Health systems increasingly seeing value of senior living, Welltower says

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Thomas DeRosa
Thomas DeRosa

Hospitals increasingly are seeing senior living communities as part of a solution to lowering their risk associated with older adults, especially those who are frail or have dementia, Welltower CEO Tom DeRosa told analysts participating in an earnings call on Wednesday.

“Senior housing was completely invisible to hospital systems. Why? Because it's outside the reimbursement framework,” he said. “But increasingly, these systems need to see senior housing as part of effective healthcare delivery networks, because the people who live with us are the largest-risk population for those health systems. They are seeing how our sector can help them manage that risk.”

DeRosa's remarks came as the Toledo, OH-based real estate investment trust announced a new partnership with Johns Hopkins Medicine, a Baltimore area academic medical center that includes hospitals, a medical school, suburban healthcare and surgery centers, and primary and specialty care outpatient sites.

Initially, Welltower and Johns Hopkins said in a statement, the collaboration will focus on initiatives involving quality outcomes in assisted living and memory care, educational programs for patients and caregivers, and the sharing of health and wellness and business expertise, best practices, research and information. The arrangement also will assess healthcare market opportunities and investments in infrastructure to deliver better care at a lower cost, they said.

“It is well-known that healthcare delivery is transitioning from an acute-care, hospital-focused model to broader outpatient, sub-acute, post-acute and senior care networks that can deliver better outcomes at lower costs,” DeRosa told analysts. “For this transition to be successful, real estate needs to have a seat at the table.”

Welltower plans to partner with additional major academic and regional health systems across the United States, he said.

“As they invest in building more advanced and robust outpatient networks, we intend to be their partner and connect our leading senior, dementia and post-acute care platforms to these systems to help them better manage their patient populations and provide them with a competitive advantage to grow market share and profitability across the healthcare delivery continuum,” DeRosa said.

The company also has had conversations with an academic medical center in New York City, Mercedes Kerr, Welltower's executive vice president of business development, told analysts. The arrangements with academic medical centers and health systems, she said, will be partnerships similar to those it has with senior living operators, not landlord/tenant relationships like the ones it has with the outpatient medical centers in its portfolio.

Kerr is leading the REIT's team in assessing other opportunities with Johns Hopkins Medicine across Welltower's seniors housing, post-acute care and outpatient medical portfolio and said that Welltower expects the partnership with Johns Hopkins to be a long-term one that will benefit the REIT's other partners.

It's not the first time the Welltower has connected senior living and acute care providers, she said.

“Welltower introduced one of its most successful memory care partners to one of its key patient medical tenants, which happens to be the leading health system in the region that they both share,” Kerr said. “The health system quickly realized that this expert in seniors housing could improve care outcomes for its patients suffering from dementia and Alzheimer's disease.”

The senior living operator and health system developed a referral relationship, she said, and also have worked together to create training modules for hospital staff and information resources for older adults in the area.

“Since the outset of their relationship in 2016, the two Welltower seniors housing communities that are in that market have increased occupancy by 200 basis points combined,” Kerr said. “The improvement added to an already-high occupancy level and can be tied directly to this alliance.”

Welltower said that its portfolio currently includes post-acute care, independent, assisted living and memory care facilities that care for more than 200,000 elderly residents as well as outpatient medical facilities that have more than 16 million patient visits each year.

The announcement of the partnership with Johns Hopkins comes as Welltower is reducing its holdings in post-acute care.

Tim McHugh, the REIT's vice president of finance and investments, told analysts that Welltower completed $2 billion in post-acute facility dispositions in 2016, decreasing its exposure to the post-acute realm as a percentage of its total portfolio net operating income by 750 basis points since Jan. 1, 2016. The move, he added, increased the private-pay share of total company revenue to 93%, the highest level in company history.

Shankh Mitra, senior vice president of finance and investments, noted that post-acute and long-term care properties now represent only 13% of Welltower's portfolio.

DeRosa, however, predicted that post-acute properties always will be part of the REIT's portfolio, even though assets subject to government reimbursements can be associated with uncertainty and volatility.

“We believe we know how to manage this volatility, and our shareholders can trust us to work hard to capture the value of remaining in the post-acute care sector even though, admittedly, the road can be bumpy,” he said. “Nevertheless, it is clear to us that major academic and regional health systems do require a post-acute care solution. Given that, we're exploring how we can best deploy capital side-by-side with these high-quality, strong credit systems to address this need.”

Welltower was one of three REITs (HCP and Ventas were the other two) and six senior living companies (Atria, Brookdale, Erickson, Elmcroft, Emeritus [now merged with Brookdale] and Sunrise) that provided an unrestricted gift in 2013 to healthcare policy researchers at Harvard Medical School and the Vanderbilt University School of Medicine to study integrated payment and delivery models in residential care facilities.

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