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Getting CCRC Feasibility Studies Correct … and Other Studies as Well

In my consulting career, I’ve done a fair amount of feasibility work (market, economic, etc.).  Similarly, I’ve done a fair amount of similar analyses, primarily related to M&A activity and/or where financing is involved (debt covenant reviews, etc.). Heck, I’ve even done some bankruptcy related work!  I’m also queried fairly often about feasibility, demand, market studies, etc. such that I’m surprised (often enough) that a gap still exists between “proper” analysis and simplified “demographic” analysis.  Suffice to say, feasibility work is not a “one size” fits all relationship.

I’ve titled this post “CCRC feasibility” principally because the unique nature of a true CCRC project provides a framework to discuss a multitude of related industry segments simultaneously (e.g., seniors housing, health care, assisted living, etc.).  Starting with the CCRC concept, a set of basic assumptions about the feasibility process is required.

  • Demographics aren’t the arbiter of success or failure – feasibility or lack thereof.
  • Demand isn’t solely correlated to like unit occupancy, demographics (now or projected), or for that matter, how many units are projected to be built (following the Jones’ as a qualifier).
  • Capital accessibility isn’t relevant nor should it be.
  • National trends for the most part, are immaterial.  Local, regional and state are, however.
  • Projects pre-supposed are projects with inherent risk attached.  This isn’t an “if you build it, they will come” type exercise.  The results shouldn’t be thought of as a justification for a “specific” project already planned.

The last point typically generates  a “heresy” cry from folks and certain industry segments. Regardless, I am adamant here in so much that true feasibility analyses determines “what makes sense” rather or as opposed to, justifying that which is planned (or the implication that the client is paying for a study to justify his/her project).  Remember, I am a fan of the fabled quote from Mark Twain attributed to Benjamin Disraeli (the former Prime Minister of Great Britain): “There are three types of lies….lies, damn lies and statistics”.  As an economist, I have deep appreciation for this as all too often, I see analyses that smack of this latter type of lie.

(Note: The source of the actual “lies, damn lies” quote is still a mystery…thought initially to be said by Lord Courtney in 1895 but since, proven invalid.)

Carrying this feasibility discussion just a bit further, the approach that I recommend (and use) incorporates the following key assumptions about seniors housing (CCRCs) and to a lesser extent, specialized care facilities (Assisted Living, SNFs, etc.).

  • The demand for seniors housing, true housing, is very price elastic.  Given the elasticity, all demand work must be sensitized by price. The more specialized or unique the project might or may be, the more sensitive the demand elasticity becomes (greater or lesser).
  • Local economic conditions matter – tremendously.  This is particularly true for CCRCs and higher-end seniors housing projects, especially real estate conditions.
  • Regional and state trends matter particularly the migration patterns, policy issues, job issues, etc.  Doubt me?  Let’s have a discussion about the great State of Illinois (for disclosure, I have a home and office in Illinois).
  • Location(s) matter.  I incorporate location/central place theory elements in all of my feasibility work and analyses.
  • Demographics are important but not in the normative sense.  Yes, age and income qualified numbers are important but education and real estate ownership, location and years residency in the market area(s) can be as impactful.
  • Competition is important but in all forms.  Given the demand elasticity of seniors housing, the higher the price, the greater the wealth status required of the potential consumer, the greater the options available to that same consumer.
  • Ratios matter.  The demographics are important but the ratio within the demographic correlated to the project, within various locations, etc. is “money”.  (Sales folks love this stuff).  How many seniors does it take to fill a CCRC?

Because no one project is equal to another, feasibility work and like analysis is both (an) art and a science.  I liken the process to cooking.  Recipes are key but taste and flair and creativity are important as well.  Honestly, knowing the industry well from an overall perspective is ideal – like being a chef trained by the masters!  When I see flawed analysis, it typically comes from a source that follows a recipe; a recipe for market analysis, etc.  Knowing the industry, having operated organizations or facilities, being trained in quantitative analysis, etc. separates good or great from average.  Remember Twain/Disraeli.

