Promising Signs on Labor, But Senior Living’s Shortcomings on Workforce Have Been Exposed

The ongoing workforce crisis has been among the hottest topics at this week’s National Investment for Seniors Housing & Care (NIC) conference, and attention will be fixed on labor-related numbers when the largest publicly traded senior living owners and operators announce their Q3 2021 earnings later this week.

While these earnings calls will provide some valuable data and insights, there are already some reasons to be optimistic as the year draws to an end:

— BMO analysts foresee senior living labor costs remaining manageable

— Slowdown of the delta variant should ease worker shortages

— Recent Department of Labor data shows positive trends in unemployment claims

However, the picture is decidedly mixed, particularly given the fact that interest in personal care jobs is down 33% from pre-pandemic levels, according to a recent analysis from jobs site Indeed.

So, like employers in various other sectors, senior living organizations must now take some long-overdue steps to weather current labor market challenges, and providers then must go even further to set themselves up for future stability and success.

A short-list of labor-related action items includes:

— raise wages and get creative about compensation

— hire corporate leaders focused on frontline recruiting/retention

— explore technology partnerships

— attract and retain leadership talent from other industries

Reasons for optimism

After taking a closer look at labor pressures in senior living, BMO Capital Markets analysts “only nominally” reduced their forecasts for normalized 2022 funds from operations (FFO) for Welltower (NYSE: WELL) and Ventas (NYSE: VTR), in advance of the REITs’ earnings calls.

Among positive indicators, the analysts cited “anecdotal feedback” from industry contacts that job applications have increased since Labor Day, when enhanced unemployment benefits expired for about 8.5 million people.

Some business leaders and economists predicted — and hoped for — a rush of job seekers after enhanced benefits ended, but this did not immediately materialize. Overall September job growth of 194,000 new payrolls fell well short of expectations.

However — as Glassdoor’s Senior Economist Daniel Zhao pointed out — the return of workers could take time, as people exhaust their savings before seeking out employment. And rising inflation could erode that savings quickly; the household saving rate fell from 10.5% in Q2 2021 to 8.9% in Q3.

Even more than the expiration of enhanced benefits, the waning of delta-fueled Covid infections could boost employment. Treasury Secretary Janet Yellen expects hiring to increase as delta recedes, she said in an Oct. 27 interview on CNBC.

And data suggests that an increasing number of people are staying with their jobs. For the week ending Oct. 16, initial claims were at their lowest level since mid-March 2020.

In combination with these labor trends, the strength of the housing and stock markets should enable senior living providers to drive rate increases heading into 2022, and the BMO analysts expect rate hikes will largely offset estimated 6% to 7% labor cost increases — at least among the high-quality pool of operators working with Welltower and Ventas.

At the NIC conference, LCS COO Chris Bird said that 5% seems to be the minimum rate hike that most providers are targeting, and some LCS communities are raising rates by as much as 9%. These large hikes should be supported by a 5.9% increase in residents’ Social Security checks, as well as the continued strength of the housing and stock markets, he said.

Naperville, Illinois-based Charter Senior Living was preparing to send out its annual rate increase letters to residents last week, CEO Keven Bennema said during an SHN+ TALKS appearance.

Charter is taking a targeted approach to rates based on occupancy at particular communities, and Bennema believes that other providers are generally hiking rent more than Charter. Still, rates have to keep pace as much as possible with expenses — which are rising in other areas as well as labor — and Bennema said he is confident that residents will understand the situation, given the obvious pressures throughout the economy.

“People know — they see what’s going on — but the key is, they still have to see the value they’re getting,” he said.

Addressing ongoing challenges

While the dissipation of the delta surge and the end of enhanced unemployment benefits should ease workforce pressures, the labor markets will remain beleaguered.

Labor force participation remains low after the so-called “great resignation” saw a mass exodus of workers over the spring and summer. And October was dubbed “striketober,” with workers across various industries — including health care — either walking off the job or threatening to do so, to protest wage rates, safety concerns and other issues.

In a bid to attract more workers while trying to end or prevent strikes, companies are revamping their human resource practices. Last week, Starbucks raised base wages to at least $15 an hour; awarded higher wages based on seniority; introduced a $200 bonus for worker referrals; announced a redesign and update of its training guide; and said that it will test an app through which workers can sign up for shifts to fit their schedules.

Such changes are long overdue, said one long-time Starbucks employee who is part of an effort to form a union.

I believe such changes are also long overdue for many senior living companies, which now must make such adjustments or face similar labor unrest as Starbucks — in fact, the situation is even more dire for senior living. Since the start of the pandemic, interest in food service jobs is down 18%, versus the 33% decline in interest for personal care jobs, according to Indeed.

Based on our recent reporting, many senior living providers are taking the following steps to address workforce pressures, and I think that all providers should at least be contemplating these moves:

Raise wages and get creative about compensation

Senior living operators that are trying to avoid raising wages — for example, by turning to short-term contract labor, or cross-training employees to do various tasks — are simply delaying the inevitable, the BMO analysts wrote.

