Why The Small House Model Doesn’t Have to Break the Bank

Healthier, happier residents. More visitors. Easier staff recruitment and less turnover. All these positive outcomes have been reported by senior living providers that have introduced a so-called household or small house model of care.

Unfortunately, many of these providers also report one major drawback: Increased costs.

Providers could be forgiven for thinking that household-style care is unavoidably more expensive. Efficiencies of scale can be achieved in traditional senior living models, because all the residents live under one roof. In the household model, a single building usually is replaced by numerous smaller group residences, each one equipped with its own kitchen, laundry and resident rooms — and with its own staff.

In fact, household models do not have to cost more than traditional operations. But to keep the bottom line stable — or even to boost profits — a provider must plan carefully, finance and build smartly, and commit not only to providing care in a new type of environment but in new ways.

Turn-Key or Custom-Build?

Small house care has gained popularity in the last decade, leading to a shift in how providers approach implementation. Whereas once they were uncertain about what small house care encompassed and were hesitant to plunge into projects, now many are moving rapidly to adopt this type of operating structure—sometimes too rapidly.

“One of the most recent trends in my own consulting firm is that I used to hear from people who were beginning a project, and now I’m hearing from people who need a fix on a project that is already completed,” says Jude Rabig, Ph.D., president and founder of Rabig Consulting and one of the nation’s foremost experts on household care models.

One issue that Rabig now sees is that providers build small houses, but they don’t understand the nuances of the model or even have basic misconceptions about it. This is in part because providers have begun to use the small house or household label freely, to describe different approaches, Rabig tells SHN.

She holds to a strict definition, based on what is widely considered the original small house model, the Green House®. Rabig served as director for the first Green House Project, undertaken by Mississippi Methodist Senior Services in 2003.

In the succeeding years, the Green House organization has helped scores of providers across the country implement the model. It typically involves cottages or similar “small house” structures where 10-12 residents live.

One option for senior living operators that want to introduce household-style care is to work directly with the Green House Project. The organization provides comprehensive guidance through the development phase and certification and ongoing support for the completed facilities.

From a cost perspective, working with the Green House Project is something of a “turn-key” option that can help providers save money, says Byron Freeman, administrator of Loch Haven Senior Living Community in Macon, Mo. The not-for-profit community offers assisted living, skilled nursing, rehabilitation and adult day services, and introduced the small house model by opening two 12-bed “cottages” in 2013.

However, despite understanding the potential advantages of creating an official Green House-branded development, Freeman and other Loch Haven leaders opted to go another route, adopting many Green House best practices but striking out on their own to build the cottages.

Official Green House developments increasingly are taking different forms, such as a high-rise building in which each floor functions the way a standalone cottage might in a different setting, Freeman notes. And the organization does provide support even to providers that are building small houses that will not be part of the Green House brand, so it is a resource for senior living operators that are taking a more independent route—which Loch Haven decided would be the best way to build small houses that precisely fit its needs.

Keeping costs under control starts with carefully laying the groundwork for a small house project, Freeman says. There’s not a one-size-fits-all household model, so thinking about the particular goals and needs of your specific community is crucial.

“The more time you spend developing that model helps keep your costs in line,” he says.

In particular, he stresses the value of doing a feasability study. Loch Haven worked with national accounting and advisory firm BKD LLP, which helped the provider “nail down” details of its plan from a cost standpoint, Freeman says. But providers should be sure that they remain active in the feasability study process—for instance, the small house model still is new enough that BKD did not understand all its fine points, so Loch Haven leaders had to do some education, Freeman says.

Part of feasability is determining what services to provide in a small house model, which can be adapted for various purposes, including memory care, skilled nursing, and post-acute rehabilitation. Loch Haven’s cottages serve both long-stay residents and some receiving short-term therapy.

The mix of services not only has to meet the needs of potential residents but offer sustainable payment streams for the provider—an issue of particular importance if government reimbursements are in play.

“You need 20% to 25% Medicare or managed care rehab to help underwrite Medicaid clients you have,” Rabig says. “So if you think of doing this in a 90% Medicaid model, you will be challenged.”

As with other types of senior living development, having a detailed vision of the project should help a provider secure favorable terms for financing. Local and regional financing sources should of course be considered, Freeman says, but the Loch Haven project secured financing through a U.S. Department of Agriculture rural development project.

“The USDA jumped on board right at the beginning, and we were able to get a really good financing package and interest rates,” Freeman says. “I would say the USDA really liked the vision we shared, as a way to continue to improve smaller, rural communities and meet health care needs.”

If You Build It …

When it comes to designing and building the small house structures, working with a reliable and innovative architecture firm is step one to keep costs under control.

This is especially important because in some localities, building codes and similar regulations were created before this type of health care setting existed, and they can present obstacles.

In Loch Haven’s case, one of the key design elements was having an open kitchen, which would put the focus on the freshly prepared food that is a well-known component of the small house care model. However, codes in Missouri did not allow for this; the Sedalia, Mo.-based Robert Rollings Architects LLC devised a creative work-around.

“Instead of having our ranges and ovens completely in the open, we had a smaller room, a fire-rated room with a door that closes,” Freeman explains. “But we wanted the aromas to fill the home, so we have a fire curtain you don’t see but that trips if there’s a fire. It’s a very contained room, but it does lend to our vision of open kitchen design.”

