Three years after joining Sun Mar Healthcare, President Josh Kochek is leaning on years of perspective from the other side of the dealmaking table to expand and transform the California brand.
Some of the skilled nursing provider’s growth may come in the form of a widening geographic footprint that could take it across state lines for the first time. But Kochek said vertical growth also presents great opportunity for providers in hyper-competitive states, especially given today’s regulatory and reimbursement environment.
“There’s a lot of large operators here and so finding opportunities within a very competitive state obviously poses some challenges,” Kochek told McKnight’s Long-Term Care News recently. “The things we think about are: How can we still continue to hit our objectives of growth while competing in a very crowded playing field? How can we do things that maybe are tangential to what we’re doing today?”
The 42-facility company — divided between its historic Sun Mar holdings and newer acquisitions operating under the Sun Meridien name — today includes just one assisted living asset. But Kochek envisions that changing as he encourages his team to find deals that help the provider follow its existing patient base into other settings.
Assisted living is likely to be a solid first entry point, he said.
“We’ve given consideration to more actively pursuing that. We think it would be very complementary to our business — not necessarily on the high-end, fully private pay model. That’s much more hospitality driven,” he said. “But on the AL waiver side, the heavier component of care gives us an ability to have a little bit more of a continuum within our markets.”
California has one of the nation’s largest AL waiver programs.The state offers Medi-Cal eligible beneficiaries the choice of residing in an assisted living setting as an alternative to long-term placement in a nursing facility. The goal of the waiver is to transition eligible older adults and individuals with disabilities from a nursing facility to a community home-like setting in residential care facilities, adult residential care facilities or subsidized housing. Other states are also exploring ways to expand or launch waiver programs.
Kochek sees an embrace of AL as a way to serve Sun Mar’s largely skilled-stay population for longer, especially in the case of residents who are ready to step down from a post-acute visit but might still need help with prescription management, bathing or other ADLs.
“We’ve developed a rapport with them. We know their needs. Wouldn’t it be great if we could follow the resident to their next care setting because we’ve developed these relationships and we know how to provide for them?” he said. “Right now, we’re losing that connectivity because we don’t have that continuum available within our current settings. It’s a natural extension of what we do. [The waiver program] is geared really well to the therapeutic support and the clinical support that we’ve already got ingrained in our culture.”
Step-down for a step-up?
Seizing on the step-down makes as much sense to Kochek as does building up the company’s portfolio.
It’s on the capital side of the business that Kochek learned the skilled nursing ropes, first with a regional bank and later as an investment manager for Aviv Real Estate Investment Trust, and then Omega after a buyout.
He came to Sun Mar as chief investment officer in 2021, when the company hadn’t made an acquisition in a decade. Kochek had worked with the chain on its last deal and jumped at the chance to join the leadership as it pursued new lending relationships that would make future deals possible.
Within a year, the company was closing on a 10-building acquisition while also undergoing a near-complete executive overhaul. Suddenly, Kochek was serving as president and overseeing operations, building out a new team and “kind of changing the culture from within.”
His time in acquisitions served him well during the transition, he said.
“I just was a capital guy. I understand raising money, deploying money, buying assets, those kinds of things,” he said. “But when I was running asset management for the REIT, I had close to 40 operators that I was working with around the country. I had the benefit of seeing this operator does this or that really well, and you could almost Frankenstein together a notion of best practices from different operators around the country.”
Getting physical, and employee-centric
One of the key parts the company has committed to is its physical facilities, especially its turnaround operations, even in cases where it doesn’t own the real estate.
“We’ve done a really nice job on the facilities that we’ve acquired over the last few years,” he said. “Not only improving the operations and taking good care of the residents but beautifying the grounds. Every facility that we’ve acquired, we’ve put a significant amount of capital into. I really want our residents and our employees to be proud to be a part of that community.”
In addition to revamping everything from landscaping to therapy equipment, Sun Mar is also investing heavily in employee initiatives. The provider struggled with using agency nursing staff, so it built a CNA school that provides no-cost training and testing and eliminated the problem. It also has a well-known employee awards program and an internal House of Representatives through which employees can advocate for changes at the company.
Retaining workers allows Sun Mar to keep its door open for its referral partners.
It’s the relationships with those partners that Kochek said would make a California expansion such a natural continuation for Sun Mar, even as cost-reporting methods have made Medicaid underfunding more apparent in recent years.
Prowling for acquisitions
Finding more skilled beds in California is still a “no-brainer for us,” Kochek said. “We’re making the rounds with other owners and capital providers to make sure we’re kind of on the radar front and center as they see opportunities come across their desks.”
But the Orange County-based provider is also willing to go outside its comfort zone — provided regional and corporate staff can still get to every facility in less than a day’s time.
“There’s tremendous value to that in terms of how quickly we can respond to a situation that may be going on at a facility level where we can lend support or guidance,” he said. “But, geographically if there are nearby surrounding states where that could still be the case, whether it be Nevada or maybe Oregon, where you stretch the footprint a little but you can still do the direct flight … then that would make sense.”
That kind of growth, like vertical growth, could be aided by the company’s new executive team, which includes several players from national providers who have experience handling multiple regulatory or reimbursement systems.
“It’s having those larger capabilities brought down to the more regional size that gives me confidence,” Kochek said.
