The concept of a continuing care retirement community (CCRC) “without walls” is not new, but it is gaining luster among senior living providers, raising more urgent questions about how to launch this type of offering.
There currently are 29 of these types of programs nationwide, with more under development, according to the latest figures from specialty investment bank Ziegler and professional services firm CliftonLarsonAllen LLP. That might not seem like a staggering number, but these types of programs have nearly doubled over the past several years, the organizations stated.
The track record of these programs may encourage more CCRCs (also known as Life Plan Communities) to get in the game.
“So far, these programs have all been successful,” said Stephen Maag, J.D., director of residential communities at provider association LeadingAge. He spoke at the recent Senior Living Summit convened in Minneapolis by Life Care Services (LCS), one of the largest operators of Life Plan Communities nationwide.
However, just because all the CCRC without walls have been successful so far does not guarantee that new entrants will have similar outcomes. In fact, the model comes with serious risks that organizations cannot afford to take for granted, said Jerry Kuyoth, executive director of Friendship Village of Dublin, an LCS Life Plan Community located in Dublin, Ohio.
Friendship Village of Dublin launched its “Without Walls” offering last year, and Kuyoth offered a frank analysis of the program’s advantages and limitations, providing some keys to success for those weighing whether to break down the walls of their own campuses.
1. Analyze the Market
Friendship Village of Dublin’s new program can be traced to the board’s annual strategic planning retreat. Here, the board agreed that the Life Plan Community was successful but a “one-trick show,” said Eric Dudasko, LCS vice president and director of operations management, who also spoke at the recent Summit.
“Is there any way to generate a different revenue stream?” became a question hovering over the board, said Dudasko.
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Kuyoth was familiar with the CCRC without walls concept and brought it to the board’s attention. The model typically involves seniors paying an up-front fee, similar to a CCRC entrance fee, to be able to take advantage of services such as care coordination, home care, an annual physical, and access to the CCRC campus. There also is a life care component, so that they can access skilled care in the event of an event such as a stroke, and there may be a process through which they can eventually move onto the CCRC campus itself.
In moving forward, Friendship Village of Dublin worked with Cadbury Senior Lifestyles Consulting, and one of the initial steps was to analyze the local market. Both securing the services of a consultant with expertise specific to continuing care at home, as well as doing this market analysis, were in keeping with best practices, Maag said.
“The first key premise is, you have to do the market feasability studies,” he emphasized. “This doesn’t work in necessarily all neighborhoods, in all CCRCs. They may not have enough of a demographic in their catchment area to make this program work.”
The Friendship Village of Dublin example illustrates that the catchment area for these programs may be very tight; all nine of the current participants as well as all the prospects for the Dublin program have come from within a seven-mile radius of the campus.
“It is very tight, but we did feel confident,” Kuyoth said. One reason for this confidence: The percent of total population over the age of 65 is higher than in Miami or Scottsdale, Arizona.
As is the case for traditional CCRCs, the without walls model may be attainable only for those with significant resources, due to the initial fee as well as ongoing monthly costs. Friendship Village of Dublin offers a few plan options, but so far all participants have chosen the “Gold” option, which involves $65,000 upfront (with a refundability component) and $500 a month moving forward.
Determining the proper pricing levels for a given market demands some actuarial prowess, which firms such as Cadbury can be invaluable in providing, Maag noted.
2. Be ‘Brutal’ and Disciplined
Adding even more pressure to the market analysis is the fact that even if demand for the CCRC without walls is there, it’s likely that very few applicants actually will be accepted into the program.
The reason is that these programs appeal to a different, younger demographic than the traditional CCRC—typically people in the low- to mid-70s, according to Maag.
The programs are designed to work with these younger seniors while they are still active and generally healthy, and help them maintain their independence; if the longevity and morbidity predictions for the participants end up not being accurate, and they live a long time with serious health issues, they will tap the most expensive benefits of the program in a way that is not sustainable for the provider.
So, providers need to set strict criteria for potential members. Conditions such as Parkinson’s and dementia are immediate disqualifers for Friendship Village of Dublin’s program.
“This is brutal in terms of criteria,” Kuyoth said. “We go into their homes [for] intensive screenings. If we’re talking to Eric and his wife, if Eric doesn’t answer questions, they can’t be in the program.”
Friendship Village of Dublin excludes about two-thirds of those who apply, Kuyoth estimated.
It’s also incumbent on the provider not to overpromise—and there is a “tendency” to do this in the early going, when just getting clients on the rolls feels pressing, Maag cautioned.
“About two years later, when you start to have to make good on those promises, you say, we shouldn’t have said that,” he warned.
At the same time that a CCRC needs to be disciplined to avoid service creep, the organization should expect that they may have to stretch in some areas to meet the baseline demands of potential members; for example, these younger seniors may spend half the year in a warm weather state such as Florida or Arizona, and expect that home care or other services will be available to them there. Friendship Village of Dublin has begun to work with care providers in other states to fulfill this need. The organization started its own private duty home care company that serves its Friendship at Home members in the Dublin market.
Similarly, communicate clearly with potential clients, so they know exactly what services they can expect, Maag said. Transportation in particular is an area of concern, with some people anticipating that rides to the store, social events, or other locations are included.
3. Set Realistic Expectations
The new program is fulfilling the goal of being an extra revenue source for Friendship Village of Dublin, but organizations should go in with their eyes open about how much capital these programs require to start, as well as the rather lengthy timeline to profitability.
Startup costs typically range between $500,000 and $700,000, Maag said. While they do start to bring revenue in as soon as members begin to join, years can pass before the programs reach a critical mass needed to turn a profit.
In the case of Friendship Village of Dublin, the community expects to have invested $750,000 before achieving its first net income dollar in year four, Kuyoth said. That’s after achieving break-even at between 80 and 85 members in the program.
Furthermore, these programs sometimes can act as a feeder into the campus, but “typically not,” Maag said.
And there is substantial financial risk for a provider, particularly in the early stages of the program. Just one member who has a serious health event and needs to tap into the licensed, skilled care benefit can upend the financial model.
For example, in the model used by Friendship Village of Dublin, 7% of members are expected to need daily home care service and 2% are expected to need licensed care. With only nine members, if even one were to need licensed care, it would represent about 10% of the total member pool.
Given these realities, it can make financial sense to launch this type of program, but a CCRC may need greater incentive than just dollars and cents.
“For us it was a branding play as much as a profit center,” Kuyoth said. In conjunction with starting a private duty home care arm and expanding the Life Plan Community campus, the Friendship at Home offering “seemed to fit our market, with what we’re doing,” in the board’s estimation.
All in all, Kuyoth championed the program that Friendship Village of Dublin has started, but he urged the Summit attendees to weigh the risks and rewards that a similar program would pose for them.
“If you were coming looking for a ringing endorsement … I can’t give that to you,” he said. “It feels right to us.”
Written by Tim Mullaney