pharmaceutical p14
Children’s Hospital of Pittsburgh at UPMC p16
CHL Medical Partners p14
Circassia p11
Citi p3
Clarus Ventures p11
Clinipace p11, p12
CMEA Partners p11
CMEA Ventures p3
CMS p7
CoGenesys p7
Confirma p11
Cowen Group p12
Cowen Healthcare Royalty Partners p12
Creadev p10
Creathor Venture p11
CyberHeart p11
D
De Novo Ventures p3
Deerfield Management p12
Delphi Ventures p10
Deutsche Bank Securities p3
E
Elekta p7
Eli Lilly and Company p3
Emergent Growth Fund p12
Emergent Medical Ventures p11
Empire Asset Management p15
Endeavour Vision p10
Endotis Pharma p10
EnzySurge p11
Extended Care p7
F
Fidelity Asia Ventures p11
Fidelity Biosciences p10, p11
FinTech Laboratories p7
Flagship Venture Partners p11
Fluke Venture Partners p11
Follica p11
Food and Drug Administration p16
Frazier Healthcare Ventures p11
Frontier Capital p11
G
Galpharm Healthcare p7
Gelesis p11
Genizon BioSciences p10
Goldman, Sachs p11
Gottlieb Memorial Hospital p8
H
H. Lundbeck A/S p7
H.I.G. Ventures p10
Hatteras Venture Partners p11
Health-E-tips p16
Heidelberg Innovation p11
Heraeus Holding p7
I
IBB Beteiligungsgesellschaft p11
ImmuneRegen Biosciences p15
Inclinix p11
InnerCool Therapies p15
Integral Capital Partners p10
Intel Capital p10
InterWest Partners p11
Invesco Perpetual p11
Invitrogen p7
IonGate Biosciences p11
J
JW Medical Systems p7
K
Kearny Venture Partners p10
KfW p11
Kleiner Perkins Caufield & Byers p10
Knopp Neurosciences p11
Kramer Capital Partners p11
KRC Research p16
KV Pharmaceutical p7
L
Latterell Venture Partners p3
Lazard Capital Markets p3
Leerink Swann p3
Lifecore Biomedical p7
Lincoln Funds p11
Loyola p8
Lymphatix Oy p7
M
MAKO Surgical p4
MC Life Science Ventures p10
MedeFile p15
Medtronic p11
MiddleBrook Pharmaceuticals p12
Mohr Davidow Ventures p10
Montreux Equity Partners p3
Morgan Stanley p3
MPM Capital p11
N
National HealthCare p8
Needham & Company p3
New Enterprise Associates p11, p15
NIF SMBC Ventures p10
North American Scientific p14
NovaMed p8
NovaMed Pharmaceuticals p11, p12
Nura p3
Nymox Pharmaceutical p14
O
Odyssey HealthCare p8
Omeros Corporation p3
ONSET Ventures p10
OrbiMed Advisors p10, p11
Orexigen p3
P
Pacific Growth Equities p3
Par Pharmaceutical p7
Paul Capital p12
Paul Royalty Funds p12
Peptimmune p11
Pervasis Therapeutics p11
Pfizer p7
Pharmos p15
Phenomix p4
Polaris Venture Partners p11
Pomeroy Health p8
Primera Biosystems p11
ProtAffin Biotechnologie p11
Psilos Group p10
Public Citizen p16
PureTech Ventures p11
R
Raygere p14
Renaissance p8
Rexahn p15
Rigel Pharmaceuticals p3
Rodman and Renshaw p14
rontier Capital p11
Royal Senior Care p8
RxElite p7
S
Saturn Partners p11
Scale Venture Partners p10
Seattle Genetics p3
Senexis p11
Sepracor p7
Seventure Partners p10
Sevin Rosen Funds p10
SF Capital Partners p14
Sinovac Biotech p15
Sofinnova Partners p10
Sonexa Therapeutics p10
St. Mary’s Holston Health p8
STAAR Surgical p4
Stanley Medical Research Institute p3
Sterling at Aventura p8
Susan G. Komen for the Cure p16
Susan G. Komen for the Cure Advocacy Alliance p16
SV Life Sciences p11
Synecor p11
Synovis p7
T
Targacept p3
Telegraph Hill Partners p11
Tempo Pharmaceuticals p11
Tethys Bioscience p10
Teva Pharmaceutical p7
The Buying Group p8
The Entrepreneurs Fund p11
The Perrigo Company p7
Three Arch Partners p11, p14
Tissue Repair Company p15
Titan Pharmaceuticals p4
TransEnterix p11
Transoma Medical p4
TriPoint Global Equities p14
U
U.S. Venture Partners p3
UHS-Pruitt p8
Ulthera Therapeutics p11
United Investments p11
V
VenRock Associates p15
Venture Investors p11
Ventures West p10
Versant Ventures p11
ViOptix p11
VisCorp p14
VistaCare p8
W
Wellcome Trust p10
Welsh Carson Anderson & Stowe p4
Whitley Place p8
WRF Capital p10
WuXi PharmaTech p7
Y
YA Global Investments p15
Yorkville Advisors p15
Z
Zogenix p11 |
Reinvent Your CCRC To Remain
Competitive--
The Evergreens Embarks On Its Second “Reinvention” In 10 Years
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The Evergreens
in Moorestown, New Jersey, is embarking on its second "reinvention" in 10
years. This time, though, the emphasis will be on services and
relationships rather than on bricks and mortar.
