Home Health and Assisted Living: Compliance and Litigation Tips to Note
A growth, if you will, opportunity for many Assisted Living facilities is caring for a more clinically complex resident or resident group. The clinical complexity is very much tied to additional medical and physical frailty, necessitating access at times to skilled nursing and therapies. Most Assisted Living facilities, especially those not affiliated with a national or regional organization with infrastructure services such as therapies, seek services from Home Health Agencies when required. In this manner, the Assisted Living core staff are for resident ADL needs and care primarily, and the intermittent skilled needs of certain nursing interventions and therapies (OT, PT, etc.) are provided by the Home Health Agency.
What occurs when an Assisted Living and a Home Health Agency work collaboratively to serve certain residents with skilled needs, is a bifurcated relationship where roles and responsibilities for resident care and service can get murky. Briefly, here are the two organizational duties for resident care.
Assisted Living Facility:
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- Room and Board accommodations including (typically) common areas, dining/meals, some level of furnishings, utilities, access/egress, outside areas, etc.
- Staff supervision of residents in general and the facility including maintenance and cleaning of the environment
- Resident assistance or direct provision of ADL cares such as dressing, toileting, bathing, mobility/transferring, eating but not generally, feeding assistance.
- Social activities for residents and certain social services.
- Medication management and administration. Facility may/may not accommodate medication ordering via a pharmacy relationship.
- Other services such as religion/pastoral care, beauty/barber, transportation, dietetics, physician, banking, etc. may/may not be available.
Home Health Agency:
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- Physical, Occupational, and/or Speech Therapy as assessed by need and as ordered by a physician.
- Skilled nursing services if required, as assessed by need and as order by a physician. These services typically include education, various wound treatments, complex catheter care, IV services, ostomy care, pain management, etc.
- Services are provided as needed by the resident.
- The Agency must provide training/education to the Assisted Living Facility staff regarding the skilled services/care it is providing.
- The Agency is responsible for care coordination between the two organizations such that, its orders and services are reflected as required by law, in the resident Service/Care Plan.
- The Home Health Agency is also responsible for billing insurance or Medicare and for keeping its own medical record.
- The Agency is responsible for patient supplies as the same pertain to their provision of skilled services.
- The Agency is responsible for maintaining compliance with Medicare Conditions of Participation and it cannot delegate any related tasks or duties to the Assisted Living unless permitted by regulation. Examples include obtaining orders for care, updating physicians as needed, documenting service provision, reconciliation of medications, etc.
Think of the relationship this way. The Assisted Living serves as the resident/patient’s home. This is no different than if the resident/patient lived in the community, in their own residence. One could easily create the relationship via a mental picture of the Assisted Living staff as familial caregivers.
The Home Health Agency’s relationship is then, no different than if the patient resided in their own home. The Agency must assess, develop a plan of care, coordinate visit schedules, document the care, share info. with the patient and the family (Assisted Living staff), and when appropriate, discharge plan and coordinate care for any additional services.
The compliance and litigation perils occur when the relationships between the two become blurry or, when either entity fails to properly meet its separate obligations. Here are the common risks that I routinely see/encounter.
- The Home Health Agency fails to incorporate the Assisted Living in its plan of care and to educate the Assisted Living of the same, especially if follow-through is required on ADL education or support.
- The Assisted Living fails to update its Service Plan for Home Health services, as required. The biggest error I see here is typically with regard to therapy services and the introduction of any new devices (e.g., walkers, canes, support bars, adaptive equipment).
- The Home Health Agency delegates physician and family contact to the Assisted Living for Home Health related service needs.
- The Assisted Living fails to notify the Home Health agency of changes in resident care, conditions, etc. such as noticing a change in skin condition, a change in a medication order unrelated to the Agency’s skilled services.
- The Home Health Agency fails to coordinate care via discharge planning, even though the resident will remain at the Facility.
- The Home Health Agency does not do med reconciliation on each visit, believing that the Facility should update the Agency with any new medications or order changes.
- The Agency is not responsive on a timely basis to resident condition changes including, hospitalizations. The Agency must be on-call and connected to resident condition changes, documenting and addressed service/care plan updates as required, especially post-hospitalization.
