As the senior living industry enters a post-Covid environment, rising expenses are hitting bottom lines and raising doubts about how quickly operators can recover financially.
Labor was an ongoing concern, pre-pandemic. Now, hiring employees is the top challenge, and providers are competing against other industries for entry-level and skilled talent, face higher minimum wage floors, and continued enhanced unemployment benefits.
Sales and marketing costs are rising as communities reopen and compete for new residents, and are expected to continue an upward trend throughout the remainder of 2021.
And the industry continues to grapple with rising liability and property insurance premiums.
The combined effect will impact margins and net operating income throughout 2021, even as occupancy rates trend higher and move-in velocity improves with positive Covid-19 cases receding.
A recent Pulse survey conducted by Senior Housing News provides a quick snapshot from 11 providers, including 7 with 21 or more communities. The survey revealed that 26.67% of respondents expect margins to decrease between 1% and 5% over the next six months, and another 20% expect margins to decrease between 6% and 10%.
Providers interviewed by SHN for this story also expect margin compression in the second half of the year. Additionally, some reported double digit increases in labor costs, and sales and marketing expenses.
But some providers expected expenses to trend upward. Covid-19 was an extreme event and spending is necessary to bring communities back to full operation, Belmont Village President Mercedes Kerr told SHN.
“2020 was an anomaly. It’s going to be interesting to see how  will play out,” she said.
Labor costs: ‘I don’t think it will get easier’
Labor has historically been the biggest concern across the senior living industry, and Covid-19 has not changed that.
Rising labor costs — coupled with an inability to drive rates at the same pace — could result in a 4% to 5% compression in margin over the next 12 to 18 months, Maxwell Group Founder and CEO Donald Thompson said during a recent SHN+ TALKS appearance.
Concerns over the labor pool shifted during the pandemic, as well. The most recent “Workforce 360” report from OnShift revealed that hiring new workers replaced retaining staff as the top labor challenge facing senior living.
Labor expenses at Gardant Management Solutions increased 25% to 30% in the first six months of 2021, CEO Rod Burkett told SHN. The Bourbonnais, Illinois-based provider manages a portfolio of 56 communities — 50 of those are Medicaid certified — and pioneered a sustainable middle-market senior housing model through Illinois state Medicaid waivers.
Burkett cited keeping up with other industries offering higher entry-level wages for workers as the reason for the increase, and Gardant is still having problems filling some vacancies. It is spending more on advertising to attract candidates, offering signing bonuses and other perks for biring to work specific shifts, and using agency staffing where absolutely necessary.
Burkett expects Gardant’s labor expenses to increase between 25% and 35% for the full year.
“I don’t think it will get easier for us,” he said.
Kerr indicated that labor costs at Belmont Village were higher in the first six months of 2021 compared to the same time frames in 2020 and 2019, although she didn’t specify how much of an increase the company experienced.
Houston-based Belmont Village operates a portfolio of 32 senior living communities across the country, and flexes staffing ratios based on occupancy rates. The provider did see a decrease in total occupancy during the pandemic, as Founder and CEO Patricia Will noted in a SHN+ TALKS appearance last February.
Occupancy is now rebounding, and Belmont Village is increasing its staffing ratios and hiring more people to fill openings. But the competition for entry level hires is fierce. People looking for work have their choices of industries, and job openings, to choose from.
To ensure that openings are being filled with the best candidates, Belmont Village established a task force.
The provider is also increasing its advertising budget to promote job openings online and in traditional media, and leveraging its recognition as a Great Place to Work to attract a bigger pool of talent.
“These are the things that speak to what it would be like for these candidates to work for us, if they were to choose us,” Kerrsaid.
Labor costs at GenCare Lifestyle have increased 7% to 9% in the first six months of 2021, Founder and CEO Leon Grundstein told SHN. The Seattle-based provider operates six communities offering independent living, assisted living and memory care.
A year ago, Grundstein believed the massive unemployment stemming from Covid-19 might lessen wage pressures on providers. That has not happened.
The Seattle market has a mandatory $15 hourly minimum wage. GenCare is offering $16 per hour for waitstaff at its communities. For other positions such as certified nursing assistants, the provider is offering starting hourly wages up to $17.50 per hour. In some instances, it is relying on agency staffing for skilled positions such as LPNs, for which he estimates GenCare is billed as much as $100 per hour.
Additionally, GenCare is offering enhanced benefits for current and new employees. The company now pays 90% of workers’ health insurance plans, and matches 401k contributions up to 4%, after a year of employment.
As a line item, SageLife Senior Living is seeing savings on labor costs, but that is because the company is having difficulty attracting new workers, President Kelly Cook Andress told SHN.
The Springfield, Pennsylvania-based operator, which manages seven communities in Maryland, New Jersey and Pennsylvania, is paying more in hourly wages during difficult shifts, and increased its spending to referral agencies for recruiting new talent.
But Andress believes the biggest challenge to hiring new workers is enhanced unemployment benefits, and believes that the company will improve its ability to hire new workers once these expire.
“Until then, we are doing what we can to attract and to compete [for new workers],” she said.
Insurance trends unchanged
The pressures impacting the senior housing liability and property insurance marketplace remain largely unchanged.
Premiums have continued to rise as more carriers exited the space, and providers are facing coverage retrenchments, as well.
