Friday Feature: SNFs Still Make Sense
For some recent years, enhanced by the pandemic, the role of SNFs in the post-acute/senior living industry has tarnished. Residents and families often view the SNF as a “negative place” to reside, even if for short-term recuperation. Clinical staff take a dim view of the care complexity such that the SNF is a downgraded clinical setting, less than a hospital or outpatient setting. Providers, struggling with reimbursement inadequacy and advancing regulation, have reduced beds or closed locations. Some organizations like CCRCs, have minimized bed capacity or completely eliminated the SNF and moved to advanced Assisted Living care as the highest available care option for residents. Yet, in spite of these trends and the tarnish, SNFs have a place in the continuum and in some regards, and advancing place.
What challenges the SNF industry and thus, its reputation, are more external forces than flaws in the core purpose of an SNF. External forces such as onerous and increasing regulation, below cost reimbursement, and labor shortages are the most common forces providers deal with. Gone are the days where nursing homes were locations of long-term stays, typified by years of residency. Where and when this still occurs is for residents with early-age disabilities, or for residents that have minimal financial means such that Medicaid nursing home benefits are the primary level of support for care. With Medicaid supports via waiver programs expanding, long-term skilled nursing care includes primarily the most complicated residents, those with multiple conditions requiring skilled nursing interventions weekly or even, daily. Examples include ventilator care, dialysis, tube feedings, ostomy care, etc. While these services can be provided in the home or a non-SNF setting, location challenges often make an inpatient environment (SNF), the best place for consistent care when required.
The demographics forward, favor a post-acute, SNF setting. Despite the push for post-acute care to migrate to home settings with home health the reality remains, this is not the answer for every patient. The older the patient, the number of comorbidities involved, the nature of the comorbidities, the presence of an aging spouse with health challenges, etc. all are a predicate to whether or not, home care via home health is viable. Today, even access to home health can be challenging if not, impossible. The staffing challenges all health care providers face are particularly daunting for home health agencies where, acceptance of cases, especially complex cases, comes down to having available staff to meet patient needs. As home health care by its nature is inefficient, facility-based care can be more feasible when complexity of the case is at issue and the availability of staff is challenged. In other words, staffing one location that can accommodate say 60 residents, is easier than staffing a caseload of 60 separated by travel with distances expressed in miles.
The SNF industry and the facilities within tend to be some of the oldest classes of assets in the senior living industry. The cost of new construction is high and without access to a very high-quality payer mix, the returns are challenging. For providers than can maintain solid occupancy and high-quality payer mixes (Medicare, insurance, private pay), the returns are solid and the access to capital is there. Medicare Advantage plans are starting to create solid value-based care propositions for good providers with exceptional quality records AND great care coordination partners. For example, an SNF that has a relationship with a Home Health Agency, either owned or in partnership, has the ability to package price disease management approaches by common clinical conditions that include SNF care and HHA care, all bundled, and care coordinated. If the pricing is mapped with overall savings, reductions in re-hospitalizations, improved patient outcomes and satisfaction, the opportunities going forward are significant. I have a number of pathways/algorithms that fit this example. A few can be downloaded here.
What headwinds lie ahead fall mostly around staffing, regulation, and reimbursement. Oddly enough, the failures that will inevitably occur necessitating closures and bed reductions, will make good SNFs stronger going forward. The demand by demographics and patient needs is only increasing. There will be a significant role for SNFs to play in meeting the market needs. The questions that beg are around reimbursement keeping up with increasing costs and how disconnected will new staffing regulations be to the reality of the labor markets. As I have said in other posts, mandates make no sense when in all reality, the mandate cannot be met now, or anytime in the near future.
Bottom-line: Banks are still willing to lend to good providers. REIT capital is available as is private equity for facility improvements and modifications. Demand is decent and recovering. There is a lot of pent-up demand as well, post-COVID. Valuations have remained stable for SNFs as well. Plenty of partners exist, more so than other senior living segments (hospitals, Med Advantage plans, health systems, Home Health Agencies, etc.).
Litigation risk is still an issue but a recent court case in Washington involving Life Care Centers of America concerning COVID and the liability for infections obtained in an SNF was found favorably for Life Care Centers. One case, however, is not a trend but it is a good sign that perhaps, the SNF industry will not be overwhelmed by COVID litigation pertaining to outbreaks and occurrences in facilities. A synopsis of the case is available here: https://www.mcknights.com/news/life-care-centers-vindicated-in-early-covid-wrongful-death-case/?utm_source=newsletter&utm_medium=email&utm_campaign=NWLTR_MLT_DAILYUPDATE_052323&hmEmail=IjP1GPaY%2BJ2uvsLxTJ79bVeRWY7ycbnr&sha256email=aa4cb7c695037c31a216b9562788596b6fcd012145d566f31440b6fcd139c8a9&elqTrackId=2c80aade4c3647c8ab5b85f72fb85138&elq=8a824ff9b15249a9bf296d2d2c1be9e8&elqaid=4134&elqat=1&elqCampaignId=2746
Well-run, well-capitalized SNFs with more modern physical plants have a solid opportunity in the evolving post-acute industry. Challenges exist but opportunities do as well and, in my opinion, the opportunities outweigh the challenges for operators that understand value-based care models, are willing to develop partnerships, can maintain staff, and have great quality and service records.
Senior Housing Marketing: Bumpy Road Ahead
On Wednesday, the Federal Reserve added another .25 point to its baseline interest rate – federal funds rate. The rationale is to continue to reduce inflation which, is running at decade highs. The trickle-down effect will begin with capital costs and capital access, impacting all kinds of industries but first and foremost, the real estate industry (commercial and residential). Borrowing costs and access to funds has changed dramatically since 2020. In mid-2020, mortgages were widely available below 3% fixed for 30 years. Residential real estate rode a significant wave in rising housing prices and rapid sales.
