Masonic Health Systems of Massachusetts: Right Place, Right Time
When the Grand Lodge of Masons of Massachusetts hired David Turner in 1999, it owned and operated a rather unspectacular “old folks home” in the central Massachusetts community of Charlton. The facility had 100 skilled nursing beds and 69 licensed, intermediate care beds.
The masons were also sitting on a lot of money — a $120 million endowment, plus $500,000 to $1 million in annual gifts and contributions — and almost 470 acres of land.
Nevertheless, the Charlton facility was operating with a budgeted $3.5 million to $4 million annual deficit. While the endowment was earmarked to care for the residents, the home’s board recognized that spending $4 million a year on 169 people was not good economics. Also, the physical plant was aging, new CCRCs were emerging, and the board had begun to talk about considering some type of expansion.
The Grand Lodge of Masons of Massachusetts has about 35,000 members, plus their wives and widows. In 1999, the nursing home had a two-year waiting list, the average age of the fraternity was 67-68 years, and members who needed help but couldn’t get into the home were pressuring the board. So the board members said, “Let’s do something about it.” That’s when they hired Turner to initiate strategic planning.
Survey says…
In a 1983-84 survey of fraternity members, only 15% of respondents indicated that they would consider Charlton a desirable location to retire. As part of his strategic planning initiative, Turner brought in Retirement Living Services to help put together a new survey to assess the current viability of a CCRC product in Charlton. “We also surveyed the fraternity on the bigger question,” he says, “as to whether senior care was, indeed, part of the mission of the Grand Lodge of Masons of Massachusetts.”
About 50,000 surveys were mailed to Massachusetts masons and their widows. Of the 11.5% who responded, more than 98% indicated that providing senior care is, indeed, part of the fraternity’s mission. In addition, 85% thought Charlton was a desirable location for retirement — exactly the opposite of the survey results 15 years prior. “That gave us the mandate to go forward,” says Turner. If the fraternity had said ‘no’ to either question, the organization probably would have sold everything and gotten out of the senior health care business altogether.
Updating the mission, the board, the organization
Turner and the board then reviewed the organization’s internal structure to figure out how to provide the necessary flexibility for future growth and expansion. “We had to adjust our mission to reflect changes in our industry and the opinions from our survey,” he explains. “Simultaneously, we had to adjust our corporate design to coincide with the goals of that mission and our strategic plan. We engaged legal counsel to help create a new structure that would allow us to expand beyond a single facility and reach beyond the fraternity.”
Nowadays, very few not-for-profit organizations, whether religious or fraternal, serve only their own constituency — including the masons, whose hospitals treat kids other than the children of masons. “We are a charitable organization and need to take care of anyone who needs us,” says Turner. “Getting the board to understand and fully accept that, though, was a big part of the strategic planning effort.”
Reviewing and refocusing the functions of the board was also critical to the organization’s future growth. For the first time, non-masons were allowed on the board and term limits were adopted. Most importantly, board members accepted their role as planners and stayed out of operations. “But we had to emphasize that continually,” says Turner. Lastly, the board understood the need to stick to the strategic plan.
Ultimately, a strategic plan was developed that focused on expansion, with a corresponding 10+-year financial projection that provided metrics for these assumptions:
• A major expansion into senior care,
• Replacement of the skilled nursing and intermediate
care facilities,
• Adding independent living, and
• Aggressively enbracing home health care.
And in 2001, the Masonic Health System of Massachusetts (MHS) was born, with David Turner as its president and CEO of four separate divisions: Corporate, Overlook Masonic Health Center (the original Charlton facility), The Overlook Lifecare Community (independent living on the Charlton campus), and Overlook VNA & Hospice Services (home health care delivered throughout Massachusetts).
Expanding into home care…accidentally on purpose
With the new survey results clearly showing demand, the board was comfortable laying plans to turn the Charlton campus into a Type A lifecare community. “We first submitted a determination of need to rebuild the nursing home and rest home, a $44 million project, while we simultaneously embarked on the presale process for the $72 million, 219-unit independent living project,” Turner explains. “But we recognized the need to get into home health care. Because no matter how we rebuilt the home or added independent living to the campus, that would only involve a few hundred people. With 35,000 masons in the fraternity, plus their wives and widows, we realized that we had to get into home health care.”