So to the title of this post; the correct or proper methodology for feasibility studies and similar analysis (sans some detail for brevity and not in any particular order)….

New Facility/New Location

  • Location Analysis – in economic parlance, the application of elements of Central Place Theory.  This includes a review of the site in relationship to key ranked variables such as market/demographics, accessibility, staff/employment access, proximity to other healthcare, other services, etc.
  • Pricing – what is/are the core pricing assumption(s)….I’ve written on strategic pricing models on this site.  If I am doing the pricing work, I apply the concepts in the Strategic Pricing presentations and worksheets found on the Reports and Other Documents page on this site.
  • Demographics – I’ll use my pricing data and my location analysis to frame my demographic analysis.  Aside from age and income, I’ll look at migration patterns, education, career history, etc. plus I’ll review the information on a geocoded basis to refine market relationships between customers and other competitors.
  • Demand Analysis – From the demographic data and tested against the pricing, I’ll build a demand analysis and a penetration analysis that provides a range of likely target customers, within the market areas, give the pricing information, for a particular product.  Historic migration and market area occupancy of like accommodations is used to sensitize the demand analysis.
  • Economic Analysis – This is a review of current market conditions and trends that can impact the project’s feasibility, positively or negatively.  Real estate, income, employment, business investment, economic outlooks, policy implications such as tax policy, etc. are all key elements reviewed.
  • Competitive Analysis – What is going on within the area/regional competition of like or quasi-comparable projects is important as a buffer or moreover, a stability (or lack thereof) check.  I like to look at all potential or as many as practical, comparable living accommodations – not just seniors housing (condos, apartments, etc.).

Expansion Projects

I will complete a major portion of the above with less time spent on location analysis and pricing work (though pricing is still key for accurate demand).  I have watched organizations cannibalize their own market share and occupancy levels with expansion projects so accurate gauging of current and pent-up demand is critical along with conditional trends (economic, competitive analysis, etc.).

M&A, Financing, Etc. Projects

Again, all of the above work is relevant but depending on the circumstances, I will incorporate benchmark data from industry sub-sets.  For example, for SNFs I look at compliance information, CMS star ratings, staffing numbers, payer mix/quality mix and of course, federal and state reimbursement and policy trends.  When I review covenant defaults and provide reports, I narrow the analysis based on the core nature of the default but most often, the issues of late are occupancy, pricing, and revenue models versus fixed and variable cost levels.  Pricing work is often key along with a review of marketing strategies.

Is there more to this topic area?  Of course and this post isn’t meant to be exhaustive nor a text-book supplement.  It is however, a ready framework that can provide guidance to those looking at conducting or contracting for, a feasibility, financing or market analysis.  My advice: Getting it done right the first time saves money, prevents future problems, and assists with positive outcomes for any project or purpose.

February 23, 2016 Posted by | Assisted Living, Senior Housing, Skilled Nursing | , , , , , , , , , , | Leave a comment

Bundled Payment Primer: SNFs

On April 1,  implementation of the CMS expanded Bundled Payments for Care Improvement demonstration for hip and knee replacement (aka CCJR) begins.  This phase takes the initial voluntary BPCI program and expands the concept on a non-voluntary basis to 67 metropolitan regions.  See my post on the final rule here at  Effectively,  Medicare reimbursed knee and hip joint replacements through a covered (Medicare) center (hospital or qualifying surgery center) within one of the designated regions, will be paid on a “bundled” basis.