Historically connected to the
Episcopal Diocese of New Jersey, The Evergreens began life in 1919 as
the Episcopal Home for Indigent Widows of Good Repute. About 50 years ago,
the relatively sleepy nursing home and personal care complex moved to a
32-acre site in Moorestown. By the late 1980s, when the home was running
low on money, its board considered three choices: 1) close; 2) merge or be
acquired; or 3) "reinvent" the facility, which was determined the most
prudent. In 1994, the home was reinvented as The Evergreens, a CCRC with
200 new independent living units and a reconfigured 100-bed health care
area.
"They built extraordinary apartments
and amenities for the time, but health care was only slightly modified,"
says Rev. Douglas C. Halvorsen, president and CEO, who was not involved at
the time. He joined the board in 1994 and became president and CEO of the
facility in 1999. "The expectation was that the project would continue in
the mid-term and that health care would be redone," he adds.
Interestingly, that "reinvention"
occurred in the context of significant apprehension about the overall
viability of the relatively new CCRC product and great concern about the
financial risk to the diocese. After much heated debate and painful
discussion, according to Rev. Halvorsen, an organic separation between The
Evergreens and the diocese occurred. "That was a very wise decision and,
in fact, visionary," he observes. "The diocese found itself in extremely
difficult circumstances a few years later, and the resources of The
Evergreens could have been tapped. So it was an extraordinarily gracious
gift that, paradoxically, protected the other entity."
When and why to renew
Rev. Halvorsen insists, by the way, on
using the word "renewal" or "reinvention" instead of "expansion," which is
a loaded word that, as he puts it, will set off alarms in any local
community. "Strike it from your vocabulary," he suggests. "Renewing or
reinventing, used as verbs or nouns, adequately address what we’re trying
to do."
So when do you renew? Rev. Halvorsen
divides CCRCs into two groups: those that recognize early enough that they
need to renew and those that recognize it too late. "It’s not a question
of whether you need to renew," he says. "It’s a question of whether you
recognize it at a strategically acceptable time."
The truth is that you must renew long
before you need to do it; otherwise, it will be too late. "You really
determine the timing," he suggests, "by comparing your current performance
to industry benchmarks. But planning a repositioning project is no
different from anything else that we do. It involves a plan. It
incorporates continuous feedback. And it requires the guts to pull the
trigger."
And why must you renew?
You’re either experiencing external threats to your brand — competition,
performance, changing customer needs — or your internal values are
changing and your context of care doesn’t match your quality of care. "The
most challenging thing for me was just to make the decision that it was
time to jump," says Rev. Halvorsen. "You don’t want to underplan, but you
also don’t want to overengineer your decision."
Actuarial input – capital replacement
assumptions
Believing that no CCRC can survive without
undertaking a fairly substantial reinvention every 10 years and a dramatic
redo every 20 years, Rev. Halvorsen asked Dave Bond, managing partner of
CCRC Actuaries, LLC, why his financial modeling was based on a
40-year life expectancy of the facility.
"Actuarial valuations are based on
projections of resident life expectancies, health care utilization, and
financial assumptions," Bond told him. "Capital replacement is really a
huge assumption in terms of actuarial calculations. The assumption of a
40-year replacement for a CCRC is well-founded in the actuarial
profession, with regulators, and in the U.S. Tax Code, even though we all
know that carpeting, refrigerators, and so on need to be replaced every 10
years. The question remains whether it is accurate to assume that the
facility will be operational and marketable over a 40-year period."
In an actuarial pricing analysis, you
develop the expected margin of today’s contracts similar to insurance
policy pricing methodology The expected margin is developed by projecting
and discounting to today the expected revenues and expenses associated
with the contract. The traditional life-care contract offered by The
Evergreens, which represents about 85% of its contracts, has an expected
profit margin of 12.7% after discounting all the revenues and liabilities
at the date of entry. "We generally recommend that the profit margin be in
the 10% range," says Bond. "Looking at a 30-year scenario instead of 40
years reduces the actuarial pricing analysis to 9.7%, which would be
slightly below our recommendation of a profit margin of at least 10%," he
continues. "And under a 20-year scenario, which is closer to the truth for
The Evergreens, we see the beginning of a pricing issue at a 5% margin,
which definitely would be lower than I would recommend."