Today, the residential market has ground to a near halt. While home prices remain steady to a large extent, buyers have fled due to high mortgage costs and bank lending constriction. Recent bank failures have not helped banking confidence or improved lending access, personal or commercial. As a result of the Fed’s need to fight inflation and to reduce overall liquidity in the monetary system (lower money supply), the Fed quit buying mortgage-backed securities in March, therefore no longer directly supporting the mortgage market. Without the Fed keeping the liquidity of the mortgage market “up”, mortgage rates will remain higher for a longer period and banks will be pickier about lending as the buyers for mortgages are now private entities, more concerned about profit and the underlying credit.
So as not to confuse my readers, the title of this post is right-on and while a bit of economics starts this post, it is relevant to senior housing. Senior housing, especially independent, above-market products rental and entry-fee are very much occupancy impacted by the residential real estate market. I have written and spoken about this connection for years. The typical senior housing move is a transition from a private residence of some sort with the proceeds from the sale, used as a resource for the senior housing stay. With entry fee sales, the net proceeds from the home sale very much correlates to the resource for the entry fee. Market data has shown us for decades that there is a very strong relationship in the sales process between what a resident in a market area can liquidate his/her residence for and what the net proceeds will “purchase” in term of a CCRC unit. Well positioned CCRCs in a market have entry fees very closely tied to the average net sale value of homes in the primary market. Even today, few seniors will want to dip into estate values to pay for a senior housing unit. A good resource is a presentation I did a few years back: Value Propositions and Markteting 4 14
The primary factors that drive new sales and work on impacting occupancy positively, are as follows.
- Demographics in the target market – age, net worth, income level favorably matched against the product (price, demographic, location)
- Overall supply of units in the market current and anticipated. Senior housing demand is very elastic. Supply ranges of product will shift based on the price and the economic conditions within the market area.
- The condition of the residential real estate market in the primary market area. While national trends are one thing, the translation of those trends locally is the key. Not all local markets fare equally to the national trend. Interest rates aside, a growing market may attract more buyers still willing and financially capable of buying homes, even at a premium (see Florid for example).
- The condition of the property/senior living site. Is it in good condition and is its reputation positive.
The trends in occupancy and thus, marketing have shifted dramatically as a result of the pandemic. Occupancy in rental and entry-fee projects for the most part, remain below pre-pandemic levels. While CCRC occupancies are strongest and still growing (albeit slowly), at the present course of improvement, we are approximately 2.5 years away from pre-pandemic levels (91% vs. 87% today). This time period may elongate if interest rates remain high and real estate inventory (for sale), remains low.
During the pandemic, to maintain and attempt to increase occupancy via sales, I noticed a lot of communities resorting to incentives of one form or another. Fortunately for the CCRC/senior housing market, new inventory slowed and remains slow. Existing units today, have a greater opportunity to gain ground as new product is not coming on the market with the same fluidity as pre-2019. Capital access and costs have abated many new, planned projects either permanently or temporarily.
Incentives have long been a staple of generating unit pre-sales, holds, and interest/waiting lists. Conversion to occupancy often includes different incentives, directly tied typically, to rent abatement or stabilization (so many months free, no rent increase for so many months, etc.). Other softer incentives include moving fees (pay for the move), meal additions, decorator services, relocation coordination, etc.
The road however today, is bumpy and will be so for a while. Two difficult financial/economic conditions are at-play and both, hamper demand when the desire, is to sell above-market cost units. First, the real estate market in terms of liquidity, is exceptionally slow. New listings lag from pre-pandemic levels and new sales the same. A good data source that I use to watch these trends is here: https://www.redfin.com/news/data-center/
The second condition is overall estate values are down. Seniors with market investments in their retirement plans have seen minimally, on average, a 25% erosion in value. This constriction reduces their willingness and confidence to buy into, more expensive (real or perceived) housing. Further, familial support or influence tracks a similar downward confidence curve meaning, family become less supportive of a move that is further perceived, as negative to estate values. Remember, the U.S. mindset still has a strong connection to passed-through or down wealth transfer (e.g., kids receiving inheritance from mom and dad).
Strategies do exist for CCRCs and other senior housing projects to make inroads in occupancy gains, even in a tight market. Here are a few that I have used and can recommend as having some value.
- Use equity and/or internal financing mechanisms to assist in achieving liquidity for a senior’s home. Banks will typically step forward if the home has substantial equity and are often willing, if the CCRC is a partner, to provide the loan allowing a move to occur. The challenge then falls on maintaining the vacant property but that is less difficult than one would think with a bit of creativity.
- Defer the entry fee to a later date. Take the move off the table so to speak, allowing the senior to move while the house is still on the market, even if the timeframe is elongated. Another option is to pay the entry fee in installments.
- Work with a realtor that will package a transition service at a reduced commission allowing for home sale/pricing flexibility.
- Purchase the home, if feasible. I have seen organizations do this and then, when market conditions change, resale the home. This is complex and fraught with all kinds of detail issues, but it can be done.
Top 5 Tips for Recruiting in a Tough Labor Market
I’ve done a number of presentations on the staffing challenges facing providers and how, certain strategies work and others don’t in terms of recruitment and retention. Over my 30 plus years in the industry, I’ve had reasonable (ok, very good) success in building and retaining high-performing teams, including direct care staff. I’ve been fortunate to have many folks who have worked with me, follow me from assignment to assignment, some across the country. Leadership is no doubt key to recruiting successfully as people want to work with winning organizations. Likewise, really good recruiting strategies don’t use the same methodology as the past – namely advertise, incent (throw money at it), repeat. Steve Jobs said it best: “Innovation is the only way to win”.