Beginning April 1, 2016 (and for five consecutive years) CMS will establish a target price for each designated region for each episode (hip or knee) of care. This target price is then discounted by 2% and operates as a benchmark – the bundled payment amount.  For any Medicare hip or knee replacement surgery at the qualifying hospital, the payment is designed to reflect the costs of the admission, surgery, hospital services, and all additional post-acute costs of care for 90 days following the surgery. All providers, including the hospital and suppliers, bill Medicare for care provided (Parts A and B as applicable) on a fee-for-service basis.  CMS then aggregates the payments made via Medicare for the referenced element of care and all other related (hip and knee) elements across a performance year and compares the same to the regional target.  If costs incurred are equal to or lower than the target (bundled payment benchmark) and the hospital met or exceeded certain quality measures, a bonus or reconciliation payment is made (payment is the difference between the actual costs and the benchmark, up to a specified cap) to the hospital.  In year one, no penalty is applied for costs above the benchmark or lesser levels of quality.  In year two however, less than targeted cost or quality outcomes will create a payment recoup scenario equal to the cost difference compared to the benchmark, up to a certain cap.

Implications for SNFs

For SNFs, while there is no direct correlation in Medicare payments per the bundled payment initiative (no bonus applicability, penalty, etc.), the indirect implications are enormous and potentially for many, survival (or not) deep.  Consider the following;

  • While the hospital is accountable directly for costs and quality, the cost benchmark covers all care costs within the element of care, including the SNF post-acute stay.  An expensive, inefficient stay imputes higher costs into the “total cost” equation.
  • While the hospital is directly accountable for the quality measures, the quality measures cross domains.  Poor quality, readmissions, low patient satisfaction affects the over quality measures and can lead to payment reductions after year one.   The quality measures are;
    • Complication rates post procedure
    • Readmissions within 30 days
    • Patient satisfaction of providers across the element of care
  • After year one, only SNFs (that) rated three stars or above can participate in the program. Hospitals can only refer to 3 star or higher ranked providers.

Taking into account the three points above, SNFs can and will experience, game changing referral and relationship dynamics within the affected regions.  Hospitals will seek (and have sought) relationships with  high quality, cost-effective post-acute providers.  For example, one hospital system that I advise regularly has drawn a clear line for referrals at 4 stars and preferably, 5 stars – one year ahead of the requirement.  They have already shifted their referral practices in anticipation.  Further, as the Final Rule created opportunities (regulatory laxity) and freedom for incentive sharing, alliances are forming whereby providers will share incentives in order to assure high quality, cost-effective outcomes.

Strategies for SNFs in a Bundled Payment Region

While April 1 looms, there is still time for an SNF to get properly positioned initially, for a bundled payment transition.  Why I say initially is that most providers, including hospitals, will not be fully ready (and CMS is still providing additional details) for the “new” reality.  As with all programs of this nature, a great deal is learned as lived as regulatory details dribble past deadlines and frankly, many providers simply won’t have systems in-place, fully integrated to monitor the costs, quality measures, etc. across all domains.  Further, year two is where the game really changes as penalties apply in addition to bonus opportunities and the three star limit becomes effective.

Below is my outline or roadmap that SNFs should follow to succeed and thrive in a bundled payment environment.  Note: CMS will push forward, additional elements of care, beyond hips and knees, with bundled payments.  Likewise, regions will expand and targeted regulations (separate from bundled payments) for SNFs impute quality measure impacts on payments (commencing in October 2016). Simply stated: the following has broader implications than just bundled payment implications.

  • Manage Your Stars: Simple but difficult for many.  If your facility is not four stars or above, you will have trouble and will see a reduction in Medicare census and referrals.  Even three stars is and will be, inadequate.  This is especially true in a market where there are competing facilities at the three or better (star) level.  Changing your star rating is not an overnight process but the best start is to drill hard on your quality measures (improve) and survey results.  Staffing numbers can shift quickly but only by integrating more professional nurses at the bed side, without reductions in per patient day staff ratios (a financial investment).  Remember, with PBJ forthcoming, the numbers can’t be “phantom” staff (sorry but too many SNFs today have jacked up their star levels by gaming the self-reported staffing system).
  • QA Your Care Transitions: No SNF should today, fail to intimately manage their care transitions – all transitions.  Readmissions are a risk area in bundled payments and today, for SNFs regardless (readmission penalties apply for 2016).  Similarly, one of the simplest ways to manage costs related to any stay is to insure that the maximum level of care is available on-site and the resident doesn’t need to transition for things like wound management, radiology, other diagnostics, physician visits, etc.  The cost of the transport if attended and billable, the costs associated with the encounter, the diagnostic, etc. all “count” in the analysis of the cost of care per element against the bundled benchmark.  In addition, risk is inherent in any transition for a resident/patient.  Everything from infection to fall risk heightens when a resident/patient is transported out of the environment and then back.
  • Excel at Advanced Care Planning and Discharge Planning: From the hospital encounter through the SNF stay and beyond, keeping the stay efficient and the resident/patient satisfied is all about care planning and discharge planning.  The rule of thumb is the earlier the better.  If possible, assign a Care Coordinator to the encounter, early – ideally concurrent with the hospital admission.  Discuss the options with family, the patient, the team and build as much into the discharge plan as early as possible.  For example, if “home” is the goal, get into the patient’s home as early as permissible. If there is family involved, start teaching and providing resources as soon as possible.  If post SNF care is required, connect as much of it (e.g., home health) as early as possible and get the other provider elements into the equation ASAP.
  • Use an Algorithm or Pathway: Build a hip and knee protocol, pathway/algorithm that covers all elements (typical) of therapy by day by type of surgery.  Inclusive should include radiology protocols, pain, wound care, supplies, safety precautions, etc.  Work this protocol through your QAPI process with your physicians/Medical Director.  Ideally, get hospital folks to react and help and add input, especially Orthopods (if they will participate).  I recommend incorporation of pharmacy, nutrition, nursing, and social service as integral elements, especially as the same relate to co-morbidities or post-surgical management.  For example, having pharmacy manage and coordinate your anti-coagulation protocol.  The more you can develop a “recipe” for folks to follow and measure, the greater the likelihood of a smooth transition, exceptional outcomes, and enhanced patient satisfaction.
  • Manage and Align Your Partners: Understanding that risk comes from multiple elements is key to achieving high quality and superior efficiency.  Many SNFs use contractors for care elements such as therapy and pharmacy, physician services, etc.  Every discipline that is part of the care process must be aligned to assure high quality and efficient care.  This environment (bundling) is different now.  Its not about “more” care as many have become accustomed via Medicare RUG maximization and extending lengths of stay.  It is about the right care.  Physicians need to help; keep orders simple, reduced redundancy and unnecessary tests, etc.  Pharmacy needs to do medication reconciliation at admission and actually, somewhat virtually.  Formularies must be tight to assure the most targeted, effective, and lowest cost medication regime.  If home health is part of the discharge process, pick a single partner or limited partners and integrate them into the process.  Remember, the risk areas encompass satisfaction and cost elements across a 90 day horizon!
  • Build Your Core Competency: Delivering high quality, cost-effective care is about having exceptionally competent, well-trained staff giving the care, supported by focused, competent management.  Nurses must be capable of caring  for the patient profile from wound to pain to skin to all other components.  All staff must be responsive and focused on issues like fall risk, weight loss, dehydration, infection, etc.  These issues are monitored daily and part of, what should be, an integrated QAPI program.  Social Workers must be able to field questions, coordinate resources, and be responsive, informative and knowledgeable about resource issues (Medicare, insurances, etc.).  Review all aspects of care and look to bring them into the environment if feasible.  For example, invest in anti-coagulation machines, products to float heels (Heelzup), proper size wheelchairs, patient lifts, air mattresses, etc.  I commonly recommend having at least some staff wound care certified, pain management certified, cardiac certified, etc.  I like to have therapists with advanced training in neuro, lymphedema care, sports medicine (great for ortho rehab), etc.  Without the resources in-house, it is very unlikely that an SNF will be able to manage the current and go-forward demands of lower cost and higher quality.

February 5, 2016 Posted by | Skilled Nursing | , , , , , , , , | Leave a comment