Affinity Leverages Scale, Tech to Offer Middle-Market Senior Living

While the senior living industry searches for a way to reach the middle-market of consumers, one of the largest providers in the U.S. believes it has a winning formula.

Affinity Living Group (ALG) has more than 140 communities open or soon-to-be-open across six states in the U.S. Southeast — 90% of which have rates amenable to the middle market, CEO Charles Trefzger told Senior Housing News.

To achieve that, the company landed on a strategy that includes shared rooms, economies of scale, technologies that boost efficiency and a range of payment options.

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Senior Housing News spoke with Trefzger to learn more about the company’s middle-market methodology and how ALG’s model might be a case study for other senior living operators looking to cater to this consumer base.

The conversation came on the heels of newly released data showing that the middle-income population of older adults is set to surge by 2029, and 56% will not be able to afford assisted living at today’s market rates of about $5,000 a month.

The following interview was edited for length and clarity.

Senior Housing News: I know about 90% of your communities are geared toward hitting the middle market. What are your rates for those properties?

Trefzger: We have rates for straight assisted living in what I call companion room settings in the mid $2,000s. That could be anywhere from $2,300 to $2,800 per bed.

What we typically have in our companion rooms is a private sleeping compartment, a shared vestibule, and a shared bathroom. And then everybody gets their own heating and air conditioning unit and their own window. So, they’re sharing the common area that comes off the hallway into a little vestibule that quite often will have a small kitchenette in it and then a shared bathroom.

How are you able to offer it at that price point? What are some ways you keep the cost of care down?

You have to have proximity and scale. So, that’s why we’re focused on the southeastern United States. When we go into a particular market, we try to have a sufficient number of communities that we can build economies of scale. That is essential to what we do.

So, you have economies of scale and the acquisition of your various supplies, with your maintenance and housekeeping. You just have to have that ability to share resources between facilities and spread those costs across multiple locations.

And you have to be extraordinarily creative in the way you tackle the day-to-day functions in the facility.

Rendering of Affinity’s “Scotland House” community in Scotland Neck, North Carolina

Describe what those day-to-day functions look like in an Affinity community.

We try to have our staff focus on the care of the resident, keeping the buildings looking very nice and well-maintained, and then also the marketing of the building, the census component. We try to take other aspects of the operation off of the facility, so they can focus on their core mission.

So, what are those other things? It’s everything from food purchases to answering the telephone. We have a very robust call center in North Carolina. We typically answer about 52,000 phone calls per month in the call center. And we’re able to become extraordinarily knowledgeable about why people are calling us and the information that they’re trying to gather.

We know that we get a significant portion of our leads every month from the call center. About 10% of the calls are related to leads for admission. We know that 20% of the phone calls are from families looking for information about their loved one. We know another 20% of the calls are related to physicians and primary care practitioners, either providing us information or asking about a particular resident.

It’s that sort of data that becomes extraordinarily important when were trying to run the business effectively and efficiently, and taking off of the facilities things that become a distraction.

I’m able to answer those 52,000 phone calls a month with 20 people, instead of having one person in every facility dedicated to answering the telephone, which doesn’t really work. So, here’s a system that allows us to do it quite elegantly.

We’re creating efficiencies by handling human resource issues, corporately, by handling purchasing corporately, by handling the accounting functions corporately. All those sort of things that quite often get pushed down to the facility and become a distraction come here for us to manage.

But the thing that makes us able to do what we do is using technology to care for our residents. People would naturally presume that the way you’re able to charge so little is to compromise the care of our residents. And that’s absolutely not the case.

In many of the states that we work in, we have to work with a very strict staffing guidelines. And you just don’t have the ability to reduce your staffing. We use very dynamic staffing schedules and monitor them very closely to make sure that we are not only compliant with the minimum guidelines set by whatever jurisdiction we’re working in, but also to ensure that we’re meeting the care needs of our residents.

We use MatrixCare and their electronic health records to track the needs of our residents and then staff dynamically based on what we perceive are the staffing requirements to provide the necessary assistance with activities of daily living.

And then, if you take the technology that’s available today and deploy that so that the residents’ care needs are known to the caregivers, those caregivers can act responsibly instead of marching up and down the halls, one room at a time. They don’t have to go discover what the problems are. They can be told what the issues are for those particular residents and address them.