Most healthcare providers can’t financially compete for staff, consistently. In reality though, staff only work for money when they see no long-term value in the employment proposition. I know travel nursing and agency nursing catch lots of news and sound sexy and high paying. I also know nurses (really, really well as the same are throughout my family) and, the lure of travel nursing is short, regardless of the money. Stability, home base, regularity, working with good colleagues and peers has more value to most nurses.
Before I offer my five “DOs” for recruiting, let me offer a few “DON’Ts” and a reminder. The reminder is recruiting is like marketing – it requires constant, incremental effort to achieve success. Superb marketing campaigns and brands build year-over-year. One misstep, however, can damage a brand significantly (see Bud Light). The “don’ts” mostly focus on money as in don’t think you can buy staff and don’t think, sign-on bonuses buy anything other than applications and temporary workers. Don’t focus on the economic alone but on the goal of recruiting. Like marketing, it’s about positioning the organization to attract workers. The sale or close comes via an H.R. specialist or someone exceedingly good in the organization of convincing people of the value of working for the organization.
My Top 5 tips for recruiting are….
- Focus on recruiting introductory, PRN workers first. Stop advertising for shifts, full-time, part-time, etc. Focus on people who are interested in flexible work and are willing to take a role and see how it goes. This is the “dip your toe in the water” insight. Be prepared to pay well but not necessarily crazy. You won’t be dealing with many if any benefits for this group other than some soft stuff (meals perhaps, incentive rewards like a gift card now and then, t-shirts) so hourly rates can be decent. Likewise, be prepared to pay weekly if not even more frequently.
- Have a killer, multi-media/onboarding/orientation program. Little investment here but not much. YouTube, Tik Tok (can’t believe I wrote that), a website, and other applications can be used to recruit (what it’s like to work for us) and to onboard and orient. The more new staff, even your PRN, feel comfortable walking in the door, the easier it will be to get them and keep them. Giving them a stack of policies and procedures, a big manual, a drone-on HR speaker or a computer-based checklist is a certain turnoff.
- Give the Bonus to the Staff. Turn your own staff into recruiters and pay them for it. Nurses know nurses, CNAs know CNAs, etc. Comp and incent them to bring referrals and comp them well. Sign-on bonuses really don’t work but referral bonuses do. Heck, do individual and team and create a bit of competition and fun.
- Create a Marketing Campaign and Have Accountability. Recruiting is marketing. Stop thinking otherwise. Sure, many think it’s an HR function but most who do, are wrong. It’s an organization function today requiring the best talent. For people to join your organization as employees, they need to know “why” – what are the tangibles and intangibles. Why should I work for you? This is not about pay and benefits but about the value and benefit internally, of a person working for XYZ organization. What’s the value proposition? What’s the real reason people work and stay for an organization (trust me, it’s not money). Build the case and sell that case.
- Get out of your own way. I watch organizations fail as their message is all wrong – tired, non-descript, sounding like everyone else. I watch organizations fail as their environment and their culture are all the same. Stop and align the incentives. Reward what matters and differentiate. Remember the Jobs quote in the first paragraph. Innovate. Stop looking externally at what everyone else is doing and stop going to the same conference sessions. Direct care staffing has certain red rules but not as many as providers think. In other words, stop the “can’t, regulations won’t let us” and start with WHAT can we do. Maybe even bend a rule or two if the same doesn’t jeopardize patient care or quality. Worklife for nurses and CNAs in terms of direct care has lots of negatives but many that I see are driven by provider foolishness – too much paperwork not necessary, too many meetings not necessary, and very few positive touches and rewards. If your culture and the work create fun, ownership, and staff love their work and their company, recruiting others to join the team just got that much easier.
Upcoming, I’ll touch on the opposite of recruiting – retention.
Senior Housing Update – Q1
The first quarter is now in the books (so to speak) and the trend for senior housing remains about the same, a little better but not back to pre-pandemic levels. With a softening real estate market principally due to low inventory levels and high interest rates (by comparison to the past ten years), we are likely to continue to see slow occupancy increases in Independent Living in most markets. Fortunately, for existing operators, the cost of new development coupled with high costs of capital has slowed inventory growth. Without a bunch of new product in many markets, absorption of existing inventory has a chance to impact occupancy, positively so.
Per NIC (National Investment Center), first quarter occupancy ticked-up for all product types (IL, AL, and SNF) with the industry as a whole seeing a modest increase to 83.2% – up 30 basis points. IL occupancy remains the strongest at 85.2% while AL and SNF, slightly improved, still remain at 81%. For SNFs, this may be less of a problem as staffing challenges remain and occupancy is less critical than the quality (payer) mix of the occupied beds. In other words, if I have a 100 bed SNF, and 80 beds are occupied but 60 out of the 80 are occupied by Medicare payers and insurance/private pay, I am less adversely impacted by a lower census revenue-wise than if 90 of my beds were occupied but 70 of the 90 residents were Medicaid payers. Similarly, with staff challenges (numbers), I may be better off having fewer beds occupied if the same can be efficiently and safely staffed. Here is the first quarter NIC report: 1Q23-NIC-MAP-Market-Fundamentals-PDF
Overall, occupancies lag the pre-pandemic levels by about 5 points. IL was running right around 90% at the start of 2020. As I mentioned earlier, new starts are down and thus, absorption is improving. Rent growth has been decent and necessary as costs continue to grow due to inflation. I am a bit concerned however, that rent growth is below generalize wage inflation and supplies inflation, particularly food. Utility increases are also higher than rent growth. With slightly depressed occupancy, margin compression is quite possible if not inevitable for 2023 for IL (primary) facilities. Rent increases would need to be above 6% to offset internal cost escalation for most providers.
