Exploring Options for Senior Care in a Recovering Economy

February 15, 2010

Americans at kitchen tables everywhere are discussing belt-tightening measures and retooling spending habits as necessary to weather the slowly recovering economy. This phenomenon is not limited to domestic concerns. Due to a number of factors, including a housing market slump and reduced availability of credit and capital investment, the same drama is playing out at boardroom tables in the senior care industry. Senior care executives and board members are considering ways to achieve cost-savings, maintain existing revenue levels, and perhaps seek modest revenue gains from alternative sources. Following are some of the approaches being considered by the senior care industry:

Virtual CCRCs and CCRCs without Walls – The high cost of developing, licensing, and staffing nursing facilities (SNFs) and assisted living facilities (ALFs) presents a barrier to developing start-up continuing care retirement communities (CCRCs). One alternative is to develop independent living units as new construction or through renovation of existing properties (see discussion below) and contract with independent providers of nursing facility and assisted living services located in close geographic proximity. Differences in state laws regarding the licensure or certification of CCRCs dictate how these options can be marketed. In some instances the facility may not be subject to regulation as a CCRC at all. Though this model may not offer the same level of security in terms of access to needed services for residents, it presents a more affordable option for seniors and senior care providers alike.

Substituting New Construction with Renovation of Existing Properties – A tightened credit market and reduced capital investment have opened senior care executives to consider the purchase and renovation of neighboring apartment and condominium properties to convert into independent living residences. As with other approaches discussed here, differences in state laws regarding the licensure or certification of CCRCs may place limitations upon the ability of such properties to be “co-opted” into an existing CCRC.

Downgrading Assisted Living Units to Independent Living – ALFs are costly to staff and operate and compliance with state licensure laws contributes to the challenges of maintaining profitability. As a result, some ALFs have opted to convert all or a portion of assisted living units to independent living. Depending upon the level of care required, the needs of residents that require assistance with daily living can be met with home care and personal care aide services. This approach may require regulatory approval, but if successful, can eliminate the operational costs associated with ALF licensure.

Introducing or Expanding the Availability of a Rental Option – Seniors looking to wait out the housing market slump or seeking greater certainty and less risk on assessing real estate values are finding rental options more appealing than the traditional entrance fee model. Most residency agreements for rental options mirror those for entrance fee models, but instead of requiring payment of a sizeable entrance fee, they allow the resident to obtain a similar residence and services through the payment of monthly fees. Due to the absence of an entrance fee, rental options may not be subject to regulation by state regulatory authorities in the same manner as entrance fee models, making this an appealing option for some senior care communities looking to quickly enter the market.

Expanding Home Care and Personal Care Operations – Some CCRCs that have developed their own home care and personal care aide capabilities have considered plans to expand the availability of these services to seniors living “off the campus” of the CCRC in neighboring communities. This approach presents some interesting insurance coverage and risk management challenges, but where operations are well managed, it can allow the CCRC to maximize the capacity of the operation and capture additional revenues not available within the existing resident population.

Focusing on Low-Cost Services to Increase Value to Residents – Enhanced recreational activities and program offerings, particularly those in the area of preventive care and wellness, provide intrinsic value to residents. At the same time such activities and programs can improve residents’ health profile and perhaps, to some degree, reduce the need for costly health care services. Employing staff to provide recreational activities and programs can be expensive, but contracting with educators and trainers on a part-time basis and partnering with existing community resources can reduce the financial burden involved.

Each of these approaches presents opportunities for senior care operations in terms of cost-savings or revenue stability or enhancements, but also introduces some interesting business and legal considerations. Some may amount to nothing more than short-term bridge-gapping measures, while others may signal significant long-term changes to the senior care landscape. Please contact one of the authors if you would like to discuss whether any of these approaches may be useful in your organization.