The risks associated with caring for a more complex resident/patient in an Assisted Living environment when Home Health services are initiated are many, as indicated above. I suggest Assisted Living Facilities try to coordinate their Home Health offerings, where possible, with a few or even, one agency. With good collaboration between providers, the risks can be minimized. In any regard, both providers need to understand their roles in resident care and make sure, staff are well-versed in their respective responsibilities. I advocate tools/cheat sheets if you will, especially for AL staff, delineating “who does what” and where, resources can be sourced if need be.
Litigation Risk and Assisted Living Facilities
As I mentioned in the prior two posts, litigation activity is on the increase, post-COVID, and some of the most fertile ground for plaintiff’s counsel is Assisted Living. SNFs are still as targeted but as stays decrease and facilities improve care capability, the trend remains level, for the most part. Where perhaps, Assisted Living and Independent Living were in the background, today that trend is changed.
Assisted Living’s litigation fertility is born from a number of conditions. Each of these play an interdependent role in “why” litigation is on the increase.
- Capacity in many markets is greater than supply of appropriate residents. The industry-wide view for years was “build it and they will come”. The reality is that Assisted Living is by origin, a fairly narrow market need. Its original purpose was to take a resident that was basically independent once, ADL assistance was provided. Either via cognitive declines or physical frailty, the care needs of the resident were such that active engagement of professional level nursing was not required and should the same be required, the resident moved to a nursing home. The demographic today, however, is quite a bit different.
- For year-end 2022 and the last calendar quarter, Assisted Living occupancy averaged 80.7%, just a tad better than SNF occupancy. Performance and cash flow return for facilities is above this level – generally 85% and above, depending on the size of the facility and whether the same is free-standing or part of a CCRC (source: NICmap). 4Q22-NIC-MAP-Market-Fundamentals-PDF
- When occupancy lags, the challenge is to maximize occupancy and the two options are to maintain existing residents as long as possible (even perhaps where the same is unwarranted) and/or to admit new residents. The challenge with admission is that all facilities in a given area likely are chasing the same residents and as is the case with Assisted Living, financial qualification may be difficult. Costs today for private units plus care can run proximal to SNFs.
- As facilities seek incremental census gains, the push to admit residents that may not be appropriate for the setting by need or to maintain residents not appropriate for the setting increases the risk of negative outcomes and thus, the risk of litigation. All too often, facilities may increase care acuity and need within the resident population without matching by staff level and service competency/capacity. This gap between the care needs of residents and the ability of the staff to meet such needs is a certain risk area for poor care and thus, litigation.
- As facilities seek to maintain residents in-place, the use of outside agency resources to do so further heightens litigation risk. For example, the introduction of hospice to maintain terminally ill residents may seem like a good idea yet, if the Assisted Living Facility is not fully aware of each provider’s responsibility for what care needs, residents can “fall through the cracks” in terms of service. The same is true with Home Health services for skilled rehab or nursing care.
Diane Hislop, RN, Sr. Partner at H2 Healthcare, LLC and head of the compliance practice, identifies some of the key perils she has seen in her practice. Ms. Hislop’s work also focuses on litigation (defense) on a forensic and expert witness level. “I see facilities admitting and maintaining, more challenging residents with growing diversity in care needs. If the facility is prepared for such residents by staff number and skill plus other service support (nutrition, therapy, social services, etc.), fine but, often the facility may not have such resources. The regulations don’t require the same levels of staff as an SNF yet, the resident may be borderline, SNF appropriate”.
Per Ms. Hislop, facilities need to borrow or utilize, many SNF tools and standards, even if not required by regulation, if they intend to take care of more complex residents. Even without requirements, best practices standards are what facilities should follow, by care needs of residents Hislop said. “The litigation I see is less about what is required and more about what residents needed and did the facility provide the requisite standard of care”.
Ms. Hislop stated that the tricky part of Assisted Living care centers around the goal of maximizing independence for the resident and choice. Often, families and physicians and extenders, don’t understand the industry standards and are quick to want unwarranted and improper interventions. “Restraints, chemical and physical, are the hardest to explain to families and practitioners, especially when residents are a fall risk. Things like side rails on beds, bed and chair alarms, forcing residents to sit in certain areas for observation are all in the ‘restraint’ realm. Families simply don’t grasp this and can run to the ‘facility did not do enough to stop my loved one from falling accusation’. Sadly, I see practitioners (doctors, NPs, etc.) who facilitate the misunderstanding. Maximum choice, even for residents with cognitive impairment along with maximum freedom, is the standard. The difficulty is that the same, allowing the resident as much choice and independence as possible, opens the door for increased bad outcome risk. The hallmark in U.S. healthcare is that the individual has the right to make his/her own decisions (under most circumstances) even if the same, are ill-advised or perhaps, poor choices”.