Looking back to the 2008 t0 2010 recession period, the real estate dynamics in a lot of markets significantly impacted senior housing, especially above-market IL projects and Life Plan communities with entry fee pricing models. The primary source of the entry fee payment is the net proceeds from a senior’s sale of his/her principal residence. If resales become difficult or stagnant because of high borrowing rates, the liquidity (such that it is) of real estate sales adversely impacts the ability of the senior to “make the move”. For sure, the economics are different today than they were in 2008 to 2010 but, how the residential real estate market fairs over the next year or so will impact, additional occupancy gains for IL housing, especially above market projects and entry fee projects.
- Real estate demand is highly elastic such that price and cost moves, impact demand significantly. With higher interest rates, even with compressed residential real estate inventory (new and existing) in many markets, demand will soften as buyers are priced-out of the market.
- There is likely less inventory coming to market in the next twelve to twenty-four months. We’ve had historically low interest rates for a long period of time (until recent). A portion of inventory available for sale in any given market comes from people who sell their home in order to move-up to a different (usually larger) home. If the current owner has a 2 to 3% fixed mortgage and getting a new home requires financing at today’s rates (6 to 7%), the current owner is unlikely to move or, will only do so if he/she can extract enough value (equity) from the current residence to reduce the next home mortgage level to a comparable payment level (even with higher interest cost, the balanced financed is less). Simply put, there are lots of current homeowners that took advantage of historically low interest costs either via purchase or refinance and are unlikely, to move into another home if doing some comes with a mortgage cost twice or more, than their current mortgage. A de facto inventory suppression is occurring due to this rate/borrowing cost scenario.
- The good news is that there still is enough demand for any decent properties and enough buyers with capital and access to financing, that price suppression of residential housing is minimal, so far. I’ve noticed some suppression but in reality, prices are holding up quite well.
- Real estate is local, and no two markets will experience the same supply/demand dynamics. Some markets had little negative impact in 2008 to 2010 as housing values never escalated dramatically and employment stayed relatively steady. Other markets saw significant value erosion and defaults. Typically, the center part of the country (Midwest), modest-sized cities/metro areas (not top 10), fare better. High cost, coastal communities and large metro areas (New York, Los Angeles, Philadelphia, San Francisco, etc.) experienced high volatility and value erosion in 2008 to 2010. I don’t see, as of now, a repeat such as 2008-2010 but these same markets have other dynamics at-play (high crime, rising tax costs, etc.) that are negatively impacting their residential real estate markets.
Penny Wise, Margin Foolish
There is a common business axiom, one I have used/repeated many times over: “You can’t save yourself to a profit(able business)”. In health care and in senior living/senior housing, challenges abound and almost daily, new ones arrive. Staffing is incredibly challenging, supply costs are rising, inflationary pressures have increased utility costs, investment portfolios are beat-up (hopefully full of primarily, paper losses), reimbursement is nowhere near up to date with inflationary costs, litigation risk and cases have increased insurance rates, and CMS continues to add cost with additional regulations and oversight. Tons of organizations are mismatched revenue to expense right now with expense greater than revenue. Naturally, the correct thing to do is to cut expense, or is it?
For most provider organizations of all types, expense management is a difficult proposition. Most expenses tend to be more fixed in nature than not and most, involve personnel. The largest expense for health care organizations and senior living is typically (aside from debt and depreciation), staff and related personnel costs. Yes, it is possible to be efficient with staffing costs but generally, not at a ratio that can generate big changes in margin if occupancy and payer mix are below expectation. In other words, cutting too much produces an undesired consequence of bad care outcomes and staff dissatisfaction (short-staffing). Cutting other things is possible and I’d argue that reducing layers of management is a great place to start. I once worked with an organization that had supervisors that existed on second and third shift to, as one exec. told me, “To make sure staff did their jobs and not sleep on the job”. Oh, boy…
This morning while reading and having coffee with my wife, she shared an article from McKnight’s (e-news) that was really quite good and germane to this post. The link is here: https://www.mcknightsseniorliving.com/home/news/top-trends-in-senior-living-include-organizational-readiness-operational-strategies/ Many good takeaways in this piece but particularly, the focus on having to grow and diversify the typical senior living business. I think the article’s focus on strategy makes the most sense for communities/CCRCs/Life Plan organizations. Good tips herein…
- Focus on revenue driving opportunities and expense monitoring.
- Don’t fall short of revenue increases because the organization does not understand its pricing potential.
- Develop partnerships and niche growth opportunities.
- Stop looking at the organization as an island and start focusing on generating more revenue by additional services.
- Identify niche markets – capitalize on existing resources to provide services to the greater community.
Across many years in the senior living and health care industry, I’ve seen many organizations make the same mistake over and over again. As times get tough, they reach for the saw and seek to cut to make a profit. Assuming they were perhaps fat to begin with, some trimming was needed but the focus on expense reduction is simply not the answer. The fact is, return on investment is the answer and therein lies the flaw in cutting. Maintaining a balance between the inputs (expenses and investments) and the revenue produced is what successful business requires. In other words, if the revenue productivity is not there for the dollars being expended, perhaps the issue is not to spend less but to spend better. Additionally, sometimes the issue is that the overhead is not productive or simply put, the scale is large enough to support more business. In senior living, this often the case.
I have been in many, many communities that have phenomenal infrastructure, poorly used. In other words, lots of fallow real estate/common areas and office spaces that don’t generate revenue or are minimally used. Opportunity abounds in terms of how much more productivity and revenue, can be generated from the overhead. Similarly, I have watched organizations ooze lost opportunity, failing to capture revenue from services residents/patients are getting from other vendors. Home health, personal care, hospice and expanded food and environmental service packages are the easiest to identify. There are more.
