While for-profit senior living providers are still expanding at a much more rapid pace, nonprofits are continuing to gain scale and sophistication in the midst of Covid-19, and are strategizing about how best to compete and command market share coming out of the pandemic.
The “optimum” nonprofit senior living system of the future likely will be one that offers a diversity of housing and services throughout a given market and is closely aligned with health systems, according to Dan Hermann, president and CEO of specialty investment bank Ziegler.
While nonprofit senior living providers are still in the process of putting together all the pieces of this larger and more diversified model, many are growing closer thanks to recent affiliations and expansions, he said Friday during Ziegler’s 2020 Senior Living Finance+Strategy Virtual Conference.
Many of the largest organizations in the space now have annual revenue in the range of $400 million to $600 million, and Hermann thinks that by the time they reach $750 million to $1 billion, they will have established the fully integrated presence across their markets that they envision.
However, success is by no means guaranteed, particularly in light of the doubts and challenges created by Covid-19. In particular, nonprofits must seek to understand and appeal to the consumer of the future while making their operational models more efficient than ever.
“Think about what you’re going to do, and act intentionally as you move forward over the next five years,” John Spooner, co-CEO of development, management and advisory firm Greystone told attendees on Friday.
Winning the battle for mind share
Like senior living providers of all stripes, nonprofits have faced unprecedented challenges during 2020. The good news is, the nonprofit side of the industry has held up to the pressures of the pandemic reasonably well, as reflected in some key metrics.
Nonprofit senior living communities typically have higher occupancy than for-profit communities, and that has remained the case during Covid-19, said National Investment Center for Seniors Housing & Care (NIC) Chief Economist Beth Mace.
In the second quarter of this year, the pandemic caused sharp declines in census across the largest markets tracked by NIC, but for-profits posted a 3 percentage point decline versus 2.3 percentage point decline for nonprofits, she said.
Many nonprofits operate continuing care retirement communities (CCRCs), also known as life plan communities, and nonprofit CCRCs also are outperforming for-profit CCRCs in terms of occupancy, the NIC data show.
The occupancy numbers are important, as the pandemic has created a “barbell effect,” Mace said. That is, a good number of organizations are maintaining occupancy of 90% or greater, but the industry average is being pulled down because there are also many organizations that have dropped to below 80%. To the extent that more nonprofits are on the positive side of that barbell, that bodes well for their ability to weather the current storm.
Yet, the picture is complicated in part due to the fact that nonprofits do favor continuum-of-care models, and Covid-19 has had different effects on different settings. Skilled nursing occupancy has taken the most dramatic hit to occupancy, in part because hospitals are performing dramatically fewer elective procedures that can result in post-acute episodes of care. On the other end of the spectrum, independent living occupancy has proven resilient.
These dynamics are accelerating changes to the nonprofit business model that have already been occurring for years, Spooner pointed out. Many nonprofit organizations have downsized or removed skilled nursing from the campuses in recent years, shifting more focus to lower-acuity senior housing as well as home- and community-based services (HCBS).
The pandemic is also accelerating changes in consumer sentiment and behavior, Spooner believes.
“Every aspect of their life changed — how they communicate, their ability to move around, how they obtain goods and services, their ability to connect with their family, their health and wellbeing and life at home,” he said, referring to older adults.
Coming out the pandemic, there will no doubt be a race for market share as senior living providers — both nonprofit and for-profit — seek to rebuild occupancy. For nonprofits to win that race, Spooner believes that they must adapt to all the changes in the lives of seniors and their adult children.
In other words, winning market share demands that nonprofits first win consumer mind share, he said, citing a concept from management consulting firm McKinsey.
Nonprofits have an edge in gaining mind share for several reasons, Spooner and other speakers at the Ziegler conference argued. For example, their diversified business models give them more touchpoints for consumers and options to serve people in various settings at at different price points — competitive differentiators that could become more pronounced as the huge segment of middle-income baby boomers ages, and as Covid-19 has made some people more committed to aging in their own homes. In addition, nonprofits’ relationships with other types of health care providers and systems — including home care, hospitals and physician groups — may be even more attractive to consumers due to the pandemic. Furthermore, their mission-driven philosophy can also be an advantage, as potential residents are more concerned about issues such as how well staff are treated.
“Sharing your identity, values, interests is even more important now, to capture the mind share of seniors that are coming into the market, or they’re in the market,” Spooner said.
But, nonprofits also have areas to work on in order to win over consumers. Technology has come to the forefront during the pandemic, for example, yet the lack of fast internet is still a “huge complaint” in senior living communities, according to Spooner.
Providers must also become savvy about leveraging technology to reach consumers in the most effective ways, given that seniors have now “leapt ahead” in their use of digital and social channels.
Even though the decision to move into senior living is taking longer than in the past, opinions of a senior living community are now being formed within about two minutes of someone visiting an organization’s website, Spooner said. So — while a 100% digital strategy is still not recommended — providers must be investing in their digital presence and messaging.
And, that messaging must be transparent and bold.
“They want to know your vision,” Spooner said.
Growth plus efficiency
Skokie, Illinois-based Covenant Living exemplifies many of the trends and is pursuing many of the strategies that Spooner, Mace and Hermann described — including harnessing technology to reach current and potential residents.
Covenant launched a video magazine that was initially released on a quarterly basis, and now is released monthly due to its popularity, President and CEO Teri Cunliffe said on Friday’s panel.
Creating this digital magazine is just one initiative made possible through the decision to bring marketing in-house; a move made as part of a commitment made in 2016 to identify $23 million of waste within five years, and reinvest that money into Covenant’s people, systems and physical plants.
“We looked at it definitely as a cost savings, but what we didn’t realize is how helpful it is for us to be able to change our operation and progress it much, much quicker than having to constantly … outsource,” Cunliffe said.
The commitment to operational efficiency came as Covenant has been in expansion mode. Thanks to growth through the last several years, Covenant placed No. 5 on the 2019 LeadingAge/Ziegler 200 rankings. Today, Covenant’s portfolio includes 18 locations across nine states, with more than $300 million in annual revenue. And, like other nonprofits, Covenant is not simply gaining scale but also diversification, setting a goal of growth through both communities and services. Affordable housing is one new area of focus.
“We want to provide housing or services to any senior adult who wants to live in Christian housing,” Cunliffe said.
She credits the simultaneous focus on growth and operational efficiency as a key to Covenant’s ability to weather pandemic-related challenges and be in a solid position to keep pursuing strategic priorities as Covid-19 wanes.
One example is bringing new technology to the talent acquisition process, including through virtual hiring events and making the application process easier. Over the course of eight weeks early in the pandemic, Covenant hired 452 employees, with 155 of those being temporary and the rest permanent. Average fill time for positions dropped from 39 days to 15 days.
“Here’s what we learned: You can be very efficient … by centralized screening,” Cunliffe said. “I will tell you, Covid will change our HR processes going into the future.”
Over the last several years, Covenant has evolved its operations in many ways, including through efforts to unify the organization in a common sense of purpose; new leadership development initiatives; new team member recognition and compensation practices; and tech-enabled ways of gathering resident feedback on an ongoing basis to make continual improvements.
So, achieving both a larger footprint and a more sophisticated and efficient operational platform is not easy, but nonprofit senior living organizations are going through these transformations to meet the challenges and opportunities of the moment. And, they must be willing to do this type of hard work, Spooner believes.
Given the current occupancy challenges, recessionary economy, and changes in consumer behaviors and attitudes toward senior housing, there is one question that all providers must be addressing right now, he said:
“What are you going to do next?”