Another litigation area Ms. Hislop noted was when other providers such as hospice or home health are integrated into the Assisted Living facility. “I have cases where the litigation is about a bad outcome, an alleged wrongful death and there are two parties involved – for example, a hospice and the Assisted Living facility. Both have a part of the issue as each, had a distinct requirement of service and as is often the case, one assumed the other would take care of the issue. For example, a hospice not getting pain control in-place as the resident was dying and being symptomatic. The Assisted Living facility has basically a role as room and board and to provide meals, administer certain medications, and to update the hospice. It is the hospice’s duty however, to put the plan in-place to provide for the terminal care needs of the resident and that includes, medication related to the terminal diagnoses. Delays in care can be problematic”.
Below are Diane Hislop’s key recommendations as the same pertain to litigation risk in Assisted Living facilities. It was great getting her expert input for this post!
- Have clear admission standards and discharge standards for the facility and make families and residents aware of the same. Only take care of the residents the facility can safely manage by resources.
- Use best practice tools and standards for resident care even if the same are not required. Some are on this blog but others, can be easily found (e.g., fall programs, fall investigations, cognitive assessments, etc.).
- Utilize only a handful of outside resources or fewer if possible. If the facility is going to offer hospice to residents, pick and partner with a certain agency. This is possible. The same is true with home health. In this regard, the providers can develop a working relationship and a solid interface plan as to “who does what, is responsible for what”.
- Educate, educate, educate, staff and families on what is possible in an Assisted Living facility and what is not.
- Make sure staff have competencies, tested and trained no less than annually, in key care approaches and delivery, consistent with resident needs. Don’t short-cut this step with agency staff either and certainly, don’t hustle new staff into roles where they are unprepared for the care needs of residents.
Litigation and Staffing: What to Know, What to Control
Following up from my last post regarding staffing and litigation risks, this post concentrates on “what we know” and “what we can control”. For example, what we know is that there simply is not enough staff (clinical and even non-clinical) to fill a provider’s vacant positions. The world in general knows this and the press, is oft to repeat a narrative where staff shortages cause negative outcomes, long service waiting times, delayed or deferred admissions, etc. Not a week goes by where I don’t see a news story, on-line, in-print, or on television focused on a health care staffing concern of one level or another.
As I mentioned in the prior post, the heightened alarmism and focus is not helpful, for the most part. For example, I’ve watched Union organizing activity in a number of markets, seeking to organize nurses, based on the staffing issue – not enough and thus, unsafe for nurses and patients. I get the issue, but I don’t see a solution. Raising the issue to a fever pitch, demanding that providers hire more staff that don’t exist, pay more for staff that does exist, etc., isn’t solving the problem. I get that management may even seem callous to the issues and some may be but most senior leaders I talk with are truly trying to do everything they can to improve bedside/patient-centric staffing levels. The simple reality is that there are more openings than bodies capable and willing to fill the positions.
A case in point is recent organizing activity in Wichita, KS (Sedgwick County). Union activity in health care in this area/community has been historically, very low. For professional nurses, it’s been virtually non-existent. At two Ascension hospitals (national Catholic health system) nurses voted within the last nine months, to organize. Here’s a short quote from the Union regarding the push for organization: “We need better staffing, we need Ascension to get serious about recruiting and retaining nurses and we need to have a better safety workplace violence program,” said registered nurse Sara Wilson. “Nurses are in danger when we go to work and Ascension needs to take care of their nurses.” As one would expect, there is truth within that statement but also, to be frank, very little that Ascension can do to create more staff. Provider resources are simply not robust enough to just see the staffing issues as economic. More money isn’t the answer. Ascension closed 2022 with a negative 3.1% margin on losses of $1.8 billion. Among the major health care bankruptcies, one quarter were senior care providers (last several years).