Pricing is also a missed opportunity. I lost track of how many senior living communities I have worked with, including in default and bankruptcy work, that had no idea how their pricing matched the community at-large or how the model made economic sense for the business. The common method has been to simply escalate a prior year’s level by some percentage and then maybe, look at the rates for the surrounding competitors (assuming the comparison is accurate). I’d argue the case to worry less about the competition and more about valuing the services the organization provides within a proper pricing/business model. A number of years ago, I did a presentation on pricing for senior living communities. The presentation can be found in the Presentations page on this site: Intersection of Pricing and Marketing v.2 The referenced worksheets are here: Entry Fee Pricing Worksheet Pricing Worksheet
The simple fact remains is that there is no real strategy in business that involves cutting or reducing expenses to create a sustainable margin. Business is about playing a “long game” – looking and anticipating forward. Short-term thinking nets a reaction that typically, produces only short-term results, if that, negating the longer-term problem: the business must constantly evolve, grow, and seek to return maximum value (economic) on its investment (people, equipment, plant, property, etc.). Without continued investment in marketing, equipment, new businesses and product lines, strategic partnerships, and infrastructure (IT, software, etc.), the organization becomes non-competitive, incapable of attracting the desired customer at the desired revenue level. Similarly, staff desperately needed these days, choose to work elsewhere as the business is no longer investing in them (more than wages).
I read a lot, an occupational hazard. In so doing, I come across all kinds of interesting articles and reference documents. My curse is not the amount I read but the amount I save (tons of documents, links, etc.). I pulled one link that I thought fit this subject matter quite well. Here it is and it is generic but awfully, on-point: https://foundr.com/articles/building-a-business/finance/business-not-making-enough-money
To my Jewish friends and colleagues, I wish you all a blessed Passover.
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.
Seniors Housing/CCRC Outlook plus Lessons from Brookdale
Now that the real estate dynamics have shifted on-balance to par or better (majority of markets can liquidate inventory at stable or rising prices with constant or modestly increasing demand), the outlook for Seniors Housing (IL, AL and CCRC) is less murky. The recessionary of the last 7 to 8 years has lifted. What is visible, while still fairly complex market to market, is a picture that is illustrative for the next ten or so years – ample to adequate supply and average to slightly soft overall demand. Perhaps, this is the Brookdale lesson?
Amplifying the above; what we know statistically is that demand has globally peaked and now, flattened. Recall that Seniors Housing is very much local and regionally biased/impacted so some markets may be hotter in terms of demand than others. By example, in 2010 (full recession impact), occupancy in the sector was 86.7%. By the end of 2014 and since, occupancy has recovered but only to an average of 90% (per the National Investment Center). During this same later period, new unit production has increased to an average of 3,200 per quarter (trailing seven quarters since end of 2016). This is a 50% increase over the prior eight quarters. The cause? Less about occupancy reality, more about a growing optimistic economic outlook, improving real estate dynamics (the leading cause) and more accessible capital, particularly as nontraditional sources have entered the sector with vigor (private equity). A quick translation is for an increase of approximately 5,000 additional units in the top 31 MSAs (could be as much as 6,000 depending on where the units are in the development cycle). This additional inventory is entering a market that is showing signs of over-supply (again, is there a Brookdale lesson here?).
In multiple articles, I have written about phantom or perhaps more accurate, misunderstood economic and demographic trends. Seniors housing global demand is very elastic, particularly for IL and CCRC projects that are at or above market (where the bulk of the industry is). Demand elasticity exists where and when, price directly impacts the number of and the willingness of, consumers to consume a particular good or service. As price rises, the number decreases. As price falls, the number increases. For seniors housing, the elasticity wanes and trends toward inelastic demand when the price mirrors “rent controlled or modest income” housing. In this case, demand is constant and actually inverse proportionately (more demand than supply). Better real estate economic conditions and improved investment market conditions (stock market, investment returns, etc.) influence to a lesser extent, the demand outlook as stronger or stable wealth profiles for consumers reduces the anxiety of purchase, especially where entrance fee models are concerned.
From a demographic perspective, the issue at bear is the actual or real number of seniors in the target age range with an economic wherewithal to consume (have the financial capacity). Only (approximately) ten percent of all seniors 75 and above reside in seniors housing specifically (IL or CCRC) and a slightly larger (aggregate)number now reside in quasi-seniors housing projects (age limited housing developments ala Del Webb). Between 2010 and 2016, the 75 plus population grew at an anemic rate of 1.8%. The expected rate of growth for this cohort over the next five years increases to 3.8%. More telling, for this same period, the subset of 75-79 grows at a rate of 5.7%. These numbers present a bit of optimism but in real terms, the demand change (within the demographic) doesn’t create sufficient opportunities for absorption of the inventory growth, if the same remains at its present pace. The demographic fortune doesn’t really begin to change dramatically until 2021 and beyond. At 2021, the group turning 75 represent the start of the baby boomers (2021 -75 = 1946). Prior to this point, the demographics of seniors 75 and above still reflect the World War II trend of birth suppression.
