• September 20, 2016

    Meet Loren Shook, CEO, Chairman and President of Silverado Care, a specialized provider of at home care, hospice care and memory care communities. Across its portfolio of memory care communities, which now counts more than 30 properties, Silverado has risen as an industry leader and a national expert in care and housing specifically designed for memory care residents. In fact, the company’s emergency room visitation rate is less than 3% nationwide compared to reported statistics of many times that rate for assisted living overall.

    Shook brings an extensive background in health care administration, having started as one of the youngest hospital administrators to hold the title. We sat down with him to learn about how he became interested in memory care in the first place, why loyalty is both a strength and a weakness, and why passion is the key to every partnership.

    You became a hospital administrator at 22, right?

    Right, yes

    Tell me about that.

    I had grown up at my aunt and uncle’s psychiatric hospital in Kirkland, Washington. My mother worked there as a nurse’s aide, and over [the span of] 25 years became the Food Service Supervisor. My father worked there as a maintenance man and he moved up to become Director of Maintenance after many years, too.

    I was exposed to the benefits that were provided with good psychiatric care for people in that sort of setting. Looking at what I wanted to do with my life, I found that [working there] met what I felt were the things that energized me. As a junior in high school, I decided I wanted to become a hospital administrator serving the psychiatric health services side of the health care system. I directed my education as an undergraduate in the business school at the University of Washington to that kind of career. I worked my way through college, working at my aunt and uncle’s hospital. When I graduated, I took a job with a company called Community Psychiatric Centers on the San Francisco peninsula. They had a Belmont Hills Psychiatric Center, and that’s the one I took over as an administrator at 22.

    That’s young for working as a hospital administrator.

    I haven’t heard of anyone that young doing the job. That Belmont Hills Psychiatric Center is now Silverado Belmont Hills, by the way; it’s gone full turn to a memory care community. I went up the ranks of the company to become President and COO. They had six hospitals in the beginning. They were on the American Stock Exchange at that time, and so then they became a New York Stock Exchange company. We built them into a 50-property behavioral health care system throughout the U.S., Puerto Rico and England—the largest operator of private psychiatric hospitals in England. The group we had over there, called the Priory Group, still operates under that trade name. We developed one of the largest dialysis companies in the country that now operates as DaVita.

    According to Forbes, the company grew to be the nation’s most profitable psychiatric hospital, and then there were some reimbursement changes. What happened?

    It was doing exceptionally well; we had 17 years of 15% or better quarterly earnings and just exceptional performance. What happened was, the managed care organizations came in and they felt like there were some other hospital companies doing some things that were taking advantage of what we would consider fairly easy reimbursement structures today. Those companies were driving the costs up, charging for things we didn’t charge for. We had principles: just because you can charge for it, doesn’t mean you’re going to do it. We would only do things that would create value for the patient.

    Was it tough as the CEO to see all of that happen?

    It was tough, and it was a lesson that if the industry isn’t mindful of the services they’re providing and the consumers they’re taking care of, they are at risk of alienating that market. That’s a lesson that I keep present in my mind today, and something that we all have to be aware of.

    Loren Shook, CEO and Chairman, Silverado

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    What happened next in your career?

    I had started a psychiatric hospital in Puerto Rico, so I wasn’t the CEO of Community Psychiatric Centers [anymore]; I was the President and COO. I went into Puerto Rico when I was running the company because it didn’t have good psychiatric services. We developed a hospital that did a great job then, and does a great job today. My plan was to go take this concept across the nation. I wasn’t interested in just doing it in Puerto Rico. Puerto Rico was the first place to launch, because it was not impacted by managed care. We proved the model, we took it to a number of players in the U.S., and the bottom line is, they didn’t care. They didn’t care the results were there, because if someone didn’t access the service it meant their insurance didn’t pay. That’s not a model which I think serves the public well, but that’s a financial model that insurers look at. So they weren’t going to accept our program, and that’s when I decided to exit that business. I sold my interest to my partners, which included Community Psychiatric Centers, then I launched my discovery phase of: What am I going to do with the rest of my life?

    I’m curious, does having all of that experience with government reimbursement have to do with why you went into private pay?

    Yes.

    Tell me about that.