Knowing what we know regarding staff supply, the concern is can some things be done and what can we control. We know money won’t solve the staffing problem as this too, is of finite quantity. Likewise, we also know that money is a substitute concern for the real core issue of simply, not enough bodies for the tasks demanded in patient care. In other words, money becomes the tangible point, but we also know, that money won’t employ more bodies or staff. I know many providers that have RN openings that offer $100K in wage opportunities plus sign-on bonuses and benefits with no takers for these opportunities. A quick Indeed search of Chicago, IL using the job title “nurse” produced 9,133 positions within a 25-mile radius. Similarly, Google searches for nursing positions provide multiple, big dollar references, for travel positions ($5,500 to $7,850 per week). And, according to the Bureau of Labor Statistics, over 203,000 openings will occur every year for at least, the next decade (https://www.bls.gov/ooh/healthcare/registered-nurses.htm).
What can be done primarily, for any provider, is first and foremost, a concentration on retention. The second thing is to listen to staff, not as a show, but as a real effort in understanding what their concerns truly are. Some are fixable, some are not but all providers should be honest. Open the books so to speak and share the economics. The third, as I have discussed repeatedly, is improve management and reduce bureaucracy wherever possible. An organization can significantly improve its bedside hours (actual) by reducing as many tasks as possible, that have nothing to do with patient care. Trust me, there are many things that health systems and providers require staff to do that has nothing to do with patient care or regulatory requirements. Fourth, analyze the work-flow and make sure that proper duties are assigned to proper staff. I have seen all to many environments where RNs are doing work that could and should be handled by techs, social workers, chaplains, therapists, etc. For example, I can’t even begin to count how many times I have heard about therapists dropping a patient back into his/her room and putting on the call light for nursing to come and toilet the patient or have other care needs met. Crazy. Unless the need was a medication administration, the therapist can and is qualified to assist the patient with a toileting need to get fresh water, transition the patient to bed, etc.
When I see litigation and I see a lot as my firm (H2 healthcare) has an active compliance practice and a nationally known expert in litigation support (defense, not plaintiff), the focus is nearly always on “nursing” not doing something or being somehow, the causation for the bad outcome. Now, with staffing coming to the surface as a root cause (not enough bodies), the question begs, what kind of staff and in what amount. No doubt the focus will be on nursing but perhaps, that focus is rather shallow. As I pointed out in the paragraph above, maybe the staff numbers are better than thought just poorly organized and used (health care is notorious for “silos”) and layers of management.
What a provider can control, aside from numbers of staff which, we know is difficult to totally control, is how staff are allocated especially in relationship to patients and their needs. Below are my top six things providers can control/do with regard to staffing and to reduce litigation risk.
- Make sure staff in number and capability, match the generalize facility census trend. This means in number (patients) and care needs. I know providers like full beds with patients that garner high reimbursement but, there is a balance. Strike the balance as much as possible and let staff know it.
- Work as teams – not just as nursing, and therapy, and social work, etc.
- Stop employing managers that were the “best” clinicians. Employ managers that actually know how to manage, Likewise, give these managers true accountability and authority. They must be able to do their job and not have to “punch up” to get things done. Good management reduces litigation risk.
- Put staff in positions where decisions are made and give them real results and a “piece of the pie”. Gain share for reduced call-ins, turnover, staff referrals (new).
- Keep staff apprised of staffing levels and make sure they know how staffing decisions are made, etc. Don’t whitewash the issues. Staff complain about being short-staffed which is the “killer” when it comes to litigation. Too many depositions of nursing staff start with staffing level discussions. Focus on real conversations, daily, about team and everyone being engaged not just “CNAs and Nurses”.
In my next post, I’ll dig a bit deeper into this concept (risk and what can be done), especially concerning the evolving and expanding trend of litigation in Assited Living Facilities.