To Brookdale. The operative lesson is that Brookdale has far too much supply for the real organic demand that exists for plus market rate, congregate seniors housing. In my outlook comments below, readers will note how the demand around seniors housing and the congregate model is actually shifting slightly which has negatively impacted Brookdale. The acquisition of Emeritus has since offered proof of some age-old adages regarding Seniors Housing: local, not conforming to retail outlet strategies, very elastic demand, tough to price inflate for earnings and margin, asset intense and thus capital re-investment sensitive, and of course, full of me-too projects that are difficult to brand differentiate. In the Emeritus acquisition, economies of scale and cultural assimilation proved difficult but frankly, such is always the case. The real crux is that the retail outlets (the Emeritus properties) were not accretive -seniors housing doesn’t quite work that way. While the asset value of Brookdale skyrocketed, the earnings on those assets retrenched. With soft demand and a lot of congregate projects highly similar and no room at the ceiling for price elevation, a fate accompli occurred. The lesson? Certain types of Seniors Housing is about played out (vanilla, above market projects) and a heavy concentration of this in a portfolio will evidence occupancy challenges and rental income return challenges (no price inflation). Demand is also soft for reasons mentioned above, primarily demographic but also still, economic in some instances. Similarly, as I mentioned above, seniors housing is very local. A retail brand strategy simply (the Wal-Mart concept) won’t work. Residents identify brand to local or at best regional – national means nothing. If the market isn’t supportive regardless of who or what it is, the project will be challenged. Emeritus brought too many of these projects into the Brookdale portfolio.
Below are my key outlook points for 2017 and the next five or so years for IL and CCRCs (non-affordable housing).
- Demand across most property types will remain soft to stagnant. This means 90% occupied is a good target or number. Of course, rent controlled projects will continue to experience high demand, particularly if the projects are well located and well-managed. Regional and local demand can and will vary significantly. The projects that will experience the softest demand are above market, congregate, non-full continuum (non-CCRC). Projects with the best demand profile contain mix-use, mix-style accommodations with free-standing and villa style properties. While highly amenitized projects will attract traffic, demand isn’t necessarily better due to price elasticity in the segment.
- Improving economic conditions/outlook will undergird and help bolster demand, though the demographics still trump (no pun intended). Some notes to consider.
- The real estate economy can benefit, even with a slightly higher interest rate trend, if employment and wages continue to strengthen and de-regulation of some current lending constraints occur. I think the latter two points offset any interest rate increases in the near to moderate term.
- Rising interest rate fortunes help seniors more than stock market returns, though this trend is changing as seniors have been forced to equities to bolster return. Still, most seniors are highly exposed to fixed income investments and a somewhat improving interest rate market will improve income outlooks. Better or improved income does psychologically impact the consumption equation, “positively”.
- Capital access will remain favorable/positive and banking de-regulation to a certain extent, may push banks back to the sector (they have been shy to seniors housing for the last 5 to 8 years).
- Even with improved economic conditions, the mismatch between demand and supply (discussed earlier) will restrain rent increases in the near term. This could present some modest operating challenges for the sector as price inflation on wages, etc. will occur before any opportunity to raise fees/rent. The net effect is a modest erosion in margin. I don’t see much opportunity to fight this effect with increased occupancy.
- Increasing occupancy or in some cases, staying at current occupancy levels will continue to require incentives. Incentives negatively impact revenue in the short-run.
- The average age for residency on admission and across the product profile will continue to move up as a general rule. In addition, the resident profile will continue to slide toward additional infirmity and debility. Providers will continue to work to find ways to keep projects occupied by offering aging-in-place services. While this is a good strategy to a certain extent, the same does harm or impact negatively, the ability to market and sales-convert, units to a more independent resident profile. I liken this to a “rob Peter to pay Paul” approach. It works but not without side-effects and perhaps, unintended consequences that can be very deleterious “down-the-road”.
- The additional inventory that is coming into the sector won’t slow down for another two or so years. This is in-spite of a weak to stagnant demand. Some investors and developers are willing to be somewhat ahead of the baby-boomer curve even though I believe this is unwise (see next point).
- The reason I believe the baby-boomer impact for the sector will be modest and actually, disheartening is that the demographic shift doesn’t equate to product demand directly. Boomers have an increasingly different view of the world and a different set of housing and lifestyle expectations plus economic capacity.
- The first group of Boomers was hurt the hardest by the most recent recession. They lost a great deal of wealth and income profile as many were the first displaced as jobs eroded (oldest employees, highest paid). They also have less employment time to recoup any income/savings losses.
- Generationally, their savings rate is significantly less than their parents. These folks, while still more modest in comparison to Boomers born five to ten years later, didn’t delay gratification or extravagance the way their recession-influenced parents did. Less overall wealth negatively impacts their ability to afford higher-end seniors housing.
- Congregate living (apartments) is less their style. They are the first age group (Boomers) used to a more expansive living arrangement. While they’ll move eventually, they will not see 1,200 sq. feet at $4,000 a month as attractive (not even at $3,000). They will have unfortunately, mismatched expectations in terms of “size” versus cost. They’ll want larger but for less rent than realistic.
- They are generally healthier with a different view of age related to retirement and retirement residency. Don’t look for 75 year older Boomers to be horribly interested in a CCRC or Seniors Housing development, particularly if their health is good. They’ll wait until 80 or older to trigger a move.
- Boomers are more mobile and more detached than their parents. This means in-market moves and the traditional radius markets/math will be less applicable year-over-year with Boomers. They will be willing to shop broader and do so more for value and price – more for less or at least, a perception of the same. They are nowhere near as homogeneous by social construct as their parents.
- Greater pricing flexibility will continue to evolve. This means different entry-fee options, monthly service options with/without amenities, more ala carte, etc. Service infrastructure for certain communities may suffer as residents will continue to want more choice but less bundle (won’t pay inflated fees for what they perceive as things they don’t use or want).
- Because the sector is highly influenced and trended local, some markets will continue to thrive while others will continue to struggle, regardless of national trends.
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.