    Unfortunately, government public policy makers are making these [reimbursement] decisions without many of them having any experience with the population they’re serving. The population’s needs aren’t universal. You go into one market, they’re different than another market. But they’re setting public policy that’s covering the nation, as though all markets are equal, and they’re not. There’s a bunch of ineffectiveness that’s built into that system and then you as the operator—whether you’re running a hospital, a skilled nursing facility, whether you’re running a hospice or any kind of organization—you’re having to expend money to cover things that don’t do your consumers any good. You’re wasting money, but you have to do it in order to get reimbursed. So the private pay model is very attractive to me because we could create the program that we thought would be best, and create a quality of life and put the resources there.

    We started Silverado in California, incorporated October 1996, and took our first resident in June of ’97.

    Can you tell me about the discovery phase?

    More from the Leadership Series

    When I was a junior in high school, I felt that psychiatric hospital administration was in line with my purpose, and I’m confident that it was because I was very successful in that area. I got a lot of energy out of doing it. We created a lot of great things.

    Nonetheless, in the last two to three years there, I felt like that was not where I was supposed to be, but I didn’t want to leave because I was making a lot of money. I wound up leaving, and tried this effort in Puerto Rico that I just told you didn’t work out. I was running a consulting company—which is what all past executives do. I had a few people working for me, doing consulting for University Hospital Systems and groups like that. I could’ve gotten funded for hundreds of millions of dollars to start a subacute company, and there were groups trying to get me to do that. I had no passion for that. It was not in alignment with my purpose. Finally, my colleague John Paul Sensible said, “What about assisted living?” This was around 1995. I’m like “Well, what’s assisted living?” So he explained it to me. We went on a field trip to three [properties] that were six-bed board and care-level assisted living in Orange County. They’re all under the same licensing: California Residential Care Facility for the Elderly. So at any rate, we come out of the third one and I said, “Look John Paul, if I ever have to go into one of these things, just shoot me.” These really were not the better ones; they were just people sitting on a couch watching some TV—boring, depressing experiences.

    I went home and I kept thinking about dementia care. Who’s taking care of those people? Because my aunt and uncle had a 20-bed dementia care unit in their psychiatric hospital’s long term care unit, I’d seen their very progressive dementia care. When I was growing up there, working there in the ’60s, they were doing differential diagnoses of Alzheimer’s disease, the cost over the course of the disease, Parkinson’s disease. Pretty much nobody was doing that in those days.

    So I said to John Paul, “Let’s go see what’s happening with them.” We went to dementia-specific skilled nursing units. It was very depressing.

    They were supposed to be a center of excellence, but looking at it from the health care field, I knew that they were doing nothing special. Programming was very, very inadequate.

    Then we looked at assisted living and there was some pretty good assisted living, where the memory care units were full with waiting lists. They were doing a good job, but they were taking care of people who were very early stage, and no one with any specific behaviors that I could see, or any concerns in that respect. I asked, “What happens to them when they age, or when their disease progresses?”

    They sent them off to skilled nursing—the ones I’d been to. So I dove into educating myself about it. I attended ALFA training and educational programs on assisted living.

    We hadn’t yet started the company, but Jim Smith, my co-founder, and I just got more and more energy. I went to more places that were providing services. UCSD had a really world-class Alzheimer’s/dementia conference; they do it every year now. So I had a scientific track, and an operator track, and I was soaking up all of it.

    Steve Winner was speaking, and I [resonated with] the words he was saying; he became my co-founder. At the time, he was running two specialty dementia care skilled nursing communities in San Diego. He was doing things that I wanted to do.

    I met him afterwards and checked him out with the market; he had a tremendous reputation. So Jim and I went and did a secret shop of his places—and that is laughable, because we’re not very good at that. Steve could see that we weren’t shopping for anybody in about two seconds.

    So we disclosed who we were at the end and said we were starting a company, and did he want to join us. He said no. He was very successful, very comfortable where he was, a leader in the skilled nursing field, as well.

    How’d you convince him?

    Well we got through and said, “Look, you know what, we’re about changing the world and we’re going to start a company with the vision of providing a quality of life to the residents, the family, to our associates, that no one’s seen before. We’re going to take the most challenging and difficult cases, and we’re not going to restrain them; we’re going to do what you do here—reduce their medications, collect clinical outcomes—and we’re going to share what we do with the world. If we’re successful, we will have changed the way memory care is served in the world. We’ll have made it better.”

    How did you fund the first building?

