Like many other industry executives, IntegraCare CEO Larry Rouvelas sees staffing as the top challenge ahead for senior living operators. But he takes a slightly different mindset from his peers.
Rouvelas, a self-professed fan of the processes of companies like Toyota, believes there is value in the data-driven way that manufacturers make decisions and create value. While he doesn’t see senior living as a business where an exec can simply sit in a room and dictate orders using only data from a dashboard, he does think that data can play an even bigger role in solving the industry’s staffing crunch.
In manufacturing, companies want to eliminate as much scrap waste as possible. In a similar vein, senior living companies should be looking to cut down on “scrap” in the form of employees who stay for fewer than 90 days.
“Managing that first 90-day experience, the touches that people give, the department orientation program to onboard that effectively — that does end up causing the equivalent of manufacturing,” Rouvelas said during a recent appearance on SHN+ TALKS. “ You wouldn’t want to have that much scrap in a manufacturing process, and so that’s what we’re trying to avoid here in the new hire by improving new hire retention.”
And when a team member leaves the company, IntegraCare tries to determine the root cause; just as Toyota might try to root out a problem on the car assembly line.
“When there’s a quality problem, the engineers will swarm and try to figure out what the root cause analysis is,” Rouvelas said. “What we try to do here is … a root cause analysis to see what went wrong.
We are pleased to share the recording and this transcript of the SHN+ TALKS conversation with SHN+ members. Read on to learn about:
- How IntegraCare is recruiting and retaining employees in 2023
- Why Rouvelas is optimistic about the coming 12 months
- What IntegraCare is doing to integrate deeper into value-based care
[00:00:00] Tim: We’re talking now in the second quarter of the year. This is the quarter when a lot of operators tell me they are bringing in occupancy. With that as the backdrop, what is IntegraCare seeing right now in the ground with regard to things like demand, move-ins, occupancy, that stuff?
[00:02:29] Larry: Demand side, things are going pretty well and they actually have been for us and probably for the industry for about nine or 10 months. Starting late last fall, we really started to see some solid move-in growth and moderate move-outs. Census grew pretty steadily.
April has been a little soft for some reason, and I have a few theories on that. But, in general, demand-wise, things are going pretty well. Like everyone in the industry, our communities’ census dropped, but then, it started rebounding.
As of last month, our communities that were open prior to Covid have now rebounded fully from Covid. We are now above our pre-Covid occupancy, at least for essentially, most of our properties in the portfolio. And certainly, the lease-ups are there as well, but even for the stabilized communities, we’re above now. I don’t think the industry’s quite there, but it’ll get there soon. I think demand-wise, things are going pretty well.
[00:03:37] Tim: Based on what you’ve seen so far, how are you feeling about the second half of the year coming up? Do you feel optimistic?
[00:03:52] Larry: Actually, I do feel pretty optimistic from an operating standpoint. I think the demand side will continue to grow. The [monthly] rate pressure that used to be there last year isn’t. We’re able to do what we’re doing without discounts. The staffing stuff it’s not easy, but it is getting better. I think that we are both seeing reduced turnover, higher quality of candidates coming in, and just less craziness going on. It’s not easy.It’s still the hardest thing about our field right now.
But at least in terms of the trajectory, I think that’s getting better. I think the challenge below the NOI standpoint is that debt service costs are rising faster than NOI is. Even if you’re growing your NOI, the target is stretching out. There is at least one loan that we have that I’m a little concerned about where the property is headed, but debt service is headed north more quickly.
But broadly speaking, I feel pretty good about where things stand.
[00:04:55] Tim: That’s good. You’re not the first to tell me that about debt service. It sounds like that’s an issue a lot of folks are having right now.
Where are you still feeling the most pressure in your operations? Obviously, staffing is still tough, as are expenses. But I don’t want to put words in your mouth.
[00:05:23] Larry: Clearly staffing. I will echo what everyone in the industry says. I think also everyone would agree with me that licensed nurse staff is the hardest.
If we could solve that problem, we would get back to all the fun stuff that we love in the industry about serving seniors and growing the skills of people and so forth. We’re still dealing with a lot of staffing challenges.
The other thing I think that is somewhat of a pressure that we’re having to adjust to is shorter lengths of stay. The old rule of thumb used to be 24 months of length of stay in assisted living and memory care.
What’s happening is, particularly for a fourth of the residents, they’re significantly shrinking their stay. Some of them are only there 90, 100, 200 days, et cetera; and then moving on to skilled or passing away. How you organize an operation to serve residents effectively who are only going to be there for 120 days is different than when you’re truly caring for people for years and years. I would say there’s some operational pressure associated with that as well.
[00:06:40] Tim: Can you talk about some of the ways that you would operate differently with a shorter length of stay?
[00:06:51] Larry: Yes. First of all, the first two weeks of a resident moving into a community are, oftentimes, a hard first two weeks. From making friends — who do you sit with in the dining room, how do you get to know all of the staff? — to the staff getting to know how they’re supposed to care for the resident. What does this person really need? Do you knock on the door? Do you open and introduce yourself that way? How do you interact? Do they like to have their shoelaces tied, or do they like to do it themselves? That type of thing.
