Tension in the Marketplace Leads to Waiting List Woes

March 16, 2009

What's Keeping Marketing Professionals Up At Night

The U.S. economy is currently as bleak as it has been in decades. This crisis is rooted in declining home prices and sales. A complicating factor for the senior care industry is that the decline in home prices and sales can have negative effects on waiting lists and move-ins, which are key drivers of financial success and growth. In addition, the decline in home prices and sales also affects the value of senior care offerings. As a result, many facilities are experiencing a double-whammy that is not going to be fixed by any TARP or other government-funded bailout any time soon.

What do most senior care entity boards do when the waiting list dwindles and move-ins start to wane? They look to their exceptionally talented marketing staff members to come up with creative solutions for tough times. While many marketing staff members are very good at what they do, the dire nature of the problem may cause many to consider options that could lead to hidden headaches down the road. There are certainly marketing initiatives that fall neatly into the "don't do this" and "this is perfectly acceptable" categories, but many of the proposed solutions we have recently considered fall into the grey area of "well, this could work if you do it correctly." As with any grey area, there are business and legal risks to consider.

Below are some examples of options that we have seen considered by senior care entities that can raise a host of questions and can involve significant business and legal risks:

Personalized Contract Addendums. Addendums change your and the resident's rights and responsibilities under the life care contract or residency agreement. It is always a good idea to memorialize all contract changes that are offered and accepted. Some require more formality than others. Accommodating specific consumer demands with personalized contract addendums may make sales easier, but it may also raise regulatory compliance issues. As you likely know, many life care contracts and residency agreements are regulated by state authorities and, in many cases, must be approved in advance by the state authority. Addendums that change material provisions without seeking advance approval may very well cause a previously approved contract to be voidable at the resident's discretion, with a full refund of the entrance fee as one possible outcome. As a result, contract changes and contract addendums should be reviewed to determine whether advance approval by the state authority is required. Some changes are perfectly acceptable and may ease contract sales; others, however, may cause bigger problems than they appear to resolve.

Delayed Entrance Fee Payments. Whether for a specific time period or until a home sale occurs, delayed payments of entrance fees can quickly lead to a tense dilemma. While this option appears to directly address the concerns of your wait list and will be well accepted by those potential residents on the fence, the ambiguities it creates may lead to significant regret. If the entrance fee is not paid at the agreed upon time or if the house remains unsold, what options do you have? What if the eventual sales price leaves the resident with insufficient assets to pay the entrance fee? In these instances, does the resident have a life care contract or not? Can you afford the bad press of evicting a resident after 6, 12, or 18 months for non-payment of the entrance fee? There is also a potential regulatory compliance issue for those who have life care contracts or residency agreements approved by the state authority. The threshold requirement for an approved contract in most states is the payment of an entrance fee.

Non-Life Care Contract Incentives. Some good options do not involve the life care contract or residency agreement at all. In many instances, an incentive program may be sufficient to encourage those potential residents on the fence. When there is no reason to involve a long-term solution to a short-term problem, solutions can in many instances be addressed outside the life care contract or residency agreement. For example, providing lump sum moving expense rebates and professional move-in assistance for residence is one possibility. Another idea is to provide logistics professionals that can manage all stages of the moving process with residents. Providing assistance for coordinating turn-key unit readiness to eliminate one more stumbling block for residents is another option. These positions can be arranged by the entity and "hired" as independent contractors. When properly managed through independent contractors, the arrangement saves overhead costs and insulates the facility from some of the liability. From a liability standpoint, a good indemnification agreement protecting the entity and resident is a must. Incentives that are tied to finish and floor plan upgrades to existing units are another good way to encourage potential residents on the fence to move forward.

There is no doubt that the current economic crisis has caused disappointing financial performance for just about every sector of the economy. The senior care industry is no exception; indeed, senior care entities that rely on move-ins from senior housing sales have seen an exacerbated effect. The proper response by any entity is to increase marketing efforts to get potential residents off the fence and into the facility. Marketing ingenuity is a daily requirement and new, good ideas are surfacing every day. While most ideas are reasonably effective, some--the ones in the grey area--can come with hidden risks. In the best of times, it is not uncommon for marketing and regulatory requirements to butt heads. The fast-paced, reactive marketing plans of the current housing conundrum can drive these decisions into the grey area and make this conflict worse. If you remember anything about this issue, remember this: most marketing incentives can be accomplished and designed to comply with regulatory requirements and most can manage long-term risk with short-term marketing success. We see the grey area every day and can help you navigate the hidden risks.

If you would like more information about these issues, please feel free to contact any member of our Senior Care group.

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