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Health Care Leadership: Why its Hard, Why Many Fail and What it Takes to Succeed

The bulk of my work centers around gathering data, analyzing trends and working with the leadership of various organizations to implement strategy or more centered, strategies.  The process is iterative, interactive and always fascinating.  Throughout my career, I’ve worked within (virtually) every health care industry segment and seniors housing segment. I also counsel and have worked with entities that buy, sell, invest in, consult with, account for, finance, and research health care and seniors housing businesses. Its my work with the latter that is the genesis of this post and my decades of work with the former that is the “content”.

There are two fundamental reasons why health care leadership is hard and different from leadership duties in other industries: 24/7 demands and the immediacy of the customer to the enterprise.  Health care and seniors housing (regardless of the segment specific) never closes, has no true seasonality, and demand can increase and decrease with equal force and equal pace, almost entirely related to external factors and forces.  Pricing for the most part, other than seniors housing, is almost immaterial and unrelated to revenue.  No other, non-governmental, business is as regulated and scrutinized and mandated transparent than health care.  Likewise, no other business has the mandate that the full array and intensity of all services must be available 24/7, on immediate demand, with no ability to defer, fallow, or limit.  Even a 24 hour PDQ won’t have all services available constantly (if the hot dogs run out, they are gone!).

While other industries will have close customer contact, health care has a unique, and intimate relationship with its customers.  In SNFs, Assisted Living Facilities, Seniors Housing, etc. the customer is present for long-periods (years).  In hospitals, the customer is present for hours, days, up to weeks at a time (the latter rare unless we are talking LTAcH).  In the health care setting, the enterprise has total responsibility for all needs of the customer – great to small.  The quality of care and service to all needs matters and is measured, reported and today in many regards, tied to compensation. Back to the PDQ, the over-done hot dog costs the same and there is no governmental entity that maintains a hotline for customer reports and investigations regarding the quality of the hot dog.

In health care, there is a very unique and in many ways, perverted twist concerning the customer relationship.  The customer today is a Dr. Jekyll/Mr. Hyde manifestation.  No other industry has customers that are bifurcated as such – the payer being a consumer unique and separate from the actual present being.  Health care entities, to be successful, must satisfy both and manage the expectations of both, seamless and fluid to each party.  I know of no other industry where on any given day in a hospital for example, where it is likely that of 300 individual inpatients there are dozens more of the payer/insurer consumers requiring unique attention, simultaneously.  Miss a step, miss a form, etc. and the payer consumer refuses to pay for the human consumer that is receiving or received the care.

Because of the “constant” nature and customer relationships (coupled with many other reasons of course), health care leadership is hard.  It is hard because these two fundamental components are nearly, completely, out of the control of the leader.  The leader can only react or respond but truly, never change the paradigm or structure and always, in terms of the payer customer, sit beholding to the rule changing process and bureaucracy of the payer customer.  This last element can be unbelievably insidious.  For example, in the State of Kansas, dozens of SNFs face grave peril in terms of solvency because the State cannot efficiently certify eligibility for Medicaid for qualified seniors.  The delay has left dozens of facilities with Medicaid IOUs at six digits and climbing – the human customer receiving care, the paying customer bureaucratically inept and unwilling and incapable of paying its bills, and the SNF sitting with no real recourse.

Given the above, its frankly easy to see why so many leaders fail or simply, give up.  The deck is stacked toward failure.  On the expense side of the equation, because of mounting regulation, fewer elements are within a leader’s control.  With a rare exception, revenue is completely beyond control in terms of price and reimbursement for services provided.  With RAC and other audits, revenue initially earned can be retrospectively recast and denied.  (The PDQ six month’s later decides to recoup payment for the hot dog because, in its infinite wisdom, you didn’t need to the eat the hot dog or you should have made a wiser food choice).  The overwhelming variables that can contribute to failure in a micro and macro sense for a leader are not lessening.  His/her organization is open and under scrutiny, 24/7.  He/she must oversee and be accountable for the health outcomes of a human customer that in turn are interpreted by the payer customer (remotely), subject to alteration, and retroactive scrutiny.  Today, success isn’t just based on what occurred at the point of service but after the service concluded.  The enterprise is at-risk for human behavior (compliance and non-compliance) of the consumer for not just days post service but months.  Further, the enterprise is at-risk for the satisfaction of a consumer whose behavior and lifestyle may have significantly contributed to his/her need for care and service initially.  As one executive told me recently; “We have to tell people the truth about their disease, figure out how to make it sound good and nice, and hope that we have done so in such a life affirming fashion that the patient will give us 5 stars for service.  Figure that one out”.  Alas, perhaps failure is inevitable.

Aside from failure correlating to burn out or shear “giving up” (the average large system executive tenure is less than 10 years), the failure in leadership that I see resides primarily in two areas.  The first is an inability or lack of willingness to realize that the paradigm is constantly changing today and the pace of which, is accelerating.  It is human nature to seek equilibrium; to pursue elements of stasis and calm. The same ( is) anathema to leading a health care enterprise.  The second area is aversion to risk.  Precisely because of the first point, taking risk or being capable of tolerating large elements of risk is imperative today in health care.  The best leaders are true entrepreneurs today.  They see opportunity and are willing to pursue it with vigor.  They find the niches and pursue them.  Every bureaucracy and rapidly changing industry paradigm begets opportunity with equal pace and ferocity.  For example, the growing “private, non-reimbursed” service sectors in health care that continue to grow and flourish because of and in-spite of the heavily regulated, price tied market.  I know of and have consulted for, provider groups that have moved further away from Medicare and managed care to private payment with phenomenal success.  Was the strategy a risk?  Yes.  Most would not take this type of risk.  I am harkened however by the notion that at times, the greatest risk present is the risk of doing nothing.

Successful leadership and leaders today, those that I know, have the ability to think systematically and algebraically – to solve the industry polynomials with all of the variables.  They are inquisitive by nature and unwilling to accept the status quo, regardless of where and why.  They embrace the famed Pasteur quote: “Chance (luck) favors the prepared mind”.  They also have the soul and panache (tempered) of Capt. Jack Sparrow (from Pirates of the Caribbean).  They like risk and have the entrepreneurial heart and mind to innovate and move fluidly through problems and challenges such that the same are opportunities.  They don’t allow their enterprises to become complacent or bureaucratic.

