New approaches to dining, activities and revenue management will be keys to success for Five Star Quality Care communities in 2016 and beyond, company executives told those attending the Jefferies 2016 Healthcare Conference Thursday in New York.
“Food is such an important factor for our seniors,” Chief Operating Officer Scott Herzig said. Having already hired chef Brad Miller to advise the company on its food offerings in 2014, Newton, MA-based Five Star uses food to differentiate its Rehab to Home program from similar offerings of other senior living operators, he said. The company has converted skilled nursing units in three of its continuing care retirement / life plan communities to “extremely high-end private rehab suites” designed to appeal to younger Medicare beneficiaries, has two more conversions under way now and is planning two more for 2017, Herzig said. The program “has been a very successful program for us in our CCRC environment,” he said.
This year, Five Star will launch a new point-of-sale dining system in some of its communities, Herzig said. “Instead of looking at the menu and getting what I tell you is on the menu, you get to choose like you’re in a restaurant,” he added.
New wellness-related activities
Earlier this year, the company also started a new wellness-related activities program, called Lifestyle360, based on Maslow’s hierarchy of needs. “In this business, it really does all come down to programming,” Herzig said.
The program’s five dimensions include intellectual, social, physical, emotional and spiritual wellness. “We will have all of our buildings doing programming at least monghtly that emcopasses the five levels of wellness,” Herzig said, adding that the program will be pushed out to more communities over the next several quarters. “We’ve gotten some great feedback so far,” he said.
Regarding revenue management, Herzig said that competition in some of the markets in which Five Star operates “has given us an opportunity to … look at how we price our buildings and how we can be more nimble with our pricing.”
At 80 of its 274 communities, the company now reviews competitive data and pricing monthly rather than annually, he said, enabling Five Star to adjust rates more quickly in response to trends related to demand, occupancy and competition.
President and CEO Bruce Mackey told conference attendees that the company’s attention to food and activities is meant “to drive resident satisfaction and new resident referrals and ultimately drive occupancy.”
Turning away from SNFs
He also said that the company continues to move away from skilled nursing and more toward private-pay independent and assisted living as well as memory care.
“Over the last several years, we’ve really worked to simplify Five Star’s story by getting out of some businesses that were somewhat noncore but also heavily regulated and highly reimbursed by federal and state payers,” Mackey said, adding that the company has sold two inpatient rehabilitation hospitals, sold its pharmacy business and has reduced the skilled nursing facilities in its portfolio from 56 to 31.
SNFs today make up 8% of the company’s portfolio, he said, and 78% of the company’s revenue comes from private sources.
“We’ll always be in the Medicare and Medicaid business to some extent, but it’s going to be a smaller and smaller piece of our business as we continue to move forward,” Mackey said.
In the future, he said, Five Star will grow through community expansions and ancillary service offerings.
The company completed five expansions totaling 100 units over the past year, Mackey said. “Two of those were management deals, and three were either leaseholds or on our own balance sheet,” he said. A 100-unit expansion starting soon in Tennessee will be the company’s largest to date, he said, and Five Star also is planning to add a 30-unit memory care unit to an existing CCRC that it operates in Delaware, Mackey said.
The company is considering additional expansions for 2017, he said, adding, “We’d like to get a pipeline of 50 to 10 units per year on existing Five Star communities.”
Regarding ancillary services, the CEO said the company is expanding the number of clinics in operation via its rehab and wellness company. The Medicare Part B business is “a nice addition for our independent and assisted living communities where we have it,” he said. “We have about 70 today. We opened 10 last year, and we have another five that we’ve opened up this year so far, and we have another five in the pipeline.”
External growth for Five Star could come through new management or leasehold opportunities, Mackey said, noting that the company only wishes to acquire properties where it already has a presence. Later this month, if licensing is obtained, he said, Five Star hopes to assume management of a 163-unit senior living community in Alabama.
“We’re not taking over troubled properties. …We’re looking for well-run properties that are well-maintained that we can plug into our existing framework and run them from the get-go,” Mackey said.
At the end of 2017 or the beginning of 2018, he said, the company hopes to expand a 38-unit property in Georgia built in 2013 and acquired by Five Star in 2016. Occupancy is at capacity, Mackey said.