The Real Impacts of Poor Quality, Inadequate Compliance and Weak Risk Management
A number of interesting information drops occurred this past week or so reminding me that from time to time, the obvious isn’t always so obvious. The seniors housing and skilled care industry today is going through a rocky patch. A solid half of the SNF industry is severely hurting or struggling mightily due to Med Advantage, softer demand, pervasive reliance on Medicaid for census, labor shortages, rising wage pressure, tight Medicare reimbursement, new regulations, etc. (I could elaborate for a stand-alone article). While not as pervasive in its struggles as the SNF industry, Assisted Living is facing challenges due to softer census, too much capacity, rising resident acuity, labor costs and shortages and gradually increasing regulatory scrutiny. The relative strength in the overall seniors housing and post-acute sector is home health and independent housing. Notice, I did say relative as home health demand is good but regulatory over-burden is still present along with tight reimbursement. Home health is also experiencing labor challenges, the same as SNFs and ALFs. The relative strength that is found in independent housing tends to be more on the market and sub-market rent side. Many, many high-end providers are still struggling with census challenges and soft demand in certain markets.
As I have written and counseled many times to investors and clients alike, there is something to learn from the national trends but health care and seniors housing is still, a local reality. What this means is that in spite of some rocky water for the industry, there are providers that do well and are bullish about their fortune in their respective industry segments. Not to seem too convoluted, the national trends matter but as I like to think, in the context of what they truly mean. In this regard, what they truly mean is how the trends impact providers on a macro basis as well as on a micro, behavioral basis.
As I started, this past week or so included some interesting information drops. The first and not too surprising, is another alarm from a major, publicly traded provider organization that it was on the narrow ledge to failure. Five Star Senior Living provided notice that given its financial condition now and as forecasted, it would not be able to meet its continuing obligations in the form of debt or timely payment of operating expenses. When I say half the SNF industry is in battle to survive, I’m not kidding.
In unrelated drops, CNA (the major national commercial insurance provider) released its 2018 Claims Report for Long-Term Care/Senior Living. The claims in this case are liability related. Following CNA’s release, Willis Towers Perrin (major insurance brokerage and consultancy firm) provided their outlook for liability insurance noting that Long-Term Care and Seniors Housing should expect liability premium increases of 5% to 30%. Anecdotally and unrelated, we are seeing steep property/casualty increases in the industry as well due to extreme weather losses over the last twelve to eighteen months.
While not absolute but substantial in nature, there is a direct correlation between providers that are struggling and the quality of care and service they provide to their patients. The core competencies required to provide superb care are tied directly to compliance and risk management. I have never seen an organization that delivers excellent care have poor compliance trends (billing, survey, other) and weak risk management leading to high levels of worker’s comp cases, lawsuits, liability insurance claims, etc. Lately, there is the same correlation developing between quality and financial results. As more quality payer source referrals and higher reimbursement with incentive payments connect to patient care outcomes, a gap is evident between the providers that are thriving and those that are dying. That gap is the quality divide.
There is a spiral effect that is visible today in the SNF industry. This effect has been visible for some time in hospitals. It occurs as follows.
- Care delivery is inconsistent and in most cases, not great. Service is the same.
- Complaints and survey results demonstrate the same and are reflected in star ratings.
- Consumers and referral sources catch wind that care is not good.
- Staff turnover accelerates, including key personnel that take with them, a disparaging message regarding care.
- Quality mix erodes slightly. Medicaid census increases as the “next best” alternative to an empty bed.
- Financial results start eroding and losses occur or come into view. Cash margins are getting tighter.
- Expenses become an issue and cuts are necessary. The cuts are incongruous to improving care.
- With limited resources, quality suffers even more. No money is available for capital and equipment upgrades. Staff morale suffers and staffing levels are lower. Productivity wanes as morale is poor and patient care follows.
- Survey results are very poor and fines now happen. The fines are expensive, removing more resources away from patient care.
- Costs are growing rapidly related to higher insurance premiums, poor worker’s comp experience, unemployment costs, turnover, and legal costs to defend the facility. These costs are removing resources away from patient care.
- Finally, because the resources are too depleted to make the necessary changes to rebuild quality, staff levels, etc. and no lender is available to front any more capital, the enterprise collapses. The names are becoming familiar….Signature, ManorCare, Five Star, Genesis, Kindred are all SNF providers whose future is extinction or “almost”.