Today, success is about better – better products, better service, and better care.  Payers are demanding accountability and want an increasing level of care and service for lower levels of payment.  That is the paradigm and it is moving to higher levels of accountability and lower levels of overall payment.  The best execs know this and don’t quibble with it (much).  They realize that success if about adapting the enterprise accordingly while finding the pliable spots that such an environment creates.  These spots are service lines, system enhancements, productivity improvements, and different levels of patient engagement.  Similarly, they realize the risk limits of concentration – too much exposure to certain payers.  They have seen this trend coming and have already moved.  For those still trying to reverse or slow the trend, this is where failure first begins ( the search for stasis in a rapidly changing world).

 

April 1, 2016 Posted by | Assisted Living, Home Health, Hospice, Senior Housing, Skilled Nursing | , , , , , , , , | Leave a comment

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

Modern Health Care Risk Management

The second most important function an executive and/or a governance board conducts (second only to planning) is risk management.  This key leadership function is evolving rapidly primarily due to the evolutionary movement around compliance (ACA, CMS, etc.) and the payer focal shift from episodic, procedural care to outcome or evidenced based care, pay-for-performance, etc.  Similarly, as government policy shifts so does commercial market dynamics with like movements toward pay-for-performance and disease management.  While the core concept of “enterprise” protection remains the same, the scope today is different, the breadth wider and the responsibilities and tasks more structured than say, ten plus years ago.

Risk management is the term that encompasses a series of activities, programs, policies, etc. that work (ideally) together to protect and secure the overall enterprise/organizational identity, value, market share, legal structure and by downstream relationship, the stakeholders/shareholders.  Its activities, etc. are passive and active.  Passive activities (examples) include the purchase of insurance  and implementation of firewalls and data security systems.  Active activities include audits, training of staff, QA/QI activities, customer/patient engagement programs, etc. The purpose of this post is to focus on the “active” elements and in particular, the most important elements today given the evolving environment and the new risks emerging.  The purpose is to frame a model of risk prevention culture rather than an environment fraught with rule deontology and protectionism.  The latter tends to breed its own kind of risk(s) in addition to the risk(s) it seeks mitigate.

I like to think of effective risk management plans today as having six key elements.  Importantly, the plan is not operative while the elements are.  The plan is what the organization uses to monitor the completion (activities), ongoing improvement (identification and address of organizational weakness and vulnerability), and accountability of management in identifying and managing risk. Remember, these elements are the “active” side.  I, for sake of the theme of this article, will assume that providers acquire adequate insurance policies utilizing industry professionals in their development plus that they maintain modern IT infrastructure to secure patient data, etc.

  1. Organizational Focus on Patient Care Quality and Service: This isn’t about slogans or marketing rather, it is about having an overall and deeply integrated culture around patient care outcomes and satisfaction. In a pay-for-performance, competitive, ACO world, this element is key.
    • Executive and Board involvement in QA/QI, especially at the highest organizational levels.
    • Compensation for management and executives incorporating (heavily) patient outcomes and satisfaction to the degree that all other elements are dwarfed by the weight given to this measure.
    • Monitoring in-place of key patient outcome data and benchmarking of the same.
    • Monitoring of response and wait times.  This element is key as the goal is to create response times as near as possible/practical to immediate or to minimize wait times wherever possible.
    • A program of patient/family engagement that includes surveys, focus groups, etc.
    • A grievance resolution system that is open, accessible and seeks to address concerns as instantaneous as possible.  The approach must be around resolving concerns without delay and bureaucracy.
    • Staff training focused on customer service, QA/QI, communication and dealing with patient/family stress, trauma, etc.
    • Engagement of staff in a “bottom-up” program or approach whereby lower level line staff are engaged in all training, QA/QI processes, mentoring, etc.
  2. Audit Contractors and Sub-Contractors: The use of contractors such as physician intensivists (hospitalists) and therapy companies, imaging companies, lab providers, environmental service providers (laundry, housekeeping, etc.) is on the rise as organizations seek to control costs and improve efficiency.  Contractors, etc. yield new risk as their conduct, care, service, etc. create a risk transferable directly to the parent organization.  The risk of course, is multi-fold.  First, as applicable, is care risk (outcomes, service, competence, qualifications, insurance, etc.).  Second, is labor risk (legal status, background checks, etc.). Third, is billing risk and compliance risk.  If the contractor is involved in any element of care that is billable to a payer (Medicare, Medicaid, commercial insurance), the organization must assure complete compliance with billing and care provision rules in order to negate billing fraud or inappropriate claims risk (risk of non-payment or worse).  Summarized, organizations must monitor and audit, externally, the work of contractors.  Immunization clauses within contracts cannot supplant audits of risk areas proportional to the scope of the service agreement.  For example, the organization must audit its medical staff, the care provided, documentation, billing as applicable, patient contact and satisfaction, response times, etc.  The same is true for any care service contractor.
  3. Billing Audits: This element is particularly crucial for government programs such as Medicare and Medicaid.  Providers today must get in the habit of reviewing their claims submitted to payer sources, particularly the government.  Two huge risk areas are present today.  First, focused fraud actions against providers under the False Claims Act.  Audits here are all about making sure that what was billed was actually provided, documented, necessary and compliant. Second, billing accuracy such that claim submissions are “clean” and “accurate”.  Denials for inaccuracy, etc. can lead to imbalances in error rates and thus, probes and claims held for review.  The latter negatively impacts cash flow and staff productivity as extra work to justify payment is required. I also recommend that organizations be very, very careful about compensation programs tied to revenues and claims, especially without counter-balancing elements and a strong audit program.  I like billing audits that are third-party conducted, benchmarked against regional and national data (our business should look like others in the region and nationally) and occur episodically and randomly as frequent as monthly and certainly, no less than quarterly.
  4. Organizational Transparency and Staff Engagement: A huge risk area providers continue to face is the mixed message and incongruent messages sent to staff from leadership and at the highest levels of the organization.  The impetus behind so many False Claims investigations and actions undertaken by the DOJ (Department of Justice) isn’t smart federal auditors – its disgruntled staff.  Whistleblowers are the fundamental impetus behind False Claims allegations and actions. Mitigating this risk is simple (beyond doing the right things of course).  Organizations, especially leadership, must be transparent and as open and candid as possible.  The point here is that there really is no reason to not share goals, plans, operating data, etc. with staff.  When I was a CEO, my office was never locked and thus, work and files on my desk and credenza.  My compensation was open and I did not hide what I made or how I made it.  Not too surprising, across decades of running large healthcare organizations, I never had a fraud allegation or an allegation of any impropriety.  Staff knew what the corporate plans were, how they achieved compensation and bonuses, etc.  We gain-shared so staff had opportunities to reap reward as the organization grew and performed.  Staff engagement means at the planning and implementation levels.  It also means active programs of training and a large amount of dialogue regarding why the organization does what it does and where the right and wrong lie.  The same Whistleblower mentality is also fundamentally sound when it is used to police bad internal behavior, including that of management.
  5. Focus on Competence: A simple thing but rarely do I see this element boldly, prominently emphasized.  Competence is about the ability to do what is required at the professional, validated level.  It is about validation of core skills and abilities within a framework of education and testing.  Organizations that focus on developing and maintaining staff and managerial competence limit risk inherently.  All together, risk is often a byproduct of incompetence and protection of a weak, status quo.  If excellence and competence is demanded and the systems engaged and in-place to assure it, then there is little room for marginal, sub-standard and incompetent to remain.  How does an organization focus on competence?  First, eliminate old, worn out HR policies and job descriptions and performance evaluations and replace the same with competency and behavioral standards.  Competency standards are the elements one must demonstrate and perform as part of the job at a repetitive, proficient level.  Behavior standards are the elements of personal conduct and accountability that the organization demands (uniforms, attendance, inservice attendance, etc.). Evaluate standards routinely, move in new skills, refine old skills, educate and test.  Require ongoing passage and demonstration and be intolerant of employees and managers that can’t/won’t meet the competency and behavioral requirements.  Competency standards are required for ongoing employment; reward for performance thus can only and should only occur when the base standard is consistently exceeded.
  6. Be Public: By employing all of your constituents in oversight, the likelihood of getting surprised or being caught off guard is minimized.  Be public as possible with standards, expectations, contact information, grievance steps, etc.  Be open to all criticism and frankly, demand (as much possible) feedback regarding just about anything in the business.  No reason that business goals can’t be public and yes, even margin goals.  Heck, explain why margins are necessary.  Engage the broader universe and community and ask for input and reactions.  People will tell you the good, the bad and the ugly – the latter being where potential risk lies.  Force the conversation and the accountability and in doing so, limit a large area where risk can fulminate.

