LCS CEO: We Are On Upward Trajectory, Battled Through $100M Pandemic Financial Impact

Like other providers throughout the senior living industry, LCS battled hard when Covid-19 reached U.S. shores in early spring.

LCS prioritized resident and staff safety, and dealt with the same operating pressures as the industry at large in April and May, when outbreaks were at their highest. Then, it was June that marked a financial low point, LCS President and CEO Joel Nelson told Senior Housing News.

He estimated that LCS was impacted in excess of $100 million in lost revenue and expense increases across its portfolio of 139 rental communities and continuing care retirement communities (CCRCs). The company’s entry-fee CCRCs are at roughly 30% of its net attrition projections for 2020, meaning entrance fee revenue is down.

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LCS’ Covid-19 financial challenges are not unique. Brookdale Senior Living (NYSE: BKD) incurred an estimated $71 million in higher expenses and $140 million in losses related to the pandemic. The senior living industry is poised to lose up to $57 billion through next April, and industry groups have lobbied the federal government for months for financial support, which has recently begun to flow in a limited way to private-pay assisted living providers, but industry groups and executives, including Nelson, point out that significant additional funds are needed given the scope of financial challenges facing senior living companies.

“It doesn’t begin to touch the revenue and expense shortfall that these communities are having,” Nelson said. “But it’s a step in the right direction and it’s greatly appreciated and very, very timely.”

Even without the assisted living support dollars, the Des Moines, Iowa-based company has been on an upward trajectory through the summer and into the fall. The LCS family of companies includes its operating arm Life Care Services — which serves more than 35,000 seniors across the country — as well as a development business, real estate investment platform, a group purchasing organization and other divisions.

Today, LCS is prioritizing the continuing safety of its residents, warding off Covid-19 fatigue, stabilizing operations, increasing Covid-19 testing frequency, and giving staff members some respite from their duties.

Spring struggles

Like the industry at large, the provider had to pivot quickly when the pandemic first struck and change its service models across all of its service lines, Nelson told SHN.

LCS’s clinical leadership worked with its national procurement team to leverage existing vendor relationships and acquire as much personal protective equipment (PPE) as possible.

“We never found ourselves without PPE in any of our communities during the pandemic, but that was only because we could broker the inventories from community to community, where needed,” he said.

LCS also grappled with the butterfly effect the virus had on the routines of staff and their families, as well as the loved ones of residents isolated from each other. The virus’ disruption on peoples’ lives outside the walls of a community had ripple effects in how the company operated.

Addressing the staff concerns, LCS implemented hero pay immediately, and instituted flexible staffing patterns to maintain proper staffing levels and give frontline workers time to be with their families and take care of business at home. The operator also assisted staff with everyday tasks such as grocery shopping and finding child care in some communities.

“[We did this] so they weren’t having to leave the workplace to go into higher exposed areas,” he said.

These measures have been essential in LCS controlling how much labor expenses have risen throughout the outbreak. Notably, the flexible staffing model resulted in the operator not having to rely on agency labor. Part of its flexible staffing model involved adapting a “universal worker” model. For example, dining staff were deployed to handle other responsibilities such as housekeeping, infection control and concierge services.

Improving testing

Nelson estimates that less than 20% of LCS’ total portfolio currently has active Covid-19 cases, and more frequent testing is needed to bring that percentage down further, particularly among staff.

Positive Covid-19 cases among LCS staff have outpaced resident cases by a two-to-one ratio through the pandemic. A lack of testing is a contributing factor, but not the primary culprit. LCS is emphasizing a more detailed focus on infection control, going beyond sanitation and disinfection guidelines set by the Centers for Disease Control and Prevention (CDC), along with state and local public health authorities. The company immediately looked at installing microbial coatings in communities under development, where there would be no disrupting residents.

“It’s expensive, but it’s worth it,” Nelson said.