There’s all kinds of learning curves that go into it. I think historically assisted living has seen itself as the anti-nursing home. There was an understandable bias against having checklists where every task that you’re supposed to do, you mark off. That’s very skilled nursing-like.
However, those things still need to get done, and particularly the state has requirements that you do your assessment, then you put together your care plan, and then each team member has to acknowledge that they’re doing what they’re doing. There is a rigor associated with that, and I think if you’re dealing with residents who are going to be there a long time, by osmosis, the team understands that. For short stays, you need to be much more prescriptive and much more process-oriented in how you train people. It’s a day or two of transition rather than a couple of weeks of transition.
[00:08:30] Tim: You mentioned earlier April being a little bit soft in terms of some of the metrics and things. You said you had some theories or maybe some reasons as to why. Before we get too deep into the rest of our discussion, I wanted to ask about that.
[00:08:49] Larry: I think to some degree the housing market has slowed down pretty significantly, and we all know that because of interest rates. We all know that springtime, historically, has been a time when people could sell their houses. It’s just not the same this year. Talk to any real estate agent, they’ll tell you they spend a lot of time sitting around waiting for things. I think that has something to do with it.
[00:09:16] Tim: We were talking a little bit about pressures a moment ago. Cost pressures are obviously still a big deal in senior living. Food seems to be a big line item right now. I wanted to ask you, what cost pressures do you still have in your operations, and how are you dealing with them?
[00:09:46] Larry: Like everyone in the industry, we’re dealing with significant costs. The good news is that a year ago we were still in the throes of Covid and staffing and census and census and staffing and Covid that dominated our lives, right?
Now that there’s much more normalcy in what we’re doing, we’re getting back to being able to run an operation across the full scope of what we’re supposed to be doing, part of which is expense management. I think we are certainly putting much more energy this year into expense management than we were able to last year.
Obviously, from a labor standpoint, we are managing our hours more closely, dropping the overtime. We’ve gotten rid of agency. As of three weeks ago, none of our buildings has agency anymore, which is terrific.
From a new hire retention standpoint, we’re doing a lot. There is a lot of waste that goes into new hire nurturing. You can take out labor costs by simply figuring out how to keep the employees you have rather than that hamster wheel spinning.
Health insurance, we were able to negotiate some pretty good bargains this year without changing at all the coverage that people get. We’ve got pretty good experience, and so we’re able to leverage that in the market. We actually are seeing some really good health insurance renewals. That’s all on the labor side.
Non-labor, we’ve got initiatives in almost every category. Again, property insurance is one that I think a lot of people are concerned about. We’ve been negotiating pretty hard to keep that in line. Food costs, getting people back on the GPO and getting them buying what they’re supposed to rather than going off. We’re changing a lot of the internet and phone and voice. One area we have had trouble with figuring out what to do are utilities. Electricity costs are skyrocketing. Gas prices are skyrocketing. The only really good cost reduction mechanism that we’ve run into so far is basically to do forward contracts under energy. Instead of buying the spot price every month, you’re going to lock in a price for 18 months.
While that’s tempting from a headline cost reduction standpoint, the problem is who knows what’s going to happen with energy costs? If they go down, you’ve locked in, it’s essentially a financial contract. That there are smart people, people that are smarter than me and certainly more knowledgeable about energy markets, that are essentially making the markets in these forward pricing. Somehow, I have a feeling if I agree to it, I’m going to end up being the sucker in the deal, and so I’ve got to figure out how– but on the other hand, I know that there should be some ability to make that work. We are trying to find some decent energy experts to go basically represent us and advise us on negotiating here. I’d like to say that that’s a path, but we haven’t quite figured out what to do in that area yet. There’s a lot of other areas that we’re expense management, but I would bore you by talking about it.
[00:13:37] Tim: You talked a little bit about staffing and having no agency labor in your communities. Do you sense that maybe things are turning a corner in staffing? Maybe from here on, it might not get harder at least?
[00:14:11] Larry: I think it has. Part of the reason it’s gotten somewhat easier for us is because we made an internal decision to take on the recruiting function. Typically, the business office manager in our building would be the first point of contact for recruiting and team member engagement retention because they’re the ones that pay payroll and so forth. That’s one of about four major chunks of work that they had.
Sometimes, you didn’t get around to doing the recruiting and the retention stuff the way that you wanted to, and so it would slip behind. And then it’s like a bad cycle. What we said is we need somebody who’s going to wake up every morning with their job number one being how do we attract and retain great people? We set up for our communities an onboarding specialist, and they serve multiple communities. Their whole job is to go recruit good people and then make sure that that first 90-day experience that they have is a great experience. I think that has played a meaningful role in allowing us to attract and retain people. Certainly from a recruiting standpoint, we’re seeing more people and more good people come in. From a retention standpoint, we track pretty closely our statistics about 90-day retention.