August 25, 2015 Posted by | Assisted Living, Home Health, Hospice, Senior Housing, Skilled Nursing | , , , , , , , , , , , | Leave a comment

Upcoming Webinar: SNF Therapy Contracts: Your Risks and What You Need to Know

Join me for this informative webcast to learn how to implement a shared risk arrangement with therapy contractors and discover a strategic way to monitor and limit compliance and monetary risk in terms of billing and liability under Medicare The CMS OIG and the Department of Justice are targeting SNFs with heavy therapy case-mix claims under Medicare. In this webinar, conducted for HC Pro, I will cover the nature of the current levels of compliance risk, False Claims actions, and contractual risks between an SNF and its therapy provider. I will also review current case examples involving Extendicare and RehabCare. Registration and more info. are available via the link below.

http://hcmarketplace.com/snf-therapy-contracts-shared-risk-arrangement-to-reduce-citation-risk?code= EW320945&utm_source=HCPro&utm_medium=email&utm_campaign=YL031015

February 4, 2015 Posted by | Assisted Living, Skilled Nursing | , , , , , , , , , | Leave a comment

Boards of Directors: Success, Mediocrity and Sometimes, Failure

As a follow-up to a recent post on Boards of Directors and corporate governance (http://wp.me/ptUlY-gq), this post addresses how boards promote success, can often drive mediocrity and in some cases prompt organizational failure.  The take-away where success, mediocrity and failure occur isn’t structure, terms or committees rather, a consistent excellence or break-down in terms of structural clarity, roles, and organizational focus.  Governance which exists, regardless of the framework, to enhance and perpetuate corporate/organizational value, reputational integrity, and shareholder/stakeholder security and return is the foundation for success.

If there is a single condition more preeminent than another that drives mediocrity and failure for a board it is conflict of interest.  This condition is not unique to non-profits or for-profits but in my history, I encounter it more frequently in non-profits, likely due to the inherent lack of compensation available for directors.  The non or limited compensation component in non-profits is more ripe for a “quid pro quo” reward structure in which, the director is a de facto player in the organization’s business via a vendor relationship of some sort.  Even in the best of circumstances, the vendor representative on the board scenario defeats the concept of independence producing an air of duplicity and insider dealing.  If judgment is clouded, opinions suppressed or decisions focused on the inter-relationships among directors and the entity beyond the absolute best interest of the organization, governance cannot be optimal.

Effective governance requires independence and to the greatest extent possible, a board level series of tests and policies that promote independence and police conflict.  Below are the common tools I find most helpful in achieving and maintaining independence.

  • Recruitment of individuals that are unrelated in any regard, to the organization (not vendors, no familial employment, no familial relationships, etc.).
  • Policies that require annual disclosure of employment, board memberships for the director and director’s family, investments where applicable, etc.  This is to insure that directors don’t have relationships, ownership, investments that mask independence.  Note: Disclosure is not enough as once disclosed, remedy becomes the key.
  • An annual review of major vendor relationships such that the same is given to each director as part of his/her annual disclosure.  If a director is anything more than a passive investor in a vendor relationship, the director is no longer truly independent.
  • In healthcare organizations, annual background checks with the OIG, licensing boards (where applicable, DEA (where applicable), and criminal checks are warranted.
  • Policies that require reviews concurrent with major capital purchases, capital projects, mergers/acquisitions, etc. to assure that independence remains among the board.

