How Pricing of Services Can Make or Break Senior Living Operations

Amenities can help senior living providers differentiate themselves from their competition, but they can also leech revenue and silently drain cash flow if not priced adequately.

And the issue might only become more pressing given the market: Senior living providers today are tasked with providing the best quality of care and services to their residents, all while operating on tight margins as they strive to appeal to the sophisticated needs of tomorrow’s senior housing consumers.

But whether these services are priced as included in monthly rents or on an as-needed à la carte basis, it is critical providers make sure they are pricing their offerings appropriately to optimize cash flow.

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“Because margins are shrinking, we have to pay attention to that, especially now that residents are coming to us at higher acuities than we’ve ever seen before,” says Dana Wollschlager, vice president of senior living development and operations consulting at Plante Moran Living Forward’s Elgin, Ill. office.

Recently, Wollschlager’s firm assisted St. Therese of New Hope, a non-profit continuing care retirement community (CCRC) in suburban Minneapolis, that discovered it was incrementally losing money each month due to a discrepancy in the number of services provided to its independent and assisted living residents.

For most of the assisted living residents living at St. Therese of New Hope, the CCRC offers a package of services that includes assistance with activities of daily living, escorts to and from activities, as well as dining, housekeeping and other offerings.

Independent living residents, on the other hand, can elect to receive similar services on an à la carte basis if they want something extra like medication assistance, foot care or help with baths and showers.

Operationally, St. Therese of New Hope had positive cash flow, but it was over the last five years that the community realized it was losing ground—though not entering negative territory—and couldn’t put a finger on why.

“So we went in and starting peeling back the layers of the onion,” Wollschlager tells SHN. “We found that they were actually making money on the à la carte services, but they were losing some money too.”

On the seven memory care residents at St. Therese of New Hope, Plante Moran Living Forward found that the CCRC was making $156,000 annually, but was losing about $957 per resident per month on 35 assisted living residents.

The problem: providing too many services within their designated service package for assisted, says Wollschlager.

The solution: analyzing most of the services St. Therese was offering and doing a “true study” of how much it cost to provide them, says Mike Warden, chief financial officer at St. Therese.

“It was like a study of costs, where [Plante Moran Living Forward] identified some services where we were either missing an opportunity or the services, in some cases, were priced less than what it cost us,” Warden said.

Righting the Ship

In its analysis, Plante Moran Living Forward broke down all the services provided at St. Therese, who they were provided by and assigned a cost to them. For example, a home health care aide providing a service was about $0.30 per minute, an RN was about $0.70 per minute, etc.

When it came down to it, time was a significant factor in weighing the cost of providing certain services, particularly as it applied to expenses related to services such as escorting residents to and from various locations throughout the community.

Specifically, the CCRC was losing about $0.27 per escort and it was providing up to six escorts per resident each day. Over time these losses were adding up, Wollschlager says.

“Basically, providers are selling time to residents,” she said. “If they are not intentional about looking at what that time cost is, they can very easily start losing a whole lot of money.”

After conducting the analysis, St. Therese increased its assisted living service package price about 17% to roughly $430 per month, Warden said. And since then, the CCRC has been able to right the ship, seeing increases in both revenue and operating income to recoup its lost revenue.

“For us in the non-profit world, for years now people have been going around with the mantra: no margin, no mission. But every business has to look at their margin and make sure they’re earning enough to cover their costs,” said Warden.

Written by Jason Oliva

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