SNFs: A New Era in Post-Acute Care Begins
Over the years I have written about the changing landscape in post-acute care, principally due to the health policy ground swell resultant from the ACA (other reasons too but the ACA concretized them all, more or less). Boiled down, the fundamental driver of change is “pay for performance”; the notion that payment will migrate toward value based concepts, away from fee-for-service. The ACA and ACOs, bundled payments, readmission penalties, etc. concretized this oft discussed concept into policy (good, bad, flawed in some regards, and other). However, before the ACA, the notion that healthcare was just too darned expensive wasn’t new fangled. The healthcare industry prior was moving toward pay-for-performance, incentive based models; privately and publicly. Some reference posts on these concepts can be found on this site at http://wp.me/ptUlY-hq and http://wp.me/ptUlY-dw .
From an article this morning on the Modern Healthcare website, “Hospital Select Preferred SNFs to Improve Post Acute Outcomes”, the beginning of the new era for the post-acute industry has arrived. Because of readmission penalties, bundled payments, ACOs and value-based purchasing/pay-for-performance, hospital systems have begun identifying and thus, partnering with only select SNFs. Article link is here: http://www.modernhealthcare.com/article/20150509/MAGAZINE/305099987?utm_source=modernhealthcare&utm_medium=email&utm_content=externalURL&utm_campaign=am
What is interesting to note isn’t what is in the story but what is behind the movement and thus, the implications for SNFs. First, given all that we have seen (and for readers, read about) regarding SNFs and Medicare fraud, the Modern Healthcare story is the antithetical strategy of current environment survival. Hospitals are seeking to partner with SNFs that are efficient, lower cost, higher quality. Essentially the mantra is: There is no survival for those that can’t shorten length of stay and improve quality. Nothing about this trend relies on maximizing RUGs, providing unnecessary care, or delivering sub-standard care (the DOJ suits against HCR/Manor Care, RehabCare and Extendicare representative examples).
Second, the trend is all about quality and competence. The SNFs that are referenced invested in quality and core competence some time ago. They planned, made the staff investments to deliver the care (RNs, Therapists, etc.) and implemented strong programs of QI/QA (ala QAPI). They didn’t rely purely on maximizing rehab but on building overall case-mix and thus with it, case-mix competency. They excel at advanced care planning, care coordination, and med reconciliation. They also have strong committed leadership, boards, and competent facility based management (I know because I have consulted with many and still do). Moreover, they seek to add new programs and innovations to be better, more efficient and high quality providers and understand the relationships between care outcomes and patient satisfaction.
As the title of this post references, this is a period of “new beginning”. This means that for many SNFs in many markets, there is still time to reform and get into this new era. Below are my six stepping-stones to get into this new era and quickly; to become a valued and wanted partner in the ACO, bundled payment, pay-for-performance world.
- QAPI: If you don’t have a program, build one now. This site has lots of reference material. This is a backbone, fundamental requirement for membership in this new era.
- Align Your Internal Resources: What does your staffing levels look like? How many contracted services do you provide? Where are your contractors at with regard to these concepts (quality, improved care outcomes, commitment to education and development)? Do you have sufficient staff resources to increase your acuity? If not, what investments do you need?
- How Integrated is Your IT Infrastructure?: Are you capable of connecting with your partners? Can you share data seamlessly? Are your physicians capable of accessing patient information remotely? Can you provide patient/families with access? Are your contract services connected (lab, radiology, etc.)?
- What are Your Key Competencies?: Do you reconcile medications on admission? Do you begin advanced careplanning discussions prior to and concurrent with admission? Do you have specific staff expertise in wounds, neuro, behavior management, respiratory, pain, etc? What are your current quality indicators for falls, infections, wounds, hospitalizations? What do your partners want and need and do you provide it?
- Who are Your Partners?: The SNF environment isn’t the last stop for transitional patients. Home care, hospice, outpatient services are all part of the continuum and the equation. SNFs need to have their distinct partners in the same vain and alignment as hospitals with the SNF. Vet your partners and get understandings made. Share information, build infrastructure, develop common understanding, meetings, etc. Get on the same page. Being able to rapidly discharge when ready is all about having key partner relationships.
- Become Service Centered: Giving good care is one element. Being good at caring is of equal importance. Outcomes are great but satisfaction in health care is rarely about just good care. Frankly, most patients don’t understand what the outcomes are all about rather, how do they feel and how were they “cared for” during their stay. Service centered is about answering call lights timely, having staff with a smile and an element of concern, a presence by management on the floor, and a level of engagement that says we “care about you”. Measure satisfaction, solicit input and hold focus groups. Pay attention to the details!
As always, questions are welcome. Feel free to drop me a note in the comment section or via e-mail. My e-mail contact is available on the Author’s page. Remember, if you wish a personal reply, please provide a working e-mail address.
Hospice: Risk/Reward for Institutional Growth
With the hospice market (in most areas) fairly well saturated and the core (source) demand from traditional referral sources “flat”, growing census is a challenge for agencies. Some agencies have experienced referral growth but alas, length of stay has shortened. Others have experienced erosion as, while improper, the “skilled to death phenomenon” erodes days and referrals. Recall, the “skilled to death” concept is the SNF referral/discharge where the patient meets the 3-day prior inpatient criteria and “may” require a skilled service by Medicare SNF definition (nursing or therapy) even though the same is imprudent or not truly related to the patient’s condition. I have written about this issue before: It is fraudulent by all indications and merely a ploy to avoid out-of-pocket costs (applicable under hospice) for institutional care (at least for the first 20 days, if such meet the “skilled’ definition under the Medicare SNF benefit). The question oft asked of me is where can growth or additional days be found? My answer is at the “institutional” end (sort of). The reaction I soon get is “too much risk” or “been there, done that, got probed” or “those places won’t deal with hospice”. The last comment is why I say “sort of”.