Out of the blue, an opportunity arose in May 2000 to pull Mariners Home Care out of bankruptcy. “We negotiated through the court to pull three provider numbers out of bankruptcy without any successor liability,” says Turner. “We took the staff and patients, as well. We paid a small amount – a couple of hundred thousand dollars in associated legal fees — so it was a pretty good deal.” Mariners Home Care had operations in central Masssachusetts, the Cape, and the New Bedford area, so that acquisition provided significant extra coverage.
In January 2002, MHS acquired Professional Home Care of Western Massachusetts, a small, private home health care company operating out of Springfield, in a straight buyout. “That got us into the western part of the commonwealth,” says Turner. The following April, MHS acquired Managed Home Care, which had been a major competitor in New Bedford, by taking it out of Chapter 7 bankruptcy. “We basically got that for free,” he notes, “and it nearly doubled the area we cover.”
Most recently, in July 2005, MHS took over Harrington Home Care & Hospice. “We now cover about 50-60% of Massachusetts,” says Turner.
The financing
Despite its enviable position in terms of cash on hand and annual revenues, it made sense for MHS to borrow — a concept not even considered in years past. The board had always preferred a pay-as-you-go basis. MHS first borrowed $5 to $6 million in seed capital from its own endowment to start its expansion into home health care. Then, the first outside financing was a $44M tax-exempt bond issue for rebuilding the original facility and building the independent living project. The financing also included a $37 million construction loan from Sovereign Bank, $10 million of intermediate debt, about $15 million in long-term financing, and $7.5 million in subordinated debt that MHS put in itself.
The funding for the acquisitions also came from the endowment, which loaned the money to its sister entity. “The endowment is still earmarked for the home,” says Turner, “but lending the seed capital for the expansion is just an investment opportunity that is not much different from investing the funds elsewhere. Our new corporate structure allows us to do that, and we executed loan documents between the two entities.” The endowment and the home have separate boards.
The endowment remains at about the same level today as in 1999 — $120 million — and earned about 15-16% in income last year. On the $44 million bonds, 3.8% is the highest interest rate that MHS has paid. And on the independent living financing, the highest interest rate is about 5.7%.
“Having the endowment allows us to take a long-term approach and accept a longer payback,” says Turner. “And if there’s a downturn in the markets, we can pay off a portion of the debt. So when we talk about expansion and growth and acquisitions, we’re not thinking about improving this year’s bottom line. We started in 1911 and want to be here in another 100 years.”
Home health care — not a magic pill
“The big lesson that I learned from this experience,” Turner says, “is that getting into the certified home health care business is a huge undertaking. It requires planning, infrastructure, and management, as well as the appropriate corporate structure. In that sense, it’s no different from building a CCRC from scratch.”
Home health care may not have tangibles such as buildings but, for MHS, it involves taking care of 1,700 patients.“You need a lot of infrastructure — billing, clinical, information technology,” Turner says. “You need offices — we’re renting seven or eight sites — and a lot of people. Instead of delivering services in a very controlled environment, we’re sending caregivers into the patient’s home where we can’t easily monitor what they’re doing. So we have huge transportation expenses and very significant worker’s comp and liability issues.”
So it’s not a magic pill. Getting into home health care is a major expansion, with the payoff several years out. It requires a commitment to growth. “A provider needs 1,100 to 1,300 patients to get to breakeven in certified home health care.” says Turner. That’s a lot of people.
“My recommendation to a small provider looking to generate additional revenue in this arena would be to partner with a big VNA or run just the private duty portion of it — although it’s just a matter of time before states start regulating that, too.” MHS does, in fact, have a partnership through which it provides home health care services that an outside CCRC brands with its own name.
Next steps
So MHS still has its 470 acres of land, its $120 million endowment, and a continuing revenue stream of $500,000 to $1 million a year in gifts and contributions. It has a rebuilt nursing home, a new independent living community, and a profitable home health care presence throughout most of Massachusetts. It has a significantly expanded mission statement and a reorganized corporate structure. And it has a financial plan in place for the next ten years or so.
“We plan to divide our home health care into three divisions: private duty home health care, certified home health care, and a hospice program,” Turner says. Right now, the majority of the home health care revenue comes from the certified side of the business. Hospice services are only run from the Charlton location, but Turner wants to expand that to other locations, as well.
“We’re also looking at a few other things,” he adds. “I’m looking at developing facilities on the north and south shores and perhaps in the metro-west and western parts of Massachusetts, whether through acquisition or full development from green field up. On the home health care side, we’re also looking to grow through either acquisitions or market growth. I would like MHS to have much broader coverage across the commonwealth.”
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