Solera CEO: Senior Living Operators Must Embrace New Models to Succeed in Value-Based Care
Solera Senior Living CEO Adam Kaplan sees a bright future for senior living operators embracing value-based care, but he believes the industry must evolve care models to maximize those opportunities.
In the coming years, Kaplan envisions a care ecosystem that will “ultimately evolve” into a hybrid model of in-community care and virtual care.
“The care model, that’s going to evolve tremendously. To achieve better outcomes — lower ER visits, reduced hospitalizations, and decreased long-term care utilization — you need a robust care model, the right high-performing partners, and data that clearly demonstrate these benefits,” Kaplan said in a recent episode of the Senior Housing News Transform podcast.
But many challenges lie ahead as senior living operators consider growing value-based care offerings to improve health outcomes of residents. Key among those headwinds is getting capital providers on the same page as operators in understanding the often-longer timelines associated with value-based care adoption compared to a typical real estate investment cycle.
“Value-based care, with its uncertain financial benefits, falls outside the risk profile many real estate investors are comfortable with,” Kaplan said during the podcast
In the last 12 months, Solera has grown its average occupancy rate, with net operating income improving as wage growth has stabilized and staffing challenges in operations begin to moderate.
Going forward, Kaplan said Solera would seek out value-add acquisitions to its senior living portfolio, along with expanding its third-party management operations.
The company is seeking to expand its presence in the Washington D.C. metro area, with a fourth Solera community soon to open there.
Highlights from Kaplan’s podcast appearance are included below, edited for length and clarity. Subscribe to the Transform podcast via Apple Podcasts or SoundCloud.
On Solera’s operations in 2024:
I spent some time reflecting before our call and revisited the predictions I made at the beginning of this year. One of my predictions was that we need to shift our thinking to thrive in 2025, not just survive. I’m pleased to say that we’re further along that path than I would have expected as we entered 2024. This progress is largely due to the adversity we’ve faced as an industry over the last few years, which many associate with 2020. However, I’d argue it started earlier, in 2019, when we were already dealing with oversupply and the influx of inexpensive capital into commercial real estate. This led to a significant number of new units being delivered ahead of the demand wave.
However, in the last six to 12 months, we’ve seen significant improvements. Occupancy has grown, revenue has increased, wage expansion has stabilized, and some of the day-to-day pressures, particularly clinical demands that caused burnout and fatigue, have eased. As a result, the climate is much more tenable. For the first time in a long while, we’re not only seeing operational wins but also some financial successes. These validate that the decisions we’ve made along the way were the right ones for all stakeholders: Residents, families, and our team members.
For companies that didn’t overextend themselves during the last cycle, that were thoughtful about their growth, played the long game, and invested in their infrastructure, this period is proving rewarding. We’re now in a phase of expansion, with many interesting growth opportunities, which are a direct result of good decision-making over the past five years.
So, as I predicted, we should thrive in 2025. And although the capital markets environment remains challenging, I believe that good operators, real estate investors, and assets in strong markets will be able to access debt financing, refinance, and participate in the growth opportunities we’ve been anticipating for years.
On near-term growth plans:
For those who aren’t familiar with Solera, in our early days, we focused on development, specifically building in high barrier-to-entry locations and creating Class A properties with a more contemporary design and a strong emphasis on hospitality. We also leaned heavily into technology to enhance the resident experience.
Today, however, we’ve refocused our growth strategies on three primary areas: Acquisitions, third-party management for ownership and management platform acquisitions.
Within acquisitions, we’re concentrating on two types: Core plus and light value-add. We’re intentionally avoiding very distressed deals. While those opportunities can make financial sense purely from an investment perspective, we’ve realized they can put a significant strain on the management company. These situations often require an outsized number of resources to turn the asset around, especially when clinical or regulatory issues are involved. Problems quickly become your own, whether you’re managing a new acquisition or taking over management for an investor. It doesn’t take long before those inherited problems become your responsibility.
Our focus is on properties that are architecturally relevant, well-designed, located in strong markets with good underlying demographics, and either performing well or have a clear path to stabilization. For example, a property may be managed by an operator that grew too quickly or expanded into a geography where they had no prior presence. In some cases, it might be that a property was a third-party management deal outside of the operator’s usual joint venture model. Other scenarios might involve motivated sellers dealing with debt maturity, fund maturity, or simply wanting to exit the senior living sector after a poor experience.
Where Solera’s growth could take place next:
People don’t necessarily think of Solera as a Denver-based operator anymore. Instead, they see our geographic footprint and recognize that we are likely to succeed in markets close to where our senior operations team members are based. The only market where we are proactively trying to expand is the D.C. area.