The Spring 2021 marketplace realities report from insurance brokerage Willis Towers Watson revealed that providers could be looking at rate increases of 10% to 30% — or more, if they have adverse loss experience and poor venues. Rates for excess policies could be increasing 30% or more.
The providers interviewed by senior housing news also expect increases, but the actual percentage is yet to be determined as carriers will release those later in the year.
GenCare saw its liability insurance premiums increase 10% in 2020, a moderate increase brought on in part because of a low number of claims, Grundstein told SHN. The provider did have two claims filed in 2020.
Gardant is bracing for a 20% to 30% increase in liability and property insurance coverage when it receives its new rate quotes later this year, Burkett said. The company is in frequent communication with its insurance broker, looking for ways to leverage its operational history and scale into the insurance underwriting.
“We’ll probably have [to pay] some higher deductibles to keep the premiums down,” he said.
The expected increase in premiums was tempered, however, by a 19% reduction in workers compensation insurance premiums.
Covid-19 will have some impact on premiums. How much is yet to be determined, CNA Insurance Vice President, Industry Leader for Aging Services Blaine Thomas told SHN.
This is due in part to court closures and shutdowns during the pandemic, which may have led plaintiffs attorneys to delay filing claims until courts reopened. Because the liability insurance marketplace bases its premiums on trailing 12-month claims and payout data, it is possible that Covid-19 can limit the rate of increase.
Thomas does expect to see a substantial increase in property insurance premiums, because of skyrocketing materials costs during the pandemic, and warns smaller operators in particular to consider increasing the replacement values on their communities.
SageLife saw significant increases in its insurance premiums in 2020, and their contracts included exclusions for Covid-19, Andress told SHN. The company’s property insurance premiums were already increasing because of rising materials costs, especially if a community was built with a wood frame.
“That was more shocking than the Covid-19 exclusions,” she said.
Digital sales/marketing: a cost to stay agile
Sales and marketing budgets have expanded as communities relax restrictions and open for tours and move-ins. This trend is expected to continue in 2021’s back end.
Andress admitted that SageLife was underinvested in marketing, pre-pandemic. When communities were restricted from in-person tours to prevent outbreaks, however, the company had a quick learning curve on the costs of digital marketing and sales.
And converting the leads generated from digital marketing into first looks and move-ins comes with a steep learning curve, one that SageLife is working to master.
The tradeoff is a return in paid third-party referrals for assisted living, memory care and, in a new twist, independent living. The conversion rates from third-party referral sources are stronger, so far.
“Providers are welcoming those leads,” she said.
GenCare’s sales and marketing costs increased 20% to 30% in the first six months of 2020, due to a stronger focus on digital advertising, paid social media campaigns, and search engine optimization, Grundstein told SHN.
Additionally, GenCare recently hired a corporate marketing head to help improve the company’s digital footprint, and the company re-engaged with third-party referrals.
The increased spending is providing results. Move-ins across GenCare’s communities have increased sequentially over the past three months, averaging up to four new move-ins per month across the portfolio. A couple of communities averaged seven new move-ins, per month, over the past two months.
Gardant’s sales and marketing costs increased 10% in the first half of 2021, focusing on search engine optimization and paid social media. But the provider is experiencing significant move-in velocity, which Burkett considers money well-spent.
“There is a cost to stay agile,” he said.
Belmont Village’s digital strategy was robust before Covid-19, so its sales and marketing team worked throughout the pandemic to identify complementary platforms. The provider reduced its direct mail campaigns, and shifted the money to advertising mediums where rates decreased because of a lack in demand.
As an example, Belmont Village placed targeted ads on television stations in local markets because rates fell to a level where the value proposition worked in its favor.
“It was much more affordable to do it than it ever was before, and it was effective,” Kerr said.
Tighter margins expected
The anticipated increases in labor, insurance, and sales and marketing costs are having a deleterious effect on operating margins: 73.33% of respondents to SHN’s Pulse survey replied that revenues are not keeping pace with expenses.
The providers interviewed by SHN all reported strong occupancy rebounds, coinciding with high vaccination rates among residents and staff. But they all expect margins to be impacted because of the increase in expenses throughout the year.
Still, if these move-in trends continue, it will allow providers to hold the line on offering concessions to fill buildings.
Burkett expects Gardant’s margins to be flat in 2021. The provider’s Medicaid billings gave it access to provider relief last year, which offset much of its expense increases.
In addition, Burkett anticipates more provider relief in the months to come, and the company may delay some capital expenditures to counterbalance the expense increases.
“We’re trying to [improve margins] mostly through improving occupancy,” he said.
Grundstein is committed to increasing GenCare’s sales and marketing budget as the year progresses.
“We need to fill the buildings,” he said.
But the provider is evaluating staffing ratios as a way to rein in overall expenses, and its wellness-focused programming — which includes a health system partnership with Tacoma, Washington-based Multicare — improved the average length of stay across the portfolio from 27 months to 36 months.
GenCare is considering concessions to boost occupancy on a case-by-case basis, mostly on fees and move-in expenses, and believes it can hold the line on rates.
Belmont Village is taking a steady as she goes approach to margins and NOI. The provider became faster and more adept at interpreting data during Covid-19, allowing flexibility in its operations while having a better understanding of the drivers affecting its business.
Kerr is looking down the horizon, and believes Belmont Village will head into 2022 and beyond a wider, stronger company.
“Given everything that we have learned, it can only get better. [I expect] margins will actually be superior to [pre Covid-19] levels,” she said.