How ‘Life Care’ Pricing Jeopardizes CCRCs

Some non-profit continuing care retirement communities (CCRCs) need to trim the fat and raise rates if they want to thrive—or survive.

The issue is with commonly used pricing practices, according to Joe Mulligan, managing director at investment banking firm Cain Brothers. Mulligan co-authored a recent report titled “Beyond Blue Plate Specials: Rethinking Senior Care Pricing” that details many of the common profit pitfalls that CCRCs face.

How Skilled Nursing Could Sink the Ship


The problem lies in one of the more popular pricing models for CCRCs—the type-A, “life care” contract.

Under this pricing model, residents pay an entrance fee and a generally static monthly rent to get an unlimited amount of care, no matter if they reside in independent living or a more clinical skilled nursing setting.

The model is no doubt attractive to prospective residents, but it can become problematic as they move along the continuum of care, especially if CCRCs make mistaken assumptions about how quickly that will happen, Mulligan says.


As seniors move from independent living to assisted living and beyond, the cost of keeping them healthy and happy rises with every rung on the ladder. And while it’s true that independent living residents can generate a decent profit margin, it’s also true that skilled nursing patients can lead to a hefty deficit.

Many CCRC residents enter into agreements while in the independent living side of care, but those residents can quickly occupy skilled nursing beds, Mulligan says. He points to a statistic from international business consulting firm Milliman that says the average age of new CCRC residents is “generally in the 80 to 83 range,” a marked increase from just two decades ago.

It’s just a fact of aging that older residents will need more clinical care sooner than younger ones, and it’s that accelerated care usage that poses the most financial risk.

“The vast majority of these operators assume an eight to 10 year period [before residents move to a higher level of care],” he adds. “We know of a number of organizations that are less than half that. And that’s where they get creamed.”

Chart via Cain Brothers’ Comments report

Mulligan likens these kind of pitfalls to a restaurant serving a discounted blue plate special. There’s a “discount” on skilled nursing care for residents under a type-A contract, so providers need to be sure that this discount isn’t too steep or too widely offered to sustain. A restaurant can only survive if it serves blue plate specials on a limited basis, and is also bringing in revenue off the regular menu.

Steer Clear Before It’s Too Late

Sometimes, CCRCs with life care payment models get caught in a kind of feedback loop where they take on more independent living residents to offset skilled nursing losses.

“The easy solution is, if we add more independent living, it’s bringing in more revenues,” Mulligan says. “That’s true in the short term, but you’re kicking the can down the road.”

After all, today’s independent living residents will become tomorrow’s skilled nursing patients.

Instead, CCRCs should take a hard look at their pricing models and adjust accordingly. In simple terms, that might mean rate increases for the residents who use more skilled nursing services.

“You have to align the pricing with the risk you’re underwriting,” Mulligan says. “What’s happening here is, the entry fees are linked to the housing. The monthly service fees are being linked to the care.”

Another practice more CCRCs should adopt in the short term relates to initial health screenings, Mulligan says. Predictive analytics platforms, such as IBM’s Watson, can collect and utilize health, wellness and lifestyle data to help operators manage risks.

Other easy-to-implement ideas include adjusting life care contracts based on age, charging more for memory care services, introducing “second person fees” that charge couples unevenly based on their level of care or simply switching to a fee-for-service pricing plan.

In the long term, more CCRCs should be reinvesting in their skilled nursing wings. For one, a more attractive skilled nursing facility with private rooms might boost the marketability of a community’s independent living services.

Additionally, the upgrades could allow CCRCs to steal residents away from freestanding assisted living and memory care communities, especially in oversaturated markets where communities are trying to keep the lights on by taking increasingly higher acuity patients.

“If they’re smart, CCRCs fix their memory care and position it well so it opens up the door to get that turnover,” Mulligan says. “And you also get throughput from these distressed assisted living and memory care properties.”

Though these kind of changes may seem daunting to some CCRCs, they’re manageable if done well, Mulligan says. For instance, even if existing contracts can be difficult to change, many communities see annual resident turnover of around 15% to 20%, meaning a complete transition to higher rates can be accomplished over just five years.

And this may be the time to get a little more aggressive on rates. Seniors’ home equity is at a high-water mark, giving CCRCs a little more pricing power.

“This is the heavier lift, but you’ve got to think about it differently,” he says. “People need to be thinking about this model differently and this life care discount differently.”

Written by Tim Regan

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