The element second in importance to independence at the board level is role clarity and policies and organizational structure that clearly delineates the role of the board, the duties of directors, and the key performance elements for the board.  Again, these pieces lacking is a certainty for organizational mediocrity and/or, potential failure.  A board’s primary objective is to assure the viability, health and well-being of the organizational entity.  In this realm, its role is clear.  Where I have seen boards struggle and thus the organization, is when a lack of this clarity exists.  Below is my top seven item list that identifies where boards can assure role clarity for the board and each director.

  • The Board must have a job description or functional description and should each director.
  • Shareholders (and for non-profits, stakeholders) must be identified (not individually necessarily).  This element is where I see non-profits struggle mightily.  For example, for a non-profit CCRC shareholders/stakeholders are not residents.  Residents are customers, even in entry-fee communities.  Shareholder/stakeholders are for certain, any holder of public debt and any holder of mortgage paper.  Major vendors and insurers are stakeholders as well.  The definitional clarity begins at the “organizational level” in terms of where lies, for a board, the duty to assure organizational stability, reputational solidity and organizational viability and financial fluidity.  Yes, customers such as residents are tangentially impacted when things aren’t well-off but truth be examined, a debt failure causes irreparable harm to residents if a board isn’t engaged in securitizing organization viability.
  • A formal function, policy, etc. for board performance review and director performance review.
  • A formal function and structure at the board level for long-term planning – financial, strategic, etc.
  • A plan at the board level for CEO review, retention and succession.
  • A formal function for board development and education.
  • A communication element for discussions/feedback from/with shareholders/stakeholders.

Returning to the title: Success at the governance and thus, organizational performance level is when the board is truly committed and has put into place, the structural elements necessary to fulfill the boards primary duties;

  • Assure independence.
  • Focus on the financial, reputational and legal risks and the securitization thereto, of the organization.
  • Plan for and understand, the environment in which, the organization operates.
  • Assure plans for operating in this environment meet and exceed, the requirements in the second bullet above.
  • Understand and have policies and procedures in place, that clearly delineate the role of the board from that of management.  Maintain a fertile environment for a qualified CEO to garner appropriate feedback, support, reward, and security.  Boards need to assure, for the organization’s viability, retention of high-performing leadership and the succession thereof.
  • Be open and literally virtual, to shareholders/stakeholders.

When I encounter mediocrity and unfortunately, failure or the likelihood of failure, I see the same set of issues repeatedly.  As before, I have seen these most often among non-profits but not exclusively.

  • Lack of independence for directors.  In some circumstances, the conflict of interest is so clear (directors in high-level, influential posts with major vendors) and in some cases, subtle where familial relationship are involved.  Suffice to say, in non-profits this is one is the most prevalent.
  • Involved or have a tendency to become involved in operational issues.  This element is perilous in so many ways.  First, the board exists to function separate and distinct from management.  A board’s job is to procure and secure, competent capable management not to dabble in operations.  If management is underperforming, it is the board’s duty to identify the performance gaps and to assist management in achieving correction but not by becoming involved in operations.  Likewise, boards that find the need to meddle don’t empower management to take risks, drive performance and seek innovation.  Think about it: The presence of board members in operations creates sufficient tension for management and thus, management tends to guard what it does and how it does it.
  • Insufficient knowledge for the industry that the board operates within.  Boards need education sufficient to understand the key risks, shareholder interests, etc. in the applicable industry.  Uneducated boards equal poor decisions.
  • Lack of knowledge and engagement with stakeholders and shareholders.  Remember, this is a key issue even for non-profits. My non-profit clients goof this one all the time.  They believe that the shareholder/stakeholder is whomever they are serving (patients, residents, etc.) and thus, they lose sight of where the organizational risks and commitments (legal and other) truly lie.  Boards engage shareholders and stakeholders, management engages customers.  I can literally write dozens of pages of case studies where boards, especially non-profits, lost sight of (or never had in sight), the actual stakeholder/shareholder and ultimately, what happened and how painful it was.
  • Lack of a risk management structure at the board level.
  • Lack of a process and commitment to strategic and financial planning.
  • No or a deficient process for board recruitment, review and performance measurement.

In the final installment of this three-part series, I’ll cover best-practices for governance, specifically in the healthcare/post-acute care/seniors housing environment.  In so doing, I’ll cover the issues such that regardless of tax status (exempt or taxable), the information is relevant.

 

 

 

April 8, 2014 Posted by | Assisted Living, Home Health, Hospice, Senior Housing, Skilled Nursing | , , , , , , | Leave a comment

Boards of Directors: Outside Looking In

Over the course of many engagements plus my years as an executive, I’ve addressed and been asked to address, the theme of effective governance, particularly at the Board level.  To bring this topic into full context, one of my many “hats” that I wear (periodically), is as an advisor to graduate and post-graduate students working in the arena of health policy and healthcare management. One of my students currently, is researching this topic of governance especially as the same (effective v. not effective) correlates with organizational prosperity.  Her area of concentration in this research is non-profit health care organizations, though for-profit organizations are included as a contrast subject.

Her research and our conversations, reviews, etc. are fascinating as the content leads me across my many experiences serving on boards (non-profit, for-profit and publicly traded) as well as my many client engagements working with and/or in conjunction with, senior executives and their boards.  Upon further thought it thus occurred to me that I haven’t written anything as of late on this whole issue of governance – what it is, what it should be, where effective and ineffective collide in terms of organizational prosperity, etc.  Of course as always, my episodic journey (fits and spurts over a few weeks where time permits) led me through tons of stuff from my notes on engagements to former lectures and presentations to other research I have gathered.  Being brief: Wow.  I have a collection; quite a bit deeper than I thought/remembered.  The net of my review is that this topic of “governance” lends itself to a series of posts.  This is the first and for simplistic sake, it covers the core duties and the counterbalance of liabilities, for any Board (non-profit or for-profit).