To start; Hospice is a perfect complement for an SNF, and Assisted Living Facility, a Memory Care facility or a Seniors Housing complex (including CCRCs). As I have written before, I encourage all of these groups to partner with a (yes one) agency or perhaps two (no more). By the way, and I have beat this issue to death with numerous people, it is perfectly legal and appropriate for an SNF or any other of the aforementioned provider types to partner with just one Hospice (you will find ample reference on this site and explanations as to why in the comments section, other posts, etc.). For an SNF, hospice is clear survey risk-reduction and efficiency enhancement for any patient/resident that is simply trending toward end-of-life, naturally. The SNF COP (Medicare federal requirements) loathe patient/resident decline and thus, as patients/residents naturally trend toward death, the ante to prove all things interventionist to stave-off decline or at the least, justify that decline occurs despite best efforts to prevent, falls to the SNF. As ridiculous as this is, it is the SNF reality. Hospice and palliation, done right, resolve this issue and release (though not totally) the SNF, and the patient/resident, from the illogical burden (the patient/resident no longer bothered with weights, lab tests, etc.). The benefit in the Assisted Living/Memory Care environment, while less regulated, is the ability of hospice to elongate a stay where perhaps, the resident has exceeded the regulatory care parameter (boundaries) set by the State. In short, most states will allow residents to remain in the Assisted Living environment, even when the care required exceeds the regulatory boundary, if the purpose is to facilitate natural death in the environment rather than relocate the resident.
The risk for hospice today lies within the focus the CMS/Department of Health OIG and Department of Justice have placed on the industry, for agencies with large caseloads in institutional care settings. The reason for such scrutiny is the large (rather) amount of inappropriate enrollment and care provision exhibited by certain agencies (predominantly national agencies such as Vitas) in SNF and Assisted Living environments. Bluntly: These environments are the locus for a great deal of fraudulent activity in the industry. For those interested, the January OIG report on hospice activity in Assisted Living environments is available here: http://oig.hhs.gov/oei/reports/oei-02-14-00070.pdf Understanding the level of scrutiny the Federal government is placing on hospices with a large institutional caseload is key to building a proper risk management model/approach. To be sure, the agencies that play heavily in the SNF and Assisted Living environments will be audited more frequently. When audit frequency increases, the risk for claim errata and mistakes increases (mathematically logical). Knowing and understanding this risk is imperative to building a proper “institutional” care program. The risk of improper enrollment/certification and insufficient care isn’t worth a comment as no agency should ever breach these risk areas as doing so is clear fraud.
(There is one additional somewhat looming risk and that is a possible payment reduction in the future as CMS continues to look at revamping and modernizing the Hospice benefit. A concept within the discussions is a per diem reduction for any patient residing in an institutional care setting like an SNF or Assisted Living. As I have no solid information, nor does anyone else, as to what (and when) CMS will do regarding a change in the Hospice benefit, I won’t integrate any additional comments regarding payment changes into this post).
Taking the risk into account as discussed prior, how would or should an agency integrate additional institutional patients into its caseload and build a risk management model. The assumption is that a greater focus on an additional caseload will trigger scrutiny from the Medicare intermediary or perhaps, a CMS contracted auditor. Below I have outlined the approaches and recommendations I provide to hospice agencies.
- Limit the settings and in advance, perform due diligence on the provider setting and the provider. Partner with providers that have high quality, solid compliance histories (CMS 5 star, good survey history, well-regarded, etc.). Lots of data sources for an agency to use exist to determine the quality of any setting, formal and anecdotal.
- Understand the compliance/code requirements of the institutional setting. Hospices know their own requirements but all too frequent, don’t know the SNF requirements or Assisted Living requirements. Become knowledgeable or acquire talent that is. This will make discussions and planning and ongoing internal auditing much more effective and efficient.
- Build a strong interface agreement with each institutional setting. I have resources here if anyone needs. The key point is define in writing, everything to the best of each parties ability – who does what, who is accountable for what, etc. Focus on key risk areas such as documentation.
- Know the setting documentation and integrate the setting documentation into the hospice documentation/record. For example, in an SNF make sure the hospice has copies of the MDS, care plans, pain and other assessments, ADL information/records. Fundamentally, both parties should be seeing, recording and saying the same things.
- Structure your IDG/IDT process to incorporate a review of the institutional care setting’s documentation. Make certain institutional care staff are part of the process. I like to see the same representative group.
- Train key personnel – Hospice, the SNF, the Assisted Living, etc. on what each party is looking for in terms of care delivery, documentation, etc. Implement an ongoing program of inservice education. I like to see, on the part of the hospice, the same individuals tasked to a site – limit rotation of staff.
- Develop institutional care pathways and algorithms for common disease states found in SNFs, Assisted Living. Many hospices use Local Coverage Determination criteria – I am not a huge fan unless the same are tweaked or updated recently. CMS has clamped down on failure to thrive, generalized neuro, end-stage dementia as appropriate diagnosis/reasons for certification. This is not to say that the same are irrelevant reasons for certification merely, more elaboration is required. Look beneath the surface to find what is going on. Institutional setting patients, particularly SNF patients, generally have a good medical record with tons of data. Likewise, AMDA is a great pathway source. Local universities with medical schools can help with identifying criteria for end-stage Parkinson’s, post stroke (CVA, hemorrhagic, etc.), heart failure, end stage diabetes with/without renal failure, etc. Build your algorithm to assure key definitional points/milestones and share it with the institutional care setting.
- Utilize an external source to perform quarterly audits of your institutional caseload. Have this individual/organization sit through an IDG/IDT and then review records, particularly focused on certifications/re-certifications and charting – both Hospice and the institutional site. I like to have a focus on continuity of charting/documentation and clear role congruence between the parties (their staffs particularly).
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