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Assisted Living 2005: What Now?

April 1, 2005
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Three industry analysts share their perspectives on the current state of the sector and what the future holds by Richard L. Peck, Editor-in-Chief
ASSISTED LIVING 2005
WHAT NOW?

BY RICHARD L. PECK, EDITOR-IN-CHIEF

We are well into what may prove to be a watershed year for assisted living. After several years of struggling to absorb excess capacity, many providers appear poised for new growth-but growth of a different order, targeted to specific populations. Occupancies appear to have stabilized, ending a downward trend. The financial community continues to show a healthy interest in lending to solidly performing assisted living communities. And despite a flurry of newspaper exposTs last year describing resident injuries and deaths in facilities allegedly not equipped to deal with frail, vulnerable elderly, there has been no rush to federal regulation-yet. But this relatively good (if not great) news encompasses issues that could prove troublesome to the industry, including chronic staffing needs, occupancy turnover, and that perennial puzzle, the definition of assisted living itself. Recently, Nursing Homes/Long Term Care Management interviewed three industry analysts for their unique perspectives on today's assisted living state of the art. Following are summations of their comments.

Jim Moore, President, Moore Diversified Services, Inc.: "Occupancy is an important current issue because of the huge impact of resident turnover in this field. An average 50% of assisted living capacity has to be refilled each year. It's obvious that marketing leads will not grow exponentially because there are finite limits to the market that assisted living, as constituted today, can accommodate. That means we have to manage our existing marketing resources more effectively. Basically, that means improving raw lead conversion ratios. Generally throughout the industry, the ratio of raw leads to admissions is 20 to 1; in some it's lower, and in some higher. The question is, how well are we defining our leads and managing them?

"Part of this involves reaching out to meet consumers on their own financial terms. There's no question that the typical assisted living consumer has taken a big hit financially during the past few years. Wall Street has not been kind to many of them-for example, on a certificate of deposit, you're lucky to get a 1.5−1.7% return. Meanwhile, they still have to cope with inflation, escalating costs for home repairs and maintenance, and growing home care needs. While assisted living providers have generally raised their rates about 4% a year to keep up with inflation, consumers have become increasingly price-sensitive. Assisted living can't survive as a price-sensitive commodity. That means we have to start selling value to help the senior to understand the financial realities of remaining at home versus moving into a facility. We no longer can take a 'don't ask, don't tell' approach to financial discussions with our prospective customers.

"Another issue is defining the true scope of assisted living services. Many facilities have yet to ask themselves, 'What business are we really in? What should our admission and discharge criteria be?' Making this decision can be a very difficult balance to strike. ADLs can help define the lines for assisted living, but on the other hand, you don't want to exclude too much. Those newspaper stories last year about organizations exceeding their capacities varied in accuracy, but I would offer this advice: Realize that people someday will view your facility with 20/20 hindsight, just as these were. Try taking this perspective yourself and decide whether you like what you see. We know that accidents and similar events will happen, if only because the clientele of assisted living tend toward more dependency and therefore risky lifestyles. But you should decide whether your operation will only exacerbate an unfortunate situation.

"In looking at assisted living operations that are succeeding in today's marketplace, I see two characteristics: On the clinical side, they very clearly define their criteria for care-what they are staffed and equipped to manage and what they're not. On the business side, they are very aware of cost creep as resident acuity increases. They find a way to pass along these cost increases in their rates, usually by fully explaining to residents and families the added services and the value received. They know that simply trying to hammer down expenses without focusing on the total picture is not the way to go."

David Peete, President and CEO, AIM: The Society of Senior Living Professionals: "Over the past several weeks I've been meeting with assisted living CEOs around the country to get some idea of their development needs and how our organization might meet them in its educational presentations and offerings. The number one concern I heard: the need to develop leadership at the individual community level. What these top CEOs want is a de facto CEO for every building, in itself a typically $3 million to $15 million operation. They wonder, how can they prepare people for this role? And once they're up and running, how can they get them to stay for, say, three to five years? If they can get someone to function as a strong leader and stay on board for some years, they consider this to be a success. That's supported by ALFA and NIC data, which have shown that the buildings that stay full and retain frontline staff are those with a strong executive director, one who has stayed in place for a significant period of time.

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