Nevertheless, members of The
Evergreens board decided to take on the renewal project after 10 years
and, over the last seven years, have positioned the organization
financially — through a combination of expense control and precise revenue
increases — to be able to manage the project without undue distress for
its residents.
"If you look at CCRCs that have been
built in the last two or three years, they are a lot different from those
built 10 years ago and dramatically different from those built 20 years
ago," concedes Bond. "When we were doing the feasibility work to create
The Evergreens 15 years ago, we never would have imagined that the
facility would take on $70 million in debt in 2008 or 2009 for a renewal
project. The original repositioning project cost only slightly more than
half that amount without adjusting for inflation."
Quality of care vs. context of care
Rev. Halvorsen
distinguishes between the "absolutely the best" quality of care and the
"antiquated, tired, and institutional"context of care at The Evergreens.
"One of the challenges that really gripped us by the late 1990s, when we
were only 15 years old, " he says, "was that our quality was
extraordinary, but our context was abysmal."
The Evergreens now operates within
two driving values to improve its context of care, according to Rev.
Halvorsen. "One is that we operate as a community, not as an institution,"
he says." Our goal is to transform anything that has an institutional
quality about it before it transforms us." The second driving value is for
The Evergreens to become a center of excellence for senior services in the
area, an initiative that will impact every service that the facility
provides. With this upcoming renewal, targeted for completion in 2011,
every component of the facility will reflect those two values.
"We’re looking to stabilize and
extend our existing brand in terms of our position in the marketplace," he
adds. "We have a sense of where we want to go but have some real holes in
our knowledge base and our skill sets. I don’t know anything about
managing construction, for example, but I do have a vision for where our
community needs to go. So we’re putting together a team to plug the holes
in our weaknesses and address our strengths without being redundant."
Blurring the boundaries
Rev. Halvorsen envisions a reinvented
campus as the mothership from which the organization will spin off
services and relationships. "The bricks and mortar have to be in
absolutely top shape, very appealing, and technologically advanced," he
says, "but the mothership can’t generate revenue or referrals or
relationships. So we are aggressively attempting to blur the boundaries.
We want to destigmatize and normalize everything so that movement around
the campus will be absolutely fluid and permeable. I hope people can walk
around the campus and not be able to determine the different levels of
care based on aesthetics or how things look or feel. I want every area to
look and feel like home."
One specific objective is to develop
new sources of revenue by 1) redirecting the spending of existing
residents and staff to keep it on campus, and 2) generating new customers
(visitors, family members, and vendors) for the new products and services.
"Our architect has laid out one of
our health care buildings to look like a high-end hotel lobby with branded
shops, child care, pet support, wellness areas, etc. We want to tie the
services and offerings to recognizable icons — a local hair salon or bank,
for example."
Building strategic relationships with
vendors is critical for the long haul, according to Rev. Halvorsen.
"Everyone — the vendor, the customer, and The Evergreens — benefits when
you’re able to leverage relationships," he adds.
"To put it bluntly," he says, "I want
our residents and the people coming through The Evergreens to spend their
money here. We don’t want a dry cleaner on site, but if a dry cleaner
wants to staff a kiosk in our lobby a few days a week, that would be
great. And when the kiosk isn’t being used by the dry cleaner, it could be
used by a travel agent or a bank or another service."
Reviewing the numbers
This new renewal project
will have a minimum number of apartments to "float the financial boat" —
that is, maximize revenue while minimizing the impact on the overall
campus experience. The plan is to increase the number of independent
living apartments to 220 (from 200) and continue to have 100 health-care
apartments. "That’s a critical distinction," says Rev. Halvorsen.
"We’re completely throwing out the concept of ‘beds.’ The health-care
apartments will be high-quality apartments that happen to have
associated health care services."
The Evergreens undertook a $45
million refinancing in September 2007 to lock in a more favorable rate
(5.66%) for existing debt and provide some additional working capital.
"The refinancing also positions us to
do a full financing for the new project," says
Rev. Halvorsen, "which we’re targeting at just below
$70 million." The refinancing structure also
backloaded principal, so that when the new financing is added in 2009,
debt service over the entire 30-year period will be flat.
"We’re not well endowed," says Rev.
Halvorsen, "and our fund balance of under $40 million is really a reserve
for future obligations. But in the last couple of years, we have priced
our product commensurate with our quality. We attract professional people
with high assets and low income and union retirees with low assets and
high income (pensions). So the market happens to be there for us."
Lesson learned
"Our concept is to renew our community
on a six- to ten-year cycle," says Rev. Halvorsen, "but I believe our
future is in services and relationships, not bricks and mortar. Clearly,
we’ve got this anachronistic concept of the life expectancy of the
buildings, but will anything other than the bones be around for more than
20 years? We believe that doing a radical renewal is not a choice. The
risk is in not doing it. If you envision a product that people will value,
they’ll buy it. And if you underprice it and don’t maintain it, you’ll get
what you deserve."
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