In addition to constructing attractive yet code-compliant buildings, equipping them with the right appliances and choosing appropriate furnishings will help control costs in the long-term.

Unlike in a traditional, more institutional type of setting, having a small house presents the possibility of utilizing consumer-grade rather than commercial-grade equipment such as refrigerators, dishwashers, stoves and washer/dryers—but doing so is a potential pitfall, Freeman cautions.

“We thought we could save some money in the short-run by using more residential-type appliances, but in the long-run it’s probably more cost-effective to use more commercial products,” Freeman says. “They’re going all the time. So we foresee that commercial-grade will just stand up longer and there will be less maintenance and replacement costs, even though the cost is a little more at the beginning.”

Similarly, some providers do not install ceiling lifts because the price—which can run around $3,000 a room—seems prohibitive, says Rabig. But these are crucial pieces of equipment that can save providers substantial sums in the long-run.

While traditional care settings would have numerous staff members working at any given time, meaning two or more people are available to lift and transfer residents, that is not the case in small houses.

Having a ceiling lift enables a single staff member to aid a resident safely, cutting down on worker injury costs that can total $30,000 to $35,000 per incident, Rabig says. It also reduces turnover costs related to injured employees leaving, as well as attrition related to the stress of trying to move residents without ceiling lifts, she adds.

Promoting the small house project in the community—particularly to local vendors—is another smart move that can help keep a project on budget, Freeman says.

“What we found, and I’m sure this would be the same in metropolitan areas, is that we involved our community in what we were doing, and many vendors donated furnishings,” he says. “Others gave us very exceptional discounts.”

For instance, Freeman praises the local craftsmen who built Loch Haven’s large, long dining rooms tables “of exceptional quality” at a budget-friendly price.

A New Way to Operate

A small house development might be feasible given a community’s needs and the buildings might be well-designed and economical, but costs will spiral if operations are not efficient and appropriate to the new setting.

In fact, most cost-related problems with household care models stem from operational problems, according to Martin Siefering, principal at international design, planning and consulting firm Perkins Eastman.

The firm recently surveyed senior living providers about results after implementing a household model, and this revealed the issues around cost: Nearly 40% of respondents said that costs had gotten worse.

Providers struggling with costs might be smart to look first at how they are staffing, Siefering tells SHN.

In a Green House-style model, staffing is much different than in a traditional senior care environment. Smaller teams of workers are assigned to each household, and they take on a variety of responsibilities, including resident care, cooking and laundry—which explains why they sometimes are called “universal workers.”

There also are fewer managerial staff who are primarily providing oversight of direct caregivers, in a staff empowerment concept. The net effect is that fewer staff members are needed overall—and this can contribute to positive financial results.

For example, Ohio-based Otterbein Senior Lifestyle Choices has been an ambitious and successful small house adopter, Rabig says. It has implemented the empowered work team and universal workers, and its small houses achieved a roughly 5% operating margin when they were filled. They are about three years old now.

“[Otterbein] certainly has demonstrated that the model is cost-effective when in its pure form,” Rabig says.

But issues can arise when operators try to blend this type of staffing with more traditional practices, Rabig, Siefering and Freeman agree. This can happen for a number of reasons.

“Sometimes clients want us to design a new building, and they haven’t budgeted anything in terms of time and money for training,” he says. “So they bring staff from an existing building with an old operating culture and expect them to operate differently just because they move into a new building. They need a very different way of looking at things.”

Having more empowered direct caregivers also requires that organization leaders have to trust the staff, Siefering points out. If problems arise, there can be a tendency to reinstate more staff at the managerial level. Instead, operators should double-down on training and mentoring to keep the staffing lean and economical, he advises.

Dietary is another realm where these types of operational inefficiencies often originate. If a community has both a traditional building and small houses, it can be tempting to try to continue to distribute food from a single, central kitchen—especially if the workers in the small houses are running into cooking-related challenges.

Rabig is direct in stating what has to be done to achieve cost neutrality or savings: “Eliminate [separate] laundry, housekeeping and dietary staffs, or else you will increase your staffing costs in a way that will destroy your outcomes,” she says.

Having technology such as scheduling software and electronic medical records also is an important piece of the puzzle, as it can help lighten workloads, maximize efficiency, trim staffing needs related to documentation, and reduce reliance on agency workers who fill in on a temporary basis, Rabig adds.

Finally, track each individual household’s costs, she advises. This makes it easier to identify if financial targets are being missed due to a systemic issue or because a particular household is not operating smoothly.

Introducing household care in a cost-effective manner clearly takes forethought, collaboration among multiple parties, and hard work, but the payoff is substantial—and not only in monetary terms. Of the senior living providers recently surveyed by Perkins Eastman, 88% said residents’ socialization improved in a household model, 78% said residents’ health/wellbeing improved, and 55% said the number of visitors improved.

That said, there are bottom-line benefits as well. About a third of the Perkins Eastman respondents said staff turnover and recruitment improved with a household model. And Loch Haven is seeing a high demand for rooms at its cottages—so much, in fact, that small houses eventually might entirely replace the legacy building that has stood for more than 40 years.

“It can be more cost-effective to put money in a new type of model than renovate,” Freeman says. “This is the direction we see care going.”

Written by Tim Mullaney

Photograph Copyright Perkins Eastman