Arguably it takes money to have and deliver quality. Equally as arguable today is that without quality, money won’t be made sufficient enough to stave-off failure due to…poor quality. When quality isn’t the primary objective, compliance and risk management work as dead weights that the organization must carry; and the weight increases over time. Why this isn’t obvious yet in the post-acute and seniors housing industry is beyond me. An analogy that I have used time and time again is the restaurant analogy. Successful restaurants are laser-focused on their products – food and service. They know that poor marks in either category or an outbreak of food borne illness can be death to their livelihood. In a crowded market of diners, price or value ties to quality and experience across a myriad of options. What is common among the restaurants that succeed is their quality meets and exceeds, the customer’s realization of value (getting equal to or more satisfaction for the price paid). When this occurs, money flows in increments sufficient to reward investors, pay employees, invest in equipment, and to reinvest in the products and services that customers buy. Simple.
Seniors housing and post-acute care aren’t too different or disparate from the restaurant analogy. The market is crowded with options…too many actually. Yes, the customer relationships are a bit different but the mechanics and economic levers and realities identical. Providers that give great care, equal to or higher than the price points/reimbursement levels are GAINING customers via referrals. The customers they are gaining are coming with good payment sources. Money in the form of cash flow is strong enough to invest in plant, property, equipment and staff. Doing so reinforces quality and service and allows the referral cycle to optimize. As the market continues to shrink in terms of number of providers due to failure, the few that are exceptional continue to see their future and fortune improve. Again, simple.
What we know is the following and the message should be clear today for those who still can control how they approach and manage their quality and customer experience.
- Poor quality costs money disproportionately more than the dollars required to deliver “high quality”. The costs are erosive and ongoing.
- Higher insurance premiums
- Poor compliance results with fines (the federal fines today are steep and immediate for SNFs)
- Higher capital costs (yes lenders are now looking at quality measures as a measure of credit risk)
- Increased litigation risks which when realized, contribute to higher insurance premiums.
- All of the reimbursement incentives today and going forward are only available to providers that can deliver high quality, efficient patient outcomes. Value-based purchasing rewards good care (limited rehospitalizations) and punishes poor care. The impact is just being seen today and in the years forward, the impact is greater – both ways (reward and punishment). The same is true under the new and forthcoming, case-mix payment models. The high quality, adept providers will be able to provide the care rewarded highest, under these new payment models (PDPM, PDGM). Those that don’t have the clinical infrastructure will languish.
- Referrals today are more and more, skewed toward quality providers. With hospitals and narrow networks looking for select post-acute providers that won’t increase their risks in value-based purchasing or bundles/ACOs, poor providers in terms of quality are increasingly seeing diminished referrals.
- The Plaintiff’s Bar is watching the SNF and seniors housing industry carefully and with optimism. The CNA report I referenced includes these snippets.
- 22.6% of closed claims relate to pressure injuries (an almost entirely avoidable negative outcome).
- Death from or related to pressure injuries is the highest average claim by cost.
- 14 out of the 15 highest cost claims occurred in for-profit facilities.
- Assisted Living claims cost more on average than SNF claims.
- Falls continue to represent the lion share of liability claims – 40+%. The vast majority tie to SNF care.
- The frequency of claims is increasing.
- Independent Living is not immune. The report contains claim data on fall and pressure injury cases from Independent Living.
While no organization is immune from a law suit, the reality remains that organizations with exemplary quality history, high satisfaction levels, and processes that focus uniquely on the elements of great care and service (staffing levels, staff competency, good management, proper equipment, IT infrastructure, etc.) provide less of a target, if any. No matter where, negative outcomes still occur but in “quality” organizations, they are an exception. Because care is primary and service right behind, there is far less of a motivation for patients and families to litigate as by reason, the organization wasn’t negligent. Again, the connections are rather ‘simple’.
Is a Paradigm Shift Starting in Senior Living?
A number of years ago, post-acute/senior living analysts, etc. started warning of a coming paradigm shift for skilled nursing and home health. I started writing and advising about this shift well over a decade ago. The signs were obvious.
- Rapid expenditure growth as a percentage of Medicare/Medicaid outlays.
- MedPac warnings to Congress of rising profit margins in these industry segments.
- Increasing reports from the OIG and other agencies substantiating billing abuse and likely, widespread fraud.
- Rapid agency and outlet growth.
- Rising per unit prices and cap rates.
- For SNFs REIT deals and rental rates that were clearly, unsustainable given the market conditions and policy trends.