To start, the core duties of a board are completely separate and thus, different from the core duties of management.  A board has a bifurcated role and responsibility.  The first duty is the advise and consult responsibility with management concerning the strategic and operational direction of the company.  The second and equally important duty is to monitor company performance at the macro level (financial, compliance, risk, etc.).  Topically, the latter element includes but is not necessarily limited to (not in particular order);

  • Approval of strategic plans and strategies.
  • Testing of performance measurements and oversight of risk management.
  • Succession planning for the top executive(s) and the process of selection, when required, thereof.
  • Audit – assuring the completeness, compliance and integrity of financial statements
  • Compliance – assurance that the company/organization complies with all federal, state and other related laws and regulations.
  • Approval of major capital investments
  • Protection of company assets and reputation, including tangible and intangible assets (intellectual property, trademarks, name, etc.)
  • Assure adequacy of executive compensation packages and develop and implement, the same in order to assure the security of key executive(s).
  • Represent the interest of shareholders and/or stakeholders (non-profits).

The key issue for a board is the concept of independence; the independent director.  In this regard, the ideal is that a board is solely interested in the welfare of the organization and thus, each director is free of self-interest such that the same would compromise his/her judgment and/or render him/her unable to take positions opposite of management when required.

The board is headed by the Chair(man or woman) who is responsible for agenda, meeting schedules and structure, committee coordination and overall communication within and across the board.  Boards make decisions on a majority rule basis unless specifically required otherwise (certain actions may require a super-majority) and such decisions are based on the information and input from management.

Board committees may exist in large numbers or in smaller numbers.  In healthcare, the following committee functions/board committees require specific attention.

  • Quality/Compliance: This is a major risk area and it is perhaps, the most critical oversight function for a healthcare board today.
  • Governance: Boards need to address new member recruitment, director performance, board performance, board education, etc.  This element also includes CEO performance and may/may not encompass compensation for the CEO.  Some organizations split compensation into another committee.  I have found both split and shared equally as effective if properly managed.
  • Audit/Finance; Second only to compliance in terms of risk, boards need to engaged in the review of investments (capital, other), financial statements, the engagement of auditors, the review/approval of financial plans, budgets, forecasts, and where applicable, any organizational financing activities from feasibility through completion/non-completion.  This function also encompasses financial risk management and review of public release information.

Board terms are all across the map today but the two best practice models I favor are one-year, annual election of members or staggered two or three-year terms.  Each have merit and each have flaws.  The true test of effectiveness of any “term” condition is how effective the governance function is in terms of director review, board review, etc. Boards that have effective director performance review, clear criteria and effective board performance review self-police and thus, make term conditions work regardless of length.

Finally and key for all boards and members to understand is that boards have specific legal duties, typically identified under their respective state laws or as embodied in case-law.  These duties are typically identified as “fiduciary” in nature.

  • Duty of Care: The requirement that decisions are made via deliberation and investigation/data.
  • Duty of Loyalty: The requirement that directors act in the best interest of the corporation or enterprise.  This duty has also been, in some case-law decisions and state laws, expanded to include the best interest of shareholders.
  • Duty of Candor: This is more applicable to publicly traded companies but I have found it universally applicable.  It essentially means that the Board provides all relevant and transparent information to any party where the organization solicits business, solicits investment, or is inclined to be or involved in transactional business.  Effectively, this is the full and honest disclosure rule or as I like to call it, the tell the truth”  principle.

In my next post, I’ll explain how the implications of board duties, structures, etc. play out in real life and how public vs. private (non-profit vs. for-profit) situations compare and contrast.

March 18, 2014 Posted by | Assisted Living, Home Health, Hospice, Senior Housing, Skilled Nursing, Uncategorized | , , , , , , , , | 2 Comments

Assisted Living, PBS and the Lessons Learned

Since last week, I’ve fielded a number of questions/inquiries stemming from the PBS segment on Assisted Living.  Interesting, a number of the queries have come from sources tangential to the industry (policy folks, trade associations, advocacy groups, etc.).  Thematically, these sources are looking for answers as to “why” and “what can be done”.  Aside from ill-advised regulations, my perspective is the best fix is an industry driven effort.

One could over-simplify by saying, “don’t take anyone as a resident that needs more care than can be or should be provided in Assisted Living” but that’s not practical.  Residents change throughout their stay, sometimes rather abruptly.  The most complex changes, and those that represented the focus of the PBS piece, are cognitive and behavioral.  While medications exist to ameliorate or control certain behaviors, the medications have side-effects and are ideally, the final, last course of behavior management.  In all instances, behavior medication should only be given in a setting where a Registered Nurse is present and assessments and monitoring can occur (remember, only Registered Nurses can assess by license authority).

The lessons learned or should have been learned and the counsel I have provided to clients and inquisitors alike is as follows;

  1. Be clear with residents and families on admission, what kind of staff are on-site and immediately available.  This communication should frame then, the services that can and will be provided.
  2. Be clear with resident physicians on the same information.  Don’t encourage or allow physicians to become comfortable with providing orders for PRN (as needed) medications if the same medications require a professional assessment prior to administration, unless the facility has RN coverage on each shift.  Effectively, this means that PRN orders for anxiolytics, hypnotics, anti-psychotics, narcotics, etc. are inappropriate without access to an RN for an assessment.
  3. Beef-up pre-admission screening and assessments with qualified, licensed personnel to fully understand, prior to admission and re-admission, the care needs of the resident.  In many cases, I advise going to the resident’s current place of residency prior to admission.
  4. Make certain that any public (written in particular) or oral representations of Assisted Living as an alternative to nursing home care are gone and certainly, not made or implied. Assisted Living is not a substitute for institutional care if the institutional care is truly required.
  5. Create specific assessment and re-assessment periods to address care changes more frequently.  I like quarterly reviews for Memory Care residents and no less than semi-annual for Assisted Living (non-Memory Care).  I also like mandatory 30-45 days post admission, again at 90 days and then semi-annual.  I also like this schedule to repeat whenever a resident is hospitalized and returns or returns after an SNF stay.
  6. Utilize evidence-based, best practice protocols for AL and Memory Care.  AMDA is a good resource.  Provide physicians with the information as well.
  7. Develop and utilize, a solid orientation and training program for staff.  For Memory Care, there are some good resources available today from Leading Age, AHCA and ALFA.  For facilities and organizations that are heavily invested in Memory Care, I also recommend exploring and using, TCI or CPI to augment training (specialized training in dealing with aggressive and combative behaviors).
  8. Be focused on staff levels based on care needs of residents.  If increasing or integrating more professional staff is not an option, be vigilant on discharge planning or transition planning.  Bottom-line: If you can’t effectively meet resident needs 24/7, say so and start discharge planning.  Have sufficient numbers of staff trained and available, even PRN if required, to address resident care challenges.