    I put in half a million dollars, Jim Smith and his wife put in a lot of money, and we found our private equity partner, Riordan, Lewis & Haden. This was August 1996, the whole tech industry was very hot. You could just put ‘dot com’ behind your name and you’d have multiples of 10.

    Somehow we got to the top, and we had our choices of pretty good funds, so Jim Loss—who was the managing director of the law firm [Morgan Lewis]—said we needed to talk to Chris Lewis and Pat Haden, who were running the Riordan, Lewis & Haden fund. (Richard Riordan was the mayor of LA at the time.)

    [We were told], “They’re not going to invest in you because they only invest in one company each year. Never health care, never a startup, but they’ll give you advice, they’re good people.” So we met with them, and before Jim and I got two steps into the office, Pat Haden says to me, “You know, we’re not investing in you, hope you just know that, right?” “Right Pat, we’re good, we’re cool. We know that. Thank you for your time.” When I meet with investors, then and now, I go against what people say I should do because the rule of thumb is, Show me the numbers. I don’t start there. I start with the vision of what we’re going to do. We’re going to change lives and the model. I found that that either does resonate, or it doesn’t. I don’t want to work with anyone if the purpose of the company doesn’t resonate with them. That includes architects, lawyers—if you’re not interested in changing people’s lives, that’s fine, no harm, no foul, but I’m going somewhere else.

    Bottom line, they said the three finalists we had [to potentially fund us] were good private equity groups, venture capitalists, and we left.

    I got a call from Chris Lewis about a week later and he said, “I’ve been thinking about our conversation.” His stepfather had Parkinson’s disease with dementia [and was living] in the best place in LA at the time, with a two-year waiting list to get in. “Would you and Steve be willing to go and look at the services they’re doing and [tell me] any suggestions you’d have?” We went over; his stepfather was really close to the end of life. It was a nice operation, skilled nursing, clean, good people, doing the best they could with what they knew at the time, and there wasn’t going to be any changing of the scenario there, so we just explained where he was.

    He made the best choice available at the time. He thanked us, and two weeks later I got a call. He said, “Pat and I have been thinking. We’d like to talk to you and Jim again.” They said they’d never done this, but they wanted to invest in Silverado.

    The nature of who we work with and their values and their character is number one. We’re not ever going into private equity or debt financing [solely] as a function of getting money. What we’ve got to have is an investor that is like-minded and passionate, buys into the vision of Silverado and wants to change the world. Riordan, Lewis & Haden, Pat and Chris, were 100% on board. Very credible people. Long term investors. So they would invest and keep their investment 10-12 years. They’re the group that first invested in Trader Joe’s. They were incredibly successful and still are as a private equity group.

    So how did you check them out?

    They gave me names of CEOs, CFOs, current and exes and I could look up and see who they invested in. So I called them and they checked out 100%. What you want to know is what happens when things go bad. Because everybody is friends when things are going well. [They were] very stable, very intelligent, very strategic, understanding. We invested with them and we went out looking for debt; we were kind of doing things simultaneously. We collaborated with Welltower, which was Health Care REIT at the time.

    That was on your first property, right?

    Well the first, Escondido, we took under our own equity because we hadn’t quite reached an arrangement with them. We were doing that and then we joined forces with Welltower, and they’ve been our debt partners ever since. We did a RIDEA deal, there were no payouts of anything, so in June ’97 we took our first resident. Riordan, Lewis & Haden committed to us in October ’96 when we incorporated, but they put their money in [Silverado] in March ’97. We hadn’t made an arrangement yet with Welltower.

    Were they willing to invest in you before that?

    No, we hadn’t been far enough down the road to even ask. We were launching the company, getting going. Every dollar we made we put into new communities. Six months into the business, our nurses said, “Look, we’ve got to have our own hospice because we’re committed to carrying people through the end of life.” I believe in providing services at the highest level possible for your mother and mine, regardless of the licensing structure. We’re going to give her a lot more, if that’s what she needs.

    You didn’t have to license nurses at the time. You didn’t have to have a master’s level social worker; you didn’t have to have social workers at all. You only had to have a person who had been through the training of the state and passed their test. That’s it in California. So we started with a model that blended together the best of the medical level of proficiency you need to age in place successfully, with all the cold morbidities you have with dementia of all types in a social model setting, residential setting: living rooms, fine china, fine meals, and recreational sorts of things. We hide the medical pieces of it.

    Were you nervous coming into this because nobody was doing it?