- Overall reimbursement dynamics including passage of the Affordable Care Act that foretold stable to shrinking Medicare reimbursement.
- Increasing Medicare Advantage penetration.
- Increasing Medicaid funding problems at the state level and increasing conversions of state programs to Managed Medicaid platforms.
The handwriting was on the wall and even without a clear crystal ball, I began warning those that would listen (from clients to students to industry watchers) that the post-acute provider segments of SNF and Home Health would face stiff headwinds and the unprepared and unimaginative, suffer losses and operating struggles unlike any in recent times. As much as I loathe the “I told you so” speeches or references, the proof today is in the news constantly. One need (only) reference Genesis, HCR/ManorCare, Skyline, Signature, Kindred, Amedysis, Gentiva, etc. (I could go on) now versus ten years ago (or less) for validation. The paradigm of ratchet-up fee for service Medicare encounters, particularly therapy related, increase outlet span, more is better, bigger is better, don’t worry about quality metrics, and find ways to minimize top line operating costs, etc. ended with a resounding THUD (you (and I) knew it would).
To the question posed as the title: Is Seniors Housing/Living starting a similar paradigm shift? Because such shifts start gradual and pick up momentum as the “trend” winds strengthen, its easy to claim “no” or to ignore the bits and pieces that are the harbingers; a nod to a point-in-time. Lately, I have had an increasing number of conversations with learned folks and those heavily invested in the “housing” elements (independent and assisted) of senior living. To a one, they all remained bullish for principally ONE reason – demographics. Each points forward to a rising or swelling tide of senior citizens; byproduct of the great Baby Boom. With confidence, I hear an argument for a demand proposition that current and even near term supply, won’t meet. This is in spite of the current reality that supply is greater than demand and occupancy is declining consistently, not increasing. The Brookdale argument is thus: Give it time, the residents are coming and occupancy will improve. I am skeptical.
The economist in me is uncertain that other factors aren’t more in-play than accounted for or buffered by the “demographics” justification. For example, the notion that this Baby Boomer customer is the same customer that has been consuming and driving the current seniors housing paradigm is I’ll argue, a false premise. Their sheer numbers alone won’t guarantee supply consumption. Students of economics and history will find lessons aplenty such as the death of steam locomotion, coal power generation (though not fully dead), wired television, cassette format video and audio, etc. The customer bases for these products or industries never shrunk and in fact, they grew in number and purchasing power. Other dynamics shifted the demand curve ever so slightly for alternatives initially, then rapidly as the same came to the market and price points shifted. The fallacy is that demographics by number alone mean a sustainable market.
Seniors housing has a very elastic demand curve. The crux of price elasticity is that the greater or higher the price, the smaller the number of buyers. For the demographics of the coming wave of future seniors to be a demand boon for seniors housing, they (the seniors) must have purchasing power to consume the supply of product at the price levels current and future. This group must also have limited or no more than present, alternatives to the product (a fixed base residence). As their power to consume is measured by wealth, wealthier folks demand more alternatives and have more options. For example, a woman with a million dollar net worth and a $200,000 annual income can arguably buy 90% of the new automobile models (personal use) produced in a given year. She may buy a Rolls Royce or a Honda Fit. A woman with a ten thousand dollar net worth and a $20,000 annual income probably can’t buy any of the new automobile models and will need to use public transportation or acquire a very, very used car. As is the economic constant, shifts in wealth and substitution products across the price spectrum will influence supply or products and the prices thereof. Today, there is a bit of a supply inequity in seniors housing and as such, occupancy has trended down.
The supply inequity is seen via the homogeneity of the product, especially product that has come on the market within the last decade. Where occupancy is consistently high, the product is market or less than market, priced. Value-based products with or without services are more occupied than their above market competitors today. Fewer in number, their supply is consumed plus and in constant demand. I know today of no market or below market (subsidized or rent controlled) seniors housing that is good condition, in a good location (not crime ridden, etc.) that isn’t full or close to full – constantly.