For facilities/organizations capable of going to the “next” level, either by size or by financial status, I recommend the following as true “game-changers” for Assisted Living.

  1. Contract with a “house doctor” or Medical Director.  Build a system that integrates elements of medical oversight and engagement with your resident population and staff.
  2. Expand the care team to include social workers, in Memory Care a psychologist or psychiatrist (or RN extender), a dietician, qualified activities professionals, and rehabilitation therapists.
  3. Employ a building or program administrator with appropriate degrees and training plus a demonstrable history of working in a post-acute/long-term care environment.  Paying a bit more is worth it for someone with appropriate training and education.
  4. Become active participants in state and national trade associations.  Encourage staff to participate as well.  I also encourage networking with other professional organizations such as the Alzheimer’s Association.
  5. Hold regular family meetings or focus groups to both inform and solicit feedback.  I like at least semi-annual.
  6. Connect with a local home health provider for staff augmentation when residents need more care, temporarily or until discharge.  I also recommend connecting with a hospice agency.
  7. Contract for pharmacy consultations on all residents and if possible, have a pharmacist as a resource to Memory Care staff.

Final Word: Communicate and be clear with residents and families regarding the services that are “truly” available and where the “appropriateness” line resides for the organization/facility.  Don’t ever extend beyond what staff can provide and what the organization is capable of delivering on a consistent almost constant basis.  Recognize that resident care needs change and that limitations exist as to what ALFs can and should provide.  Be clear, be compassionate, and be honest – within the community and the organization.

August 6, 2013 Posted by | Assisted Living, Uncategorized | , , , , | 1 Comment

Emeritus/PBS and a Window on Assisted Living

PBS is planning on airing a segment tomorrow (Tuesday, July 30) on its program Frontline, highlighting Assisted Living care in the United States (titled “Life and Death in Assisted Living”).  Much of the content focuses on Emeritus and other large, for-profit operators.  A link to the PBS website follows as summary to the broadcast. http://www.pbs.org/wgbh/pages/frontline/pressroom/frontline-propublica-investigate-assisted-living-in-america/

I have seen a first-run of the program on a pre-release basis finding it fascinating, troubling, accurate and inaccurate all at the same time.  The core takeaway that I found relates to an issue I have written on, lectured on and consulted on for a number of years now.  This issue dominates the conundrum that is Assisted Living.  The issue is what I label as “appropriateness”.

Routine readers and followers of mine know that I am of the opinion that the Assisted Living industry is essentially over-developed in most major markets.  By over-developed I mean more units than true “appropriate” demand.  The PBS piece reflects this to a learned viewer.  Like Hospice, the true niche’ for Assisted Living and particularly, Memory Care in Assisted Living, is rather small if we apply the “appropriateness” criteria.  Taking the analogy a bit further (Hospice and Assisted Living), the fraud trend that has enveloped a major portion of the Hospice industry via primarily Vitas (and others) bears striking similarity between the PBS/Emeritus feature segment; a large supply of outlets, a drive for continued earnings growth, and a lack of truly appropriate patients and/or residents to fuel the occupancy/encounters required to support continued earnings growth, increasing sales, etc.

While I realize the above is a bit esoteric, the logic is economically sound at all ends. More is often not better and the principal of diminishing utility is easily visible, especially to the customer when supply exceeds demand in health care. The plain fact of the matter is that the Assisted Living market has flourished due to a drum-beat fallacy that it is a suitable replacement in many regards, for structured institutional care.  This myth is perpetuated by policy makers who crave relief within their Medicaid programs (transition nursing home residents from institutional care environments to assisted care facilities and save big money).  It is perpetuated by senior care advocates.  It is fostered by marketers for AL companies that ply families with a mixed message of phenomenal care in non-nursing home settings, etc. In the end, no matter what the rhetoric, the reality rises – appropriateness.

Before anyone assumes that I am a basher of the Assisted Living industry, think again.  I have run Assisted Living facilities, developed them and consult for Assisted Living operators, investors and developers.  Like Hospice, I think Assisted Living is phenomenal, when used and structured “appropriately” (there’s that word again). The problem is that the “appropriateness” definition has morphed and incorrectly so.

Assisted Living is a growth industry primarily because it remains essentially unregulated in terms of development and minimally regulated in terms of operating.  True some states are a bit more rigid than others but for the most part, building an Assisted Living facility is primarily a capital-raise challenge as opposed to a licensing challenge. The sole impediment, once capital is available, is community zoning ordinances in most states.  Even then, working with most communities and through zoning is not an insurmountable challenge.  With a fueled belief that an onslaught of baby-boomers will chew-up unit supplies (these boomers not yet even close to Assisted Living age profiles), units spring forth.

As units sprung forth, what many developers and operators first noticed is that the promised circle of consumers was a bit “short” for occupancy targets.  No problem.  Thus, a re-labeling or re-purposing began to take shape.  Turn the excess into Memory Care via new labeling and plow another niche’.  This re-purposing worked enough to beget a new trend; build new Memory Care Assisted Living units.  Fueled by all of the same non-realities as mentioned before and a rather simplistic and easy development environment supply of Assisted Living and Memory Care cranked-up.