LCS also gained access to the first wave of Covid-19 rapid antigen testing kits, which provide results within 15 minutes, shipped out late last week to priority skilled nursing and assisted living facilities by the Department of Health and Human Resources (HHS). Over 12,000 sites in areas of the country struggling with high positivity rates will receive the kits, developed by pharmaceutical corporation Abbott Laboratories.

Operators in areas with positivity rates ranging between 5% and 10% were sent enough kits to test staff twice a week, while providers with lower positivity rates were sent enough to test weekly. Additionally, assisted living facilities in counties where positivity rates are less than 5% were sent kits.

“We’ll be able to monitor that on every shift, every day, [in markets] where we know that the majority of the infection is being brought in from the outside,” Nelson said.

LCS is seeing fewer active positive Covid-19 cases on a weekly basis since June – less than 1% of its total resident population have active cases, and the arrival of the rapid testing kits will allow for more frequent testing and, hopefully, a further reduction in positive cases across its portfolio.

Stabilizing operations

There are signs that LCS’ operations are reaching stabilization. As of September, 90% of its communities are open and accepting move-ins. Higher acuity care segments such as skilled nursing are seeing increases in census, indicating that the greater medical environment is less stressed and restrictions on elective procedures – which were halted during the early weeks – are gaining momentum. And the company does not see the need to get into pricing wars with competitors in order to rebuild occupancy as more areas of the country reopen. Nelson believes there is enough pent-up demand for all providers to meet, but it will not get into price wars in order to do so.

LCS benefited from low leverage in its CCRCs and startup rental communities, which allows the company to withstand the ongoing pressures stemming from the pandemic.

“We typically look at 60% debt-to-equity. That has given us a lot of relief that others would not be able to or have been afforded during this,” he said.

The company is also achieving budget efficiencies. For example, while costs for paper foodservice materials have increased because residents are having their meals delivered, raw food costs have declined as a result of fewer menu options, Nelson told SHN. And, in lieu of fewer menu options, LCS added mobile bars for cocktail hour in its independent living segments.

LCS reduced the frequency of housekeeping services in its independent living segments while residents were in quarantine, serving the dual purpose of controlling expenses and preventing the possibility of an outbreak via staff-to-resident transmission. 

“But let me be clear. We are not cutting corners on resident services,” Nelson added.  

As the industry enters a management phase of the pandemic, LCS is seeing momentum among move-ins and leads. In addition to the majority of its portfolio accepting new move-ins, leads now range between 70% and 80% of pre-pandemic targets. LCS’ sales and marketing teams report that prospects and their families still have confidence that move-ins are in their immediate future, but many are waiting until the time is right before moving forward.

A silver lining in LCS’ CCRC net income attrition is that it does not include non-refundable entrance fees. And, like leaders with other organizations in senior living — including real estate investment trust Healthpeak Properties (NYSE: PEAK) — Nelson is bullish on prospects for CCRCs. There are a handful of LCS-managed communities in some form of bond default, but these he believes these are isolated incidents, compared to the larger portfolio.

Last week, Healthpeak announced that it was in discussions with private equity firms to sell underperforming properties in its portfolio of triple net and operating contract senior housing assets. But CEO Tom Herzog stressed that its collection of CCRCs was off the table because of high barriers to entry and potential growth.

Nelson agrees with Herzog’s assessment of the CCRC model’s post-coronavirus potential, and LCS has been in frequent contact with Healthpeak and its other landlords to establish master plans toward stabilization including expansions, improvements, repositioning, and adding amenities to better respond to future infections and pandemics.

Nelson believes that LCS’ CCRCs were already well-positioned to respond to Covid-19, due to a combination of a greater volume of common spaces which can be repurposed with stronger infection control protocols in mind, and recent private room conversions.

The pandemic has caused LCS and its partners to step back and reassess its operational flow, to take stock in lessons learned and identify areas of improvement to enhance the lives of its residents, and determine how to capitalize those improvements.

Moving forward, the adoption of telehealth and other technologies brought on by the virus will change the way LCS – and the industry – deliver care.

“I think senior living will remain a very strong option for seniors,” Nelson said.

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