As inflation has cooled, senior living rate increases are slowing. Growing occupancy has been a function of incentives, particularly rate concessions and discounts. The greatest use of discounting is in independent living, particularly Life Plan organizations/CCRCs. And, while rate increases shift lower, revenue does as well. Unfortunately, operating cost increases are not subsiding, especially with regard to labor. For these reasons, and to meet increasing resident service demand, revenue diversification offers opportunities.
Per data from the National Investment Center (NIC), the pace of move-ins has improved (independent, assisted, and memory care) from the prior quarter. In terms of rates, the data shows a slowing or moderation in rate increases. By March 2024, annualized increases came in at 4.2% for independent living, 4.4% for assisted living, and 4.7% for memory care. Compared to the same period in 2023, these rates are down from 8.1%, 8.8%, and 7.7%. Memory care segment was the largest year-over-year increase in rates compared to the prior year. The NIC post is available here: Decelerated Rate Growth, High Discounts, and Strong Move-Ins in Senior Housing (nic.org)
In terms of discounts to rate (posted or asking), the following is an overview of the discount trends for each segment.
- Independent living had rate discounts in the double digits, averaging about 12.7% in the first quarter 2024. The March discount was $507, equivalent to 1.4 months on an annualized basis, and has stayed above $400 since June 2023. The length of time the discounts applied (how many months) varies widely.
- Assisted Living discounts averaged 8.8% in the first quarter of 2024, equivalent to 1.1 months on an annualized basis. The March discount was $506, equivalent to 0.9 month on an annualized basis. Again, the length of time applicable to the discount varies widely (e.g. six months, until next rate year, etc.).
- Memory Care discounts averaged 8.9% in the first quarter 2024. The dollar discount ($778) in March 2024 was the equivalent of 1.1 months.
Though inflation has cooled slightly (mid 3% range), the annualized CPI price changes across the last two plus year timeframe are 20% plus. Inflation compounds in a rather insidious way such that a current rate of 3.5% comes on top of the cost of goods that have already increased by 22%. For example, a product costing $10.00 two and one-half years ago, now costs $12.20. Inflation of 3.5% on the $10 product at origin was 35 cents however, the rate today applied to the current product is 3.5% x $12.20 or and additional 43 cents ($12.63). Another month of 3.5% will add another increment but on the newly inflated price of $12.63 or 44 cents.
To date, providers have relied heavily on rate increases to combat rising costs and diminution of margins. Unfortunately, as we are seeing via the NIC data, rate increases are slowing as the same are unstainable. With the overall economic outlook still murky, providers need to face a couple of realities. First, fundamental shifts in labor and other market conditions such as energy costs, increased compliance costs, and insurance costs (litigation driven), have increased the cost of doing business, permanently. Second, resident acuity is on the increase, especially in Independent and Assisted Living. Increasing acuity requires changes in the business model such that higher costs are probable (more staff, different staffing mix including more professionals).
What is now becoming more apparent is that providers are forced to reassess their business models. Frankly, I’ve encouraged this “reassessment” for years. In so doing, many are concluding that expanded services and additional, complimentary businesses make sense – either as an owned or affiliated entity or in a strategic partnership. A good reference article from earlier In May is here: Senior Living Operators Pivot from Resident Rates to Ancillary Services to Boost Revenue – Senior Housing News
Owned entities such as hospice, home health, or home care services present strong revenue diversification opportunities plus, growth opportunities not tied of occupancy.
Across my career (many decades now), I’ve led organizations that have aggressively expanded service offerings, focused on new businesses or in some cases, new service offerings. New service offerings often focused on disease state specialties or care delivery specialization such as ventilator units or dialysis units. New services were offerings that were complimentary to the business, and then, expandable to on-site residents or to the community, if such expansion made sense. My favorites, ones that I have started or put into place (via acquisition) are below.
- Home Health – Medicare certified. Great for providing residents with expanded care services without much if any cost to the residents.
- Home Care – not to be confused with Home Health, this is the non-skilled service such as ADL support, home makers, transportation, etc.
- Hospice – fits great with larger scale senior living organizations.
- Medical care – scale is important but adding physician services and physician extender services can bring in some revenue but also, really expand integrated and value-based care opportunities.
- Catering – if your food is good, it can be sold well beyond just resident food services. Demand is high for good value food services.
- Fitness Centers – if you have one, you can market it and, in many cases, change for groups, memberships, etc. The same can also be tied to rehab therapies and in turn, used to create programs such as cardiac rehab and weight loss.