By definition in most states, Assisted Living and Memory Care is a non-skilled environment.  To that point, most operators don’t consistently staff a registered nurse or other skilled personnel on a daily basis and to this point, they aren’t required to by regulation.  The typical model includes varying degrees of professional or licensed presence ad hoc as opposed to directly purposed.  In this ad hoc system, professional staff act more like consultants rather than direct caregivers.  Most states don’t require a specific license or education component for the building administrator or manager; typically a minimal training or vocational course with a test.  I have literally encountered Assisted Living managers who have a high-school education and were formally, food service personnel or in one rather larger organization, a failed insurance salesman.  His training consisted of a three-day state endorsed program, followed by a multiple choice test earning him a “license”.  He was hired despite never running a facility or working within an elder care environment. The company brought him in as a “trainee” and promoted him within three months to a manager of a 70 unit facility; Assisted and Memory Care.

Where the industry challenges lie are at the appropriateness level.  Assisted Living is appropriate, properly structured, for residents requiring minimal to no direct professional care.  It exists to provide a structured, non-institutional environment and care level that includes meals, ADL care, cueing, activities, and wellness.  The bulk of the care can and should be provided by non-licensed, non-professional individuals.  Correlating to regulatory requirements current in most states, this is the basic premise and thus, definition.  Given today that in many locations, supply of units exceeds individuals who truly require this minimal level of direct care, operators in need of occupancy and revenue, introduce higher-care level residents.  Since the regulatory environment is minimal and structurally, ill-equipped to monitor the number of Assisted Living facilities, operators could freely expand the “appropriateness” criteria to suit their business needs.  Unfortunately, as the PBS segment implies, the infrastructure for many operators (particularly staff levels, skill and training levels) didn’t adjust to the actual care needs of residents.

It is important to note, not all operators are guilty or frankly even the majority, of stretching the appropriateness definition and when more challenges arise, they have staff and programs in-place to adjust their care accordingly.  As in hospice, the typical bad-actor pattern is apparent arising from a fundamentally flawed business model, incongruous with the customer.  I like profit and so do my clients, including my non-profit clients.  The problem arises when profit becomes too short-term, short-sighted and drives all decisions separate from the underlying needs of the customer.  As in Hospice for certain organizations, the economic realities of the industry that is Assisted Living , primarily supply and demand, are working against it.  What I fear most for the industry is a regulatory back-lash that like all back-lashes regulatory, will be onerous, ill-conceived and punitive for the providers doing it “right”.

July 29, 2013 Posted by | Assisted Living, Senior Housing | , , , , , , | Leave a comment

Five Things Every Healthcare Executive Should Focus On: Updated, Revised

More than two years ago I wrote a post regarding “five” things every SNF administrator should focus on and lo and behold, a reader asked late last week if I would revisit this subject.  She (the reader) is not an SNF administrator so she asked if I could focus more globally; sort of a “best practices” approach.  While each health care industry segment has its nuances, in reviewing my travels, the challenges and successes leaders have, where failures occur, and where careers are made and sustained, I quickly found commonality in approaches and focused competencies.

Healthcare leadership is complex and very dynamic.  The alchemy is nearly one-part inquisitor, one-part psychologist, and one-part theoretician.  Those that do well and thrive, regardless of industry segments, are today “global” thinkers capable of transitioning to tactician seamlessly.  They are outcome oriented and know the pieces of the puzzle well enough to be bull**it proof.  They think and act as if synergism is their main duty and they understand (acutely) the law of unintended consequences.   Bottom line: They see cause and effect and constantly seek ways to shorten the distance between the two.

Industry issues aside regarding changing reimbursement, regulation, etc., the focal core that I find as key and thus, displayed in action by the successful executives is as follows.

  1. Quality: This is an oft used buzzword but very skilled and successful executives can articulate this for their business immediately.  In healthcare, quality is all about tangible outcomes that patients experience.  Going one step deeper, quality today is also about a measurable outcome at a particular cost.  In my economist jargon, this is about utility and warranty.  Utility is maximized in healthcare when the payer and the patient receive a desired, tangible outcome at a market or below market price.  Warranty in healthcare is about the outcome’s sustainable benefit to the patient and the payer.  Technical yes but this theory is a key focal area for healthcare executives.  Think about it tangibly in light of today’s issues.  Hospital executives need to understand this because it impacts re-hospitalizations.  The outcome must match the warranty or in other words, the care must be complete such that avoidable readmissions are low or non-existent.  For SNF executives, the same holds true but with a slight twist.  The SNF executive must deliver excellent care all while minimizing the risk areas that lead to re-hospitalizations such as infections, falls, and medication errors.  As a core competency, the best executives I work with didn’t wait for the government to tell them to reduce their falls, reduce their re-admissions, etc.  They knew these issues years ago and had already understood the relationships between quality or utility and warranty.
  2. An Outside-Inside View: Where I find failings in healthcare leadership it almost always starts with executives that believe their challenges and their industry are utterly unique.  They not only bought the healthcare executive manual but they memorized it.  They seek only peer knowledge or interaction, often I believe to validate that “they” are doing the same thing everyone else is doing.  Alas, the story of the Lemmings on their way to the sea is cogent.  What I see as key competency among the best is that they have an “outside-inside” view competency.  This outside-inside view is characterized by looking beyond their industry at analogous problems or issues and seeking solutions that are applicable.  Yes, healthcare is unique but certainly not so unique that strong parallels in marketing, customer service, project management, systems design, etc. can’t be found via other industries.  Across my career, the best ideas I’ve used came from other industries – not healthcare.  I simply altered the concept to fit the situation.  Philosophically, “the coolest things in life exist in places where their aren’t any roads”; a quote from a former camp counselor to my son.  Developing this competency is all about forcing oneself to explore well beyond the industry noise, rhetoric and ideologies.
  3. Small Spaces and Closet Organizers: As odd as this heading sounds, it makes sense to me when I see it applied.  The industry has run through its hey-day where bigger was better and, “if you build it, they will come”.  Really strong executives today have learned how to creatively adapt and re-adapt and they realize the core competency of “revenue contribution” per square foot is the new reality.  This competency area is all about revenue maximization and in a go-forward universe of revenue stagnation via reimbursement cuts and flat payments, using space efficiently and keeping the closets organized rather than overflowing with stuff not needed nor ever used, is the requirement.  Gone are the days where more is better or additional lines of inventory make sense.  This focus is truly a trend from manufacturing where realities on plant size, productive capacity and just-in-time inventory came to roost many years ago.
  4. The True Meaning of Health Policy: This is about the Paul Harvey requiem; “the rest of the story”.  Health policy impacts are point in-time in terms of regulatory implications and reimbursement implications but woven together, a trend is evident.  This competency area is about knowing what the policy trends are, where Medpac is going and why and how the enterprise led should position accordingly.  I have written repeatedly that regardless of regulation and new laws like the PPACA, core issues about entitlement financing, sustainability of funding, etc. will beget certain and permanent changes in health policy.  Ignoring these realities and the resulting policy trends is akin to committing hara-kiri with a butter  knife; no one blow is fatal but the culmination of all blows leads to a slow, painful death.  Much is trending right now regarding networks, ACOs, bundled payments, pay-for-performance, accountability, fraud, etc.  Knowing not only the implication of each but how the same is directing the future is a core executive competency.
  5. Freakonomist: OK, I’m stealing from a book title here but the point is simple: Healthcare executives need to understand at a certain level, core human behavior and economics.  I’m not talking about finance or reimbursement but behavioral economics.  One of the major problems or arguably, the single most demonic problem with healthcare today lies in the axiom that “what get’s rewarded, get’s done”.  We have lived too long on the native belief that acute, fee-for-service, episodic medicine or care is how the U.S. health system thrives.  Thus, we have overspent and over-taxed the system without regard to a potential breaking point.  We have arrived at such a point.  Today’s healthcare executive must realize this core reality and to survive and thrive, re-define his/her leadership to developing systems and services that prevent utilization or revise utilization to more of a minimalist plane.  Those that embody the philosophy that “better is better” rather than “more is better” will understand this innately.  This competency is about “solving” core problems and not chasing root, flawed ideologies of the past.  Profit and success will come via innovation and system-thinking not from finding new ways to exploit Medicare and Medicaid.

November 13, 2012 Posted by | Assisted Living, Home Health, Hospice, Senior Housing, Skilled Nursing | , , , , , , , , , | 3 Comments

Know Your Market, Know Your Value Proposition

Last October I wrote a post regarding the development of an Economic Value Analysis and how the same is important for marketing seniors housing and skilled nursing.  A couple of weeks ago, I wrote a post regarding feasibility tests key to project success and targeted feasibility.  Later this year, in October at Leading Age’s annual conference in Denver, I’ll again cover the concepts in a direct, interactive fashion.  Until such time however, I continue to receive dozens upon dozens of inquiries as to how to construct an Economic Value Analysis and a corresponding value proposition.  Last October’s post is instructive and can be found at http://wp.me/ptUlY-7G.  In addition, and in concert with the post prior to this one on financial feasibility methodologies, I’ve provided below some additional “help points”.

Economic Value Analysis is a fairly simple process that centers on determining the ability or capability of a product or service to satisfy the core demands of a given market; the ability to quantify utility.  Utility in this context, simply stated, is satisfaction at a given price.  For seniors housing, the struggle always is “how” to demonstrate value to potential consumers in a way that is logical and meaningful.  This is acutely problematic in a market that is competitive as the “noise” emanating from all the competitors regarding price and services is constant and at times, deafening.  At its core, Economic Value Analysis creates a more tangible constant.

Given that seniors housing has a very elastic demand curve (a great many substitute products provide equal or proximally equal core utility), the devil is creating a comparison basis and this basis is not “stated price or features”.  A place to start is completing a simple analysis that equates a seniors housing unit per square foot cost (cost = fixed costs, variable costs, and margin) to the comparable alternatives in the market.  In this case, comparable alternatives equal rental housing, other competitors, community dwellings (housing units, condominiums, etc).  Ignore your current pricing structure as unless the same is equalized on a square foot basis, this analysis won’t provide a true picture.

Taking the example to the next level, once the cost per square foot is known, determine the relevent market comparables.  This does take some homework but it is fairly easy to complete.  Via simple survey, one can generally gather enough information from realtors, friends, etc. to determine a community housing cost per square foot (utilities, taxes, rent costs, depreciation/maintenance, etc.).  Gaining information from competitors is even easier as typically, they publish the information or a simple “blind shopping” trip gathers all the necessary information.

Once the information is gathered, populate a simple spreadsheet with the data.  If the core cost per square foot for the seniors housing option is higher, and it typically is, the analysis must delve deeper.  Usually, elements that drive costs for seniors housing come in the form of rate or price inclusions such as meals, cable television, maid/cleaning services, etc.  Two approaches to deal with this issue are possible.  First, back these costs out of the seniors housing number and re-analyze the comparables.  Second, and my recommended method, gather data on these services and develop a square foot comparable.  Between competitors, the key is to keep the data as apples to apples as possible so one must be clear that the costs include exactly (or as close as possible) the same features/amenities, etc.

Once all the information is known and “spread” and sorted, the picture should become clear.  I like to look closest and hardest at the comparison between living at a seniors housing complex versus living in a market rate situation whether that is home, condominium or rental.  The age-old belief among seniors is that a seniors housing community is too expensive.  The analysis should detail where the true costs lie.  Expect some price sensitivity issues where the seniors housing is a tad more expensive but the difference should be clearly and easily explained (24 hour services, access to care, transportation, etc.).  The more than can be quantified in the form of dollars, the tighter the analysis becomes and the easier it is to explain where the salient benefits lies.  If the gap between the seniors housing cost and the alternatives is too high, the issue may lie in the structural elements of the equation such as inordinately high fixed costs or variable costs.  Becoming competitive may require changing, if possible, the financial drivers of the seniors housing project equation.

Concluding, the square foot model works exceptionally well in this analysis as it provides flexibility to model and to change any number of variables.  It also is “non-unit” specific so its data and results aren’t skewed by less-than relevant unit pricing schemes.  The difficulty simply lies in taking the time to build the model and to accurately gather solid data from the “universe” of housing alternatives.  Assuming costs mirror most of the market, the value proposition thus becomes a powerful tool that can and should be used in market positioning.

April 3, 2012 Posted by | Assisted Living, Senior Housing | , , , , , , , , | 1 Comment