To be clear, I am not anti or even really too bearish (yet) about seniors housing, assisted or independent. I was never totally bearish about the SNF and Home Health sector, just the paradigm that was operative. I believe that strategically aligned, market-sensitive product and providers will always do well. Unfortunately however, I also believe that too many seniors housing units and operators are “me too” driven, emphasizing a “same-same” approach. I find it hard to believe that the look-alike, feel alike, same amenities, different location or even similar location can be justified by “coming” demographics when similar providers, at similar price-points are at five-year occupancy lows. All too often, I am reminded of conversations I had with SNF operators telling me their justification for acquisition and the price per bed paid was: “We are different. We’re going to drive Medicare census to 40 plus percent, raise acuity and RUG levels, utilize technology to be superefficient, etc.” And when I would say “how” and show me where “you” had done this before and maintained high-quality, etc. and negotiated far better rates with the growing Medicare Advantage market, I got the typical ‘ignore’ response. Suffice to say, I was never proven wrong.
Because I will be asked, here’s what I am seeing that suggests the beginning of a paradigm shift for seniors housing – biggest for Assisted Living but still palpable and impactful for Independent Living.
- While the demographics are good, the economics of the demographics are not as good. Baby Boomers will simply not have the same economic wealth and thus purchasing power of their parents and grandparents. While some will have done well, the decades of their work and maturation cycle did not see the same kind of wealth and economic expansion that occurred for their parents. One simple measure very much tied to seniors housing is worth review – residential real estate. Most Boomers will have had multiple homes and have consumed large portions of their equity to “buy-up” or to adjust lifestyle. Their parents did not (home equity loans didn’t exist). Most Boomers also will have started with a more expensive home basis than their parents and thus, will not see the value appreciation. For example, I know many seniors that bought their home for $40K and sold it for $400K – appreciation of ten-fold. For a $100,000 Boomer investment to reap the same, the appreciation would need to be $1,000,000. This is just price. If I factored in life-cycle cost, the net is far worse (higher interest rates, taxes, etc. over the ownership period).
- Seniors housing is not getting cheaper. In many regards, driven by market forces to be more opulent, bigger, better, more amenities, etc., it is getting more price inefficient (cost per square foot needed to sustain). As the price rises, the product demand becomes more elastic and the number of consumers economically capable of consuming, fewer.
- Alternative products are increasing and ala carte service providers, expanding. Where staying “at-home” was not much of an option a decade or so ago, it is becoming easier with technology and service availability that suppports, aging in-place.
- Planned development communities that are geared toward active, younger seniors are consuming a market segment between 65 and 80. These communities have club houses, maintenance services, etc., and are typified by private homes, developed to accommodate early level disabilities (no stairs, grab bars in bathrooms, etc.).
- Because of the point prior, the migration age to seniors housing is increasing accompanied by additional disability. The more frail and disabled this cohort becomes, the more difficult it is for the provider to keep costs low as operations must support the true needs of the resident. This is a real problem for Assisted Living as occupancy today is often predicated on catering to a much more frail and debilitated client, many who as little as five years prior, would have resided in a nursing facility.
- Lastly, the market trends and information are illustrative of the harbingers of a paradigm shift.
- Weakening cap rates and per unit values
- Over-built markets with product, still coming into a market already below 90% occupied and trending lower.
- Brookdale (enough said)
- Chinese investors pulling back from the sector – more cautious investing
- Period over period occupancy declines in the industry – Assisted now at just over 85%!
- Per NIC 22 of the top 31 markets saw occupancy decline, quarter over quarter
- Rising cost of capital and fewer starts (finally). This may actually be a good thing as the sector needs some leveling forces.
- Rising labor costs. Again, this may be a good thing.
- Federal and state-to-state pressure for Assisted Living regulatory actions. Again, this may be a good thing as too many ALFs are over their-skis in terms of capability to take care of their resident populations.
- For providers reliant on Medicaid-waiver clients to bolster occupancy, we are seeing rate “reductions” consistently in these programs and know of more to come (no increases yet).
In an upcoming article, I’ll offer some thought on what is working and why and where the market will be for seniors housing and why over the next decade or two.
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).
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.
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;
- 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.
- 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.
- 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.
- 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.
- 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.
- Utilize evidence-based, best practice protocols for AL and Memory Care. AMDA is a good resource. Provide physicians with the information as well.
- 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).
- 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.
- 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.
- 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.
- 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.
- 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.
- Hold regular family meetings or focus groups to both inform and solicit feedback. I like at least semi-annual.
- 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.
- 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.
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”.
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.
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