At the NIC conference, former Treasury Secretary Lawrence Summers sent the same message, saying that employers are recognizing they must raise wages, after trying a variety of bonus structures and incentive payments that stop short of increasing base pay.

Accepting inevitable wage increases means that providers must have potentially difficult conversations with their capital partners — but Lloyd Jones COO Tod Petty says that investors should recognize “it is a new world.” Lloyd Jones is building pro formas with higher wages, including $15 to $17 an hour for cooks, CNAs, housekeepers and care staff, he said on the SHN podcast, Transform.

“I think there’s an understanding that returns are going to be a little bit less on NOI,” he said. “But we’re making that up on a low basis in the building, and we’re going to make it up on higher rents with more programming on the other side of it.”

Beyond higher base wages, senior living providers need to consider richer rewards for employees based on seniority, similar to Starbucks. Atlanta-based The Arbor Company is doing so, with a plan to spend about $500,000 this fall to reward tenure milestones.

Providers also should approach compensation creatively, beyond raising base wages. Charter, for example, offers incentive pay of up to $2 an hour for employees that reliably perform basic job functions — “literally just clocking in and out on time, showing up to work on time, being good citizens, no HR-related issues,” Bennema said.

Hire corporate leaders focused on frontline recruitment/retention

Arbor and other providers — including QSL Management and Commonwealth Senior Living — have added community-level and/or corporate-level roles to lead frontline recruiting and retention efforts. So far, they are achieving positive results; QSL saw a 40% reduction in turnover at the pilot community for its retention specialist role.

Prior to the pandemic, more providers were adding chief people officers, but I’m somewhat flabbergasted this role isn’t more common in senior living. After all, frontline labor has historically been the toughest pain point across the industry — as the BMO note points out, frontline staff historically turns over at 50% per year.

Lowering that turnover number even by a little bit could result in meaningful financial benefits: Just a 1% increase in variable labor costs lowers NOI margins 30 basis points and decreases year-over-year NOI growth 140 basis points, in the BMO model.

Explore technology options

Last week, ShiftMed announced a $45 million funding round, after the health care staffing technology company experienced 400% growth in the last 18 months.

ShiftMed’s software connects health care workers with available shifts, giving workers more flexibility and aiding providers in filling gaps. Skilled nursing is the major market for ShiftMed, but the company also serves assisted living.

Another startup, KARE, offers a similar model that is purpose-built for senior living. KARE secured $7.9 million in a Series A round in August 2021, and investors include industry leaders such as Bob Kramer.

I’m not advocating specifically for ShiftMed or KARE, but I do think that senior living providers need to consider the rise of these types of platforms, particularly within the context of the gig economy and workers’ desires for scheduling flexibility.

That’s a message also delivered at NIC by Ventas EVP of Senior Housing, North America Justin Hutchens. When he was previously leading U.K. operator HC-One, the company responded to the increasing demand for gig work by creating a “bank staff” of trained employees who took shifts on a flexible basis; ultimately, these workers totaled about 10% of the HC-One workforce.

Finding productive ways to tap into tech-driven staffing solutions — in a strategic manner that does not compromise investment in the full-time workforce — surely will be part of the senior living labor solution.

Attract and retain leaders from other industries

Amid all the challenges of hiring and retaining frontline workers, senior living providers also have been losing managers. In fact, across all industries during the great resignation, mid-career workers have been leaving their jobs in the greatest numbers, according to a Harvard Business Review study.

Within senior living, burnout is the main culprit behind the loss of middle managers, Maxwell Group CEO Donald Thompson postulated in June 2021. As he said:

“If you’re a manager right now and you’re dealing with this shortage of frontline workers, you’re having to work harder, you’re putting in more hours, you’re having to figure out solutions to problems. You’re having family members complain to you, residents complain to you about services, legitimately complain to you, and you’re trying to solve for it.”

Thompson observed that departing managers mostly are leaving the senior living industry entirely, and job candidates for the open positions at Maxwell Group have largely been from other industries.

Bringing in fresh talent from outside the industry presents an opportunity to infuse organizations with fresh ideas and perspectives, including for how to solve the challenges related to frontline labor.

However, to realize these benefits, senior living providers will need to be open to the new ideas and expectations that these hires bring from other sectors — that means taking risks and being pushed outside of comfortable operating patterns.

I fear that providers will be too resistant, given that the industry can be mired in its ways. Just one instance of that from the past: Lloyd Jones’ Petty recounted that several respected senior living leaders dismissed WiFi as a passing fad — a position that led to widespread underinvestment in technology infrastructure that the industry is still reckoning with.

In any case, I think the current labor market disruption is creating some new opportunities for senior living providers. Getting through immediate challenges is critical for short-term survival, but seizing the opportunities is crucial for future success.