My good friend John Damgaard, the CEO of MatrixCare, likes to use an example: Are you more afraid of a bunch of redcoats lined up in a straight line with smoothbore muskets or two or three special operators with night vision goggles? Obviously, I’d rather not deal with the night vision guys.

So, we have to learn as an industry how to be more efficient in how we deploy our people and more targeted with the needs of our particular their concerns than just going up and down the hall looking for opportunities.

And the way we do that is with technology. With sensors, with Apple Watches. We’re developing initiatives with the Apple Watch in an attempt to use predictive analytics to not only know where our challenges will be with residents but to predict where they’re going to be and respond in a timely manner.

We’ve visited a great deal with telemedicine and people that provide that service. That’s another way to involve primary care practitioners to try to be more responsive and predictive with the needs of our residents.

One thing that we’ve tried really hard to do is collecting data that allows us to take the time to analyze where we think somebody is like to have a fall issue, or where somebody is like to have some other health event, and then try to get out in front of it before it occurs.

So if you can’t reduce your staffing ratio, even with some of these efficiencies, how do you keep labor costs down?

Staffing is not an opportunity to save. What you have to do is figure out how to use the staff that you’ve got and make them more efficient.

For instance, instead of using your staff for transportation, come up with a different solution to transportation, whether it’s through a contracted outside source or instead of transporting people, making people come to your residents.

If you look at the medical needs of the middle income, what we have found anecdotally is that they typically have more health care challenges than the typical AL res who might be in a higher-income bracket. And there’s a couple reasons for that. Because of their limited financial capabilities, they’ve put off their health care needs.

Their health care needs are typically more acute than your traditional assisted living residents. And that’s one of the challenges that we are facing as a company and frankly, as an industry. We’re seeing people at this income strata have more health care requirements and more needs and interventions are required.

So, you’ve got to staff your facility to accommodate those folks and you’ve got to organize your business in a way that recognizes those challenges. So, instead of taking your residents to the physician, you have to build in where the physicians are coming to you. We use a variety of physician practices that come to our facilities and perform most of their treatments in the facility.

That’s one way that you become more efficient. You have to look around your business and try to ascertain where, through economies of scale and sharing of responsibilities with other folks who are working in and around your residents, ways to improve their quality of life, reduce the risk of injury, and provide the care in their home setting.

How has sticking to the middle market affected your census? My assumption is that it’s been easier to fill beds that way.

That’s absolutely right.

Intuitively, the more people that can afford your product, the bigger your market is and the more likely you are to sell something, and it’s the same in our industry, as well. More people that can afford your services, there are people looking just like anybody else, they’ve got the health care needs, they can’t take care of mom at home, and they need help but they just don’t have the funding.

So, by looking at folks at different income strata, you are opening up the possibility to fill your buildings up.

What’s interesting is just how price sensitive the middle income consumer is. Something that you or I would not consider that significant in terms of monthly spend is extraordinarily important to the consumer, and we need to be very sensitive to that.

But the other thing is, we have to be responsible, because if we’re going to set a price, we need to be willing to live with that price for a period of time that is respectful to the resident and the need for them to live on a fixed income.

What I mean by that is, if you drop your price for a move-in special, you need to be willing to live with that price. These folks will move for a few hundred dollars. And then they’ll move again. And that is not good for the resident, and it’s certainly not good for the provider. So, we as an industry need to respect the residents’ economic situation and be willing to live with the pricing we create.

The other thing about our pricing is, [the middle-income resident needs] certainty of price. It’s very hard to have charges upon charges. It’s very easy to confuse the middle income individual into thinking it’s an affordable price when in actuality it really isn’t.

What we’ve done is adopted all-inclusive pricing. The price I give you is the price I’m charging you. It is what it is. And we get a great deal of confirmation that that’s the right thing to do.

There are experts who believe the senior living industry has gotten too focused on one-upping each other with amenities, almost like an arms race. And that, in turn, drives up development costs. So, what your take on amenities?

People in the middle income bracket are living on fixed incomes where they are extraordinarily price-sensitive, cost-conscious and value-driven. And they are willing to give up some of those amenities.

In many cases, people aren’t comfortable living in those type of settings and prefer something that’s more appropriate and comfortable for them both from a cost perspective as well as a living environment.

So, we don’t try to go over the top with the amenities. We try to fulfill the needs of the resident and give them nice, comfortable spaces to live in, but at the same time not build too much into the cost of the building, which makes it unaffordable.

Our mission is to provide affordable assisted living. And to do that, you have to be very attentive to your capital costs and the building that you’re building.

Affinity provides various payment options for residents, like Medicaid and veteran’s assistance. Tell me about how that and how it relates to reaching the middle market.

We’re seeing an increasing number of residents who have very little or no savings, and that is going to continue over the next several decades where savings are just not available.

So, you’re going to be dealing with folks who make more than what Medicaid eligibility is, and less than what your traditional assisted living facility costs. So, they live in that middle ground.

We’re one of the largest Medicaid providers in America and many of the markets we work in, we’re very understanding of how Medicaid works. In some states, it’s very cost effective and efficient, some states it is not.

One thing we’re looking to do is create means by which we can couple Medicaid with Medicare Advantage and create programs that allow for the flexibility and affordability of assisted living.

We also work with VA programs and something called Patriot Angels, who help us with residents who fit in that middle income bracket and need to augment their Social Security with their VA benefits.

Getting VA benefits approved for assisted living is extraordinarily challenging, and Patriot Angels has been a great resource for us to get that accomplished.

We’ve done things in asset acquisition, where people have homes that they need to do reverse mortgages on, where we have actually worked with families to defray the cost of care while they’re trying to sell or rent a home of their parents. So, you just have to be sensitive on an individual basis on how best to try to solve the riddle.

We don’t see too many providers going the Medicaid route. How does it play into your operations?

Well, Medicaid [varies] in every state. And some states are more robust than others. North Carolina, where we are heavily concentrated, is one with a very robust reimbursement for Medicaid.

Forward-thinking states like North Carolina recognize that they can defray some of their Medicaid costs by utilizing assisted living in lieu of nursing home care and keep people at a lower cost and lower level of care as long as possible. And then, gradually move them into the nursing home world as they elevate in their acuity.

In Florida, another state where we’re growing and involved in Medicaid, they pay for a portion of the care and then it’s augmented and supported with the individual’s Social Security, and can be further supported by amounts that the family wants to contribute. So, there’s ways to couple different programs and different solutions to the funding mechanism to make assisted living affordable.

You mentioned Medicare Advantage, and I know you’re considering launching a Medicare Advantage plan. Can you elaborate on how MA plays into the middle-market equation?

The way of the future is that managed care will become increasingly involved in the care of our seniors.

Medicare Advantage will become increasingly important in our world as senior living providers because they will become the navigators, in many respects, for our senior population, for our prospective residents.

And we as providers have got to embrace that and become part of the networks of these managed care organizations if we’re going to be successful.

And that doesn’t mean that you’re getting reimbursed by MA plans, but it recognizes that you as a provider have the data and outcomes necessary to help those Medicare Advantage providers be successful.

Medicare Advantage providers are taking a premium dollar paid for by the government and they are trying to spend less on your premium for your care. I believe that we’re going to see them become more involved with the case management and care coordination of their insured population, which also happens to be our residents.

Consequently, we as providers have gone to work in concert with those managed care organizations if we’re going to be successful as an industry. How they’re going to do this remains to be seen. Some of us, like myself, are trying to set up our own MA plans and kind of control the vertical integration and become our own payer payor source.

But those are dreams and aspirations that we’re working on very hard but take a great deal of time.

Our conversation today was spurred on by the recent NIC middle market study.NIC had set $45,000 in annual rates as the threshold for reaching many more middle market consumers. But, there’s some discussion that this could be a conservative number. What are your thoughts?

I think we have to be lower than that, and I think the real number lies in the $30,000 to $40,000 range.

The real challenge that we’re facing involves people that make more income than allows them Meidcaid eligibility, but at the same time not enough to hit that $45,000 mark. And it’s providers who can live and work and be successful in that middle ground that the real opportunity exists for.

What’s one thing senior living could do better about hitting the middle market?

I think we all better start embracing technology and data gathering.

The only way we’re going to increase our efficiency inside our buildings is to know what’s going on inside of our buildings, just like we talked about with respect to the call center. We’re going to have to embrace technologies that allow us to know what’s going on with our residents and their health care needs literally before they become sufficiently aware of them. And you do that through sensors and technology that monitors their vital signs.

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