Currently, we have three properties there, soon to be four; and Raleigh is about a five-hour drive away. We’re also working on an acquisition in Pennsylvania, a market with good demographics, high density, and consumers who are educated and willing to pay for a better product; which aligns well with our brand competency.
Outside of that, we remain geographically agnostic, pursuing the best opportunities that align with our brand. In addition to acquisitions, we also offer third-party management services for institutional investors with experience in the space. These investors understand the business, so when they acquire a property or change management, they have realistic expectations about the property’s performance and what a new operator can bring to the table.
Another active strategy is acquiring platforms. We are currently in negotiations on one and are pursuing a few others. These opportunities are interesting because they often involve a high-quality platform where the founder doesn’t have a succession plan. This makes sense in senior living, a sector that has struggled to attract high-quality talent. Most talent is drawn to the capital side of the business, the advisory side, or even the vendor side, which does a great job of attracting talent.
Operations is a challenging path, and compensation often doesn’t align with the difficulty of the work. As a result, many operators, who were great entrepreneurs and launched companies at the right time, have failed to develop succession plans. They may be experiencing burnout or fatigue and don’t want to go through another cycle. They seek a transition where they know their people will be in good hands, there is cultural alignment, and the commitments they’ve made to their limited partners will be honored. An operator like us, with a similar business philosophy, can carry on their legacy.
There are also some opportunities in the distressed category, involving platforms that grew too fast and overextended themselves. We may consider these, but they are less likely to align with our strategy compared to the high-quality platforms. For those, it feels like an honor to carry on the founder’s legacy and take the platform to the next generation.
On value-based care:
A few years ago, we decided to better integrate and coordinate healthcare services within our buildings. We began by evaluating our options and initially considered partnering with a Medicare Advantage plan. However, we realized that convincing our residents to switch their payer would be challenging.
One of our assumptions was that, while Medicare Advantage covers about 50% of the Medicare population, in our buildings, located in primary or large secondary markets with more educated and wealthier clientele, the actual percentage of residents on traditional Medicare would be significantly higher. Many of our residents had not transitioned from traditional Medicare to Medicare Advantage.
We explored other options and decided that the best approach was to align with Curana Health, a provider that offers Medicare Advantage plans as well as an ACO Realizing Equity, Access, and Community Health (REACH) model. We were particularly interested in ACO REACH because it is payer-agnostic, making it easier to encourage our residents to switch providers rather than payers. We launched our first in-community primary care clinic at The Reserve in Austin, Texas, and later expanded to our building in Evanston, [Illinois].
We have found that it is still challenging to achieve attribution to an ACO. From conversations with others in the field, I’ve learned that this model has seen more success in rural markets than in urban ones. In urban markets, high-performing primary care providers are already deeply engaged in the community, while in rural areas, residents often have less interaction with primary care providers. This makes the value proposition of a group like Curana much more compelling in rural settings.
In buildings like those in Evanston or Austin, incumbent providers can see Curana as competition and quickly adjust their model to retain residents and attract new ones. For example, they might increase the frequency of visits from a nurse practitioner from one or two days a week to four days a week. While this competition benefits residents and their families by driving improvements in care, it also creates challenges in promoting adoption of the preferred provider and achieving attribution. As a result, not all residents sign up for the ACO or choose to work with the new primary care provider, leading to mixed results.
Despite these challenges, I’m optimistic about the potential as this model evolves. Currently, we offer a primary care provider who is an expert in caring for high-needs seniors and provides an onsite presence. I believe that the care model will ultimately evolve into a hybrid of in-community and virtual care. This is crucial in senior living, where it’s necessary to provide nurse practitioner and primary care oversight not just during the day but especially in the evenings and overnight when staffing levels may be lower. Historically, the default response has been to send a resident to the hospital, which we know is detrimental to everyone involved. It’s bad for the resident, the family, and the healthcare system due to the high costs. A typical hospital admission following an ER visit can cost around $20,000, making it a very costly event for the system.
On balancing capital obligations and value-based care goals:
That’s why the adoption of this approach is so slow. The care model, that’s going to evolve tremendously. To achieve better outcomes such as lower ER visits, reduced hospitalizations, and decreased long-term care utilization you need a robust care model, the right high-performing partners, and data that clearly demonstrate these benefits.
I strongly believe that in a community-based setting, we can influence both social and physical determinants of health more efficiently, making it a better care environment for seniors with high needs, compared to home care. While home care will remain appropriate for some, I believe the potential of community-based settings has been overlooked. With the integration of healthcare and careful tracking of outcomes, we can show that this setting offers lower costs and better outcomes.
The challenge is that real estate investors, who typically provide 90% to 100% of the equity in senior living assets, often have a shorter investment horizon of three to five years. Most investors in senior living are value investors, which means they focus on shorter-term gains, whether in development deals, acquisitions, or value-add investments. Longer-term investments are typically found in core or Core plus acquisitions, often led by REITs and private equity funds. I expect the senior living asset class to continue maturing, with core capital playing a stronger role in the next cycle.
However, most current capital is from value-add investors with a three- to five-year outlook. These investors want their investments to mature before the benefits of value-based care are realized. They also seek a risk-adjusted return, aiming for occupancy gains and revenue growth that exceed expense growth—risks that align with their capital.
Value-based care, with its uncertain financial benefits, falls outside the risk profile many real estate investors are comfortable with. Some private equity firms investing in senior living have experience in both real estate and traditional private equity.
These firms may be more willing to take on the incremental risk of value-based care if they believe the potential returns justify it. At Solera, we don’t have outside investors, allowing us to balance resource deployment and focus on daily execution to meet real estate investors’ expectations while positioning the company for the long term. I believe that by striking this balance, when we recapitalize value-add investors into a Core plus or core strategy, the next investor will place greater value on our portfolio properties, benefiting those who invest with us.
I believe there’s significant risk for operators or investors who don’t strike this balance. In the future, healthcare referral patterns are likely to favor those delivering the best outcomes. Ignoring this strategy could negatively impact occupancy rates. While this shift may not happen in the next two or three years, over time, referral patterns will likely favor providers who reduce ER visits, hospitalizations, and long-term care utilization.
I understand the challenge of striking this balance, especially for smaller operators or those stretched thin. With limited resources, particularly if you’re dealing with multiple crises, it can be difficult. That’s why we’re avoiding distressed situations—buying higher-quality properties with strong leadership, good culture, and minimal regulatory issues. This allows us to improve our operating model and focus not just on short-term results but also on achieving long-term goals.
On value-based care adoption in the years ahead:
In the short term, I believe we’re going to see more and more companies adopt some type of healthcare integration strategy, whether it’s service-based or value-based care. This could involve partnering with GUIDE, aligning with a primary care provider, collaborating with a payer, or working with a private equity buyer. That’s the first step. Then, you’ll need to ask yourself, “How do we drive attribution?” How do we get more people signed up, either for the payer or the provider?
To drive attribution, the care model will need to evolve. A couple of key points on that: First, it needs to be hybrid, combining both in-person and virtual care. You need to have 24/7 virtual care available. I personally believe it’s essential to integrate mental and behavioral health services, as many of our residents require geriatric psychiatric care. The best primary care providers will integrate behavioral health into their care models.
You also need to include remote patient monitoring so you can be more proactive in your care delivery. For example, by monitoring a patient’s resting heart rate or variable heart rate, you can detect if they’ve had a poor night’s sleep or if they have a respiratory issue like COVID, allowing for proactive interventions. Additionally, wraparound services are crucial, whether that’s chronic care management, principal care management, or programs like GUIDE. Being able to compensate service providers for proactively and routinely engaging with patients is important because primary care doctors can only do so much. The fact that there are other incentives available to help stay in front of patients more proactively is going to be part of this holistic picture.
I think you need to develop a holistic plan. The next step, which coincides with the previous ones, is to start tracking outcomes. You need to see how you’re doing. You might not like what you find, but you can’t fix what you don’t measure. Track key indicators like ER visits, hospitalizations, long-term care utilization, falls, and medication errors.
Once you know where you stand, figure out how to improve those outcomes.
Aligning with a provider, evolving the care model, tracking outcomes, and finding ways to positively influence those outcomes are where operators and ambassadors should focus over the next few years. Eventually, the financial benefits will follow. I believe this because senior living is better positioned than almost any other care setting to deliver the best health outcomes for a high-need senior population. Senior living can influence both social determinants of health and physical health, and we can do it more efficiently than other care settings.
So, get in the game. Don’t expect some significant fee-for-service savings check from your ACO in the next year, or a big check from fee-for-service dollars. Don’t expect high attribution from day one. But like anything meaningful, it will take commitment. Figure out how to balance your day-to-day priorities with a longer-term strategy for evolving your care model and delivering a better experience for your residents, families, team members, and investors.
