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Nonprofit Concordia Lutheran Ministries adjusts to marketplace realities

| Monday, March 30, 2015, 11:30 p.m.
Keith Frndak, CEO of Concordia Lutheran Ministries, discusses the nonprofit, which operates senior-living communities in Western Pennsylvania, on Thursday, March 18, 2015.
Philip G. Pavely | Trib Total Media
Keith Frndak, CEO of Concordia Lutheran Ministries, discusses the nonprofit, which operates senior-living communities in Western Pennsylvania, on Thursday, March 18, 2015.
Keith Frndak, CEO of Concordia Lutheran Ministries, discusses the nonprofit, which operates senior-living communities in Western Pennsylvania, on Thursday, March 18, 2015.
Philip G. Pavely | Trib Total Media
Keith Frndak, CEO of Concordia Lutheran Ministries, discusses the nonprofit, which operates senior-living communities in Western Pennsylvania, on Thursday, March 18, 2015.
Keith Frndak, CEO of Concordia Lutheran Ministries, discusses the nonprofit, which operates senior-living communities in Western Pennsylvania, on Thursday, March 18, 2015.
Philip G. Pavely | Trib Total Media
Keith Frndak, CEO of Concordia Lutheran Ministries, discusses the nonprofit, which operates senior-living communities in Western Pennsylvania, on Thursday, March 18, 2015.
Keith Frndak, CEO of Concordia Lutheran Ministries, discusses the nonprofit, which operates senior-living communities in Western Pennsylvania, on Thursday, March 18, 2015.
Philip G. Pavely | Trib Total Media
Keith Frndak, CEO of Concordia Lutheran Ministries, discusses the nonprofit, which operates senior-living communities in Western Pennsylvania, on Thursday, March 18, 2015.
Keith Frndak is CEO of Concordia Lutheran Ministries, which operates senior-living communities in Western Pennsylvania.
Philip G. Pavely | Trib Total Media
Keith Frndak is CEO of Concordia Lutheran Ministries, which operates senior-living communities in Western Pennsylvania.

Concordia Lutheran Ministries has boosted its revenue more than 50 percent since 2011 by acquiring smaller, financially distressed senior-care facilities.

Despite a growing population of elderly baby boomers that should keep its nursing homes and rehabilitation centers packed, the nonprofit organization is facing a challenge of managing its business as the government tries to rein in runaway health care spending by cutting reimbursements and authorizing shorter stays for skilled nursing care and rehab.

Concordia CEO Keith Frndak said the government's Medicare program provides 23 percent of the nonprofit's annual revenue. Medicaid, the government's health insurance program for the poor, provides 6 percent.

To compensate for reduced funding, the company has been investing in its home-care business, Concordia Visiting Nurses, Frndak said.

“The writing is on the wall. More care will be shifted to the community because that's all the government can afford,” he said in a recent interview in his office in Cabot.

To illustrate the change, Frndak said the average length of stay in a nursing home when he started at Concordia in 1983 was more than three years. Today, it's five months. The average rehab authorization has fallen from 40 days to 17 days.

The home-care industry is growing at about 9 percent a year, as baby boomers try to stay longer in their homes and out of nursing homes and retirement communities, according to consulting firm McKinsey & Co.

Concordia Visiting Nurses provides care to about 2,400 people a day in their homes, slightly more than the number of residents Concordia has in its retirement communities, skilled nursing homes and rehab centers.

Medicare, which spent $583 billion in 2013 and accounted for 14 percent of the federal budget, is under pressure to cut costs. The program's per-enrollee spending grew at an average annual rate of 7.7 percent between 1969 and 2012, according to the Kaiser Family Foundation.

Lawmakers and others are worried that spending on Medicare is consuming the budget and contributing to the federal deficit.

Spending is being pushed up by the large and aging baby boomer population. The Census Bureau estimates that by 2050, the population aged 65 and older will be 83.7 million, almost double its estimated population of 43.1 million in 2012. Baby boomers, who were born between 1946 and 1964, began turning 65 in 2011.

Concordia's biggest source of revenue comes from its senior living facilities, where residents pay out of pocket. Forty-six percent of the company's revenue is self-pay, Frndak said. While that piece of the business is not subject to reimbursement cuts, it is under pressure from larger competitors, such as UPMC and Oakmont-based Presbyterian SeniorCare.

Concordia Lutheran Ministries employs 2,300 workers at 16 facilities in Western Pennsylvania and Ohio.

Frndak said Concordia is competing on price with its bigger rivals and trying “to win that value equation.”

But it must keep growing and creating economies of scale to keep up, he said.

Concordia started its acquisition strategy in 2003, when it decided to stop building facilities and instead to acquire retirement communities and nursing homes.

Frndak said it is easier and less costly to buy existing retirement homes than to deal with the increasingly complex regulation that comes with construction.

Since 2011, it has acquired facilities in Cranberry, Fox Chapel, Franklin Park, Wexford, Monroeville and Copley, Ohio — purchases that doubled its number of residents and patients and have grown its revenue from $95 million to an estimated $150 million this year, a 58 percent increase.

“Fixing broken companies has been a badge of honor for Concordia,” he said.

Frndak is keeping a lookout for acquisitions. He prefers smaller operators that have newly constructed buildings. And he's looking outside of Western Pennsylvania.

“The reality is it's very difficult to be a standalone,” he said.

Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or anixon@tribweb.com.

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