    Nobody was doing it. Everybody said I’d fail. A lot of good people said, “Nobody will pay for it, you’ll fail.”

    Did you think people would pay for it?

    Well sure. I thought people would pay for what would change their mother’s life, and I knew you couldn’t change the lives that I was looking to change without having these resources. I knew the complexities of these kinds of individuals, and I knew that there was a whole lot that nobody knew about them. You just have to have well-trained staff that can flex on the fly during the day to meet their needs, because you don’t know what’s going to come next. If you don’t have passionate medical support services and nursing services, you’re not going to do it. You aren’t going to get there.

    We wanted to have master’s level social workers in each community because we’re in a long term death and dying process. One of our core values is to connect families in a disease that can disconnect families, so we want to have all of the oars in the water to achieve that.

    Tell me a story about opening your first community. How did it happen?

    We had to find a location, which was challenging because you have to go through that gamesmanship in different deal structures, and finally we found this one. It was an intermediate care facility in Escondido. It was not located in an economic level where we would like to be, but we had to get going.

    We had a place that had been badly run, in and out of bankruptcy twice, had a terrible reputation. It had about 20 people under SSI care, the lowest reimbursement you can think of, in a 104-bed community. That’s pretty empty. The staff were very ill-treated. We had to take care of them and get them to understand that they were working for someone who would now respect them.

    Was it difficult to get them to buy in?

    Well you know, it was also transitioning into memory care, and so either they buy in or they don’t. We have to get their trust. So that takes awhile. Some of our staff say it takes six months or a year of actually seeing it happen… Some of them will say it’s a year and a half later, they’re at the corporate meeting waiting for the other shoe to drop, and it never drops. So finally they realize it’s real. It does take a while.

    …[At Escondido], we assumed operations and our first resident, Ben Chase—

    You still remember his name.

    Oh yeah, Ben’s an incredible story. Ben’s wife comes to Steve and says “You know, I’ve heard you’re the only place that may be able to take care of my husband.” [He was] a man who had a great, great career in athletics and in business. In fact, Look Magazine, Army’s playing Navy, and Ben is on the cover with his leather helmet, he’s on the Navy side, facing off on the line against the Army guy. So that’s Ben.

    At any rate, he’s now in the hospital, he’s had work done on his hip, not replaced, but some work done. He’s got what’s considered a pelvic girdle to support it, and he’s got an infection. He’s in pain, he has late stage dementia. He can’t communicate, and people are trying to take care of him at the hospital but he’s a big guy—he’s like 6’3” and strong.

    The staff tried to take care of him, and he doesn’t understand what’s going on, he just knows it hurts him, so he punches them out. He sent several of their staff to the ER. They’re telling him he’s got to go to skilled nursing, basically be restrained, chemically and physically, for the rest of his life.

    Mrs. Chase comes to Steve in tears and says “I heard you’re the only one.” This is assisted living in California in ’97, and [the state says] you can’t take that case. Our position is, if we’re in the best position to take it, we create the best quality of life, we’ll take it and we’ll appeal it to the state if a surveyor says he shouldn’t be there. We’re only going to do what we know we can do. Steve assesses Ben, believes he’s fine for us, so he says, “Bring him in.” So we have our first dog, a black lab named Asher. Steve puts Ben in a low bed, and Asher’s in the room. It’s Asher’s job to civilize Ben and get Ben to understand that the world’s not against him. In a matter of six weeks, Ben is walking. He talks in jumbled words and we all talk to Ben and we have these conversations including laughter and everything else.

    Ben would come to greet you at the front door and shake your hand. So that was a turnaround for Ben, and his wife has been a proponent of Silverado ever since.

    We’ve done that 6,000-plus times. We have 6,000 Ben stories.

    Leadership

    Since this is the leadership series, I wanted to talk to you about leadership. What is your definition of leadership?

    Leadership is someone who creates followship from other people, because they want to follow you. In the case of Silverado, they connect with our vision and they want to follow, they’re in alignment with the purpose of the company, their purpose is in alignment one way or another. They want to follow that individual and they trust the person. It’s based on trust, it’s based on confidence in the character of the person.

    What has been your biggest challenge?

    One of them would be, in California we had a workers’ comp crisis going on. We’d been pruning a lot of red ink and just getting to profitability, with a lot of early stage companies in the same boat, and workers’ comp costs just went up several hundred percent.

    Overnight?

    Overnight. The players that were insuring us raised our workers’ comp. We had no difference in results, but they raised our rate 500%. They did that for pretty much everyone else because they were leaving the state. That was their way to make sure we didn’t reinsure with them.

    We were too small to have our own self-insured workers’ comp. So, what about off-loading our staff to somebody who had one, because we had great results and we could pay a lot of money to someone else who would be generally just all profit for insurance? So that’s what we did.

    What’s the biggest risk you’ve taken in your career?

    Silverado was a big risk. I’ve taken lots of risks. The risks are calculated. Anytime I started a psychiatric hospital company, the CEO, the chairman of the board would say, “Fine, Loren, if it doesn’t succeed it’s your job, but we’ll back you.” Fine. I’ll take the risk. Most of the 50 hospitals we started, we started from scratch. When we did the Silverado deal with Welltower, I put up a lot of my own money. I was, at that time, very successful; I could retire. A lot of people told me, why don’t you? I don’t think I’m meant to be on earth here just to play golf and sip margaritas.

    In order to get the loan from Welltower, I had to personally guarantee it. We got a $99 million line of credit and started with $49.9 million, which doesn’t make any difference because I don’t have that kind of money either way. Started with $49.9 million and Jim Smith and I personally guarantee it. George Chapman was CEO [of Welltower] at the time, and I said “Look George, you’ve seen our financials, and neither Jim nor I together come even close.” He said, “That’s OK, we understand that, we just want your full attention.” So I bet the entire farm, as they say, which would leave me destitute if it didn’t work.

    What I saw, regarding how memory care recipients were being cared for, was wrong. They need to not be over-medicated, they need to not be sitting in chairs nonambulatory. They want to have a purpose in their life, they want to love and be loved, and they are capable of doing far more than most anyone was doing at the time, and it had to happen. I bet the house. I could’ve been wrong.

    What’s the best piece of advice you’ve gotten in your career?

    Follow your passion. Know your purpose. Follow the purpose in your life that gives you the energy to get up in the morning.

    Who would you consider to be your mentor and why?

    I’ve got a number of [mentors]; Vance Caesar is one of my mentors, he’s also my professional coach, a very brilliant person who’s a very spiritual person. He’s an individual who’s had a lot of experience in business. Very steadied, looks at the world as a world of plenty, as opposed to a world of scarcity. Chris Lewis is a mentor of mine, he’s one of our partners. Brilliant private equity individual, a very spiritual person, deep thinker, strategic thinker. There’s a lot of people I look to for advice.

    So what would you say some of your greatest strengths are as a leader?

    One of my strengths is that I can see things that others can’t see connecting. Most people wouldn’t see the health care piece that I’m bringing in. We have medical directors at every Silverado. Some of them are Chairs of Medicine at UCSD, [like] Dr. Ramsdell, Division Chief of Internal Medicine/Geriatrics. Leon Thal, M.D, was Chair of Neurosciences at UCSD and during his life was a big supporter of Silverado.

    I’m very optimistic. People tell me I’m an inspirational speaker. I’m a visionary; I created the vision of Silverado. I’m a person who’s going to continue to push the limits and to achieve what I think needs to be achieved, regardless of barriers. I’ll break down the barriers, and I don’t take no for an answer when I think it’s important. Like when Steve didn’t want to join the company, he just didn’t know what he didn’t know, right?

    So what do you think is your greatest weakness?

    I can be too loyal to people. That can be a weakness. Any strength overplayed becomes a weakness. Otherwise it’s a strength. I am a very intense personality, which you probably have figured out. I joke with my team that I’m Mr. Fun at the office and everyone laughs, because I’m anything but; it’s obviously a joke. So my intensity is a strength, but I’m very intense so I can be misperceived as being angry. I am who I am!

    A lot of people are starting their own operating companies now. What would be the one piece of advice you’d give them?

    Look for a niche in the market that you feel passionate about, that you feel like you want to serve. Create a vision that is compelling and powerful, create core values of your company, and then find people who align with that vision and those core values to work with you. All the individuals working with you, including your equity, debt, attorneys and all of these other groups—it’s a lot of people. They’re not irrelevant. A mortgage broker will go farther, work harder for you if they’re in alignment with your vision. Share your story. Tell your story, share your story and keep repeating your vision to your staff when you’re tired of saying it. People need to hear it over and over. You think you’re boring them, but they need to hear it.