Nobody joins a company with the expectation of quitting in the first 90 days. If they do, either you hired wrong or you had a poor onboarding experience for them. For the vast majority of people, it’s one of those two things. The question is, what can you do to either hire the right people or make sure that that onboarding experience is good? You probably remember from our podcast, I care a lot about Toyota and how Toyota approaches quality operations; also FedEx, places like that.
There’s a lot that the senior housing industry can learn from those other high-quality operating companies that we can bring to here. It’s not always going to work for the hands-on care, that’s a different thing. But certain things like recruiting and retention — also billing, call bells — there is a lot that we can learn from other industries related to quality. Managing that first 90-day experience, the touches that people give, the department orientation program to onboard that effectively — that does end up causing the equivalent of manufacturing.
Someone who leaves in the first 90 days is equivalent to scrap. You wouldn’t want to have that much scrap in a manufacturing process, and so that’s what we’re trying to avoid here in the new hire by improving new hire retention.
[00:17:09] Tim: We have a question from our audience here. This goes back to what you were talking about with food costs. The question is, since 2020, what would you say has been your total percentage increase in food costs?
[00:17:22] Larry: I don’t know that, unfortunately. It’s a great question.
[00:17:29] Tim: I read an interview you did last year. I think this was on the NIC Insider blog, where you had said that IntegraCare was experimenting with flexible staffing schedules. That’s something that I’ve heard a lot of other operators explore. Did you end up implementing that? If so, is there anything you can share about that journey from experimentation to implementation?
[00:18:07] Larry: Like a lot of things, it’s harder than it looks. There is a lot of behavior change that’s necessary. A lot depends on the infrastructure that you use for scheduling, so to be less hypothetical about it. If you take the day shift in a typical assisted-living community from about six o’clock to 10 o’clock, it’s pretty busy because you’re helping people get up, get dressed, have breakfast, get back to their rooms, et cetera.
Then after that, it peters out and it’s pretty quiet. You have essentially demand cycles that go on within the day, but if you’re staffing straight shifts, you’re staffing an eight-hour shift from 6:00 to 2:00, so people are busting their tail during the first half and then coasting during the second half.
The question is, can you put in place some four-hour shifts so that you can bring them in during the busy time and then allow them to go home? That’s essentially what we’re doing with the flexible schedules. It’s allowing those spot opportunities. I think that we have and certainly you have to change your mindset operationally to do it. How you recruit is different because, again, you have to find somebody who may want to work before their kids come home from school and then be home afterwards.
I would give us probably a B+ in implementing it right now, and it’s just like a lot of things in life, it’s just harder than it looks.
[00:19:48] Tim: I think you shared a lot of this earlier when you talked about recruiting, but is there anything else that’s working really well for either recruitment or retention that we haven’t talked about today that you would want to share with us?
[00:20:02] Larry: We’re really working on retention. For each team member who leaves, we try to do an in-depth exit survey to go understand really underneath what went wrong, what happened, and what can we learn from that. There’s a feedback loop just like in manufacturing. When there’s a quality problem, the engineers will swarm and try to figure out what the root cause analysis is here. That’s what we try to do here, is try to do a root cause analysis to see what went wrong.
I think that makes sense, because I’ll tell you, for our normal exit survey, I get those reports every month and they don’t tell me nearly as much as an in-depth person-to-person survey. I would say that’s probably been helpful in certain ways.
How things in terms of professional promotions, allowing hourly staff to grow within their role to be promoted and trained in things in our forensic wellness director and training program, allowing people to grow within their jobs; that certainly helps your most talented people want to stay.
[00:21:25] Tim: You’re a Great Place to Work. Does having that feather in your cap do something to your recruitment? Do people see that and does that move the needle?
[00:21:37] Larry: I hope so. I think immodestly we already thought that we were a great choice to work with, and so we’re happy to get the certification.
It’s good to have a third-party verification of that. I think that if you’re looking for a job, that’s something that people care about. I am happy and proud of the team for that, and frankly, there’s a lot of work that goes into that. I’m being a little breezy about it, but there’s a lot of hard work by the teams to make this a Great Place to Work.
[00:22:11] Tim: Absolutely. We have a question from our audience. This goes back to what you were talking about with regard to recruitment and scheduling. The question is, what recruitment tracking and staff scheduling applications do you utilize?
[00:22:32] Larry: I would not say I’m super happy with them, so I’m not going to name-check them either to praise them nor do I really want to throw them under the bus here.
I will say we use an ATS, an applicant tracking system, by our payroll vendor, which is okay. I think probably most payroll systems have some sort of applicant tracking system. My advice to people would be don’t take for granted that it works as advertised. Really spend some time getting to know whether it’s worth the time and the effort because what we’ve ended up having to do is basically build our own spreadsheets offline because it wasn’t doing what we wanted. That’s really not what you want. For a core part of the business like recruiting, you want enterprise software to be able to take it, and we do not have enterprise software yet on that.
[00:23:26] Tim: This next question is something that I’m always very keen to learn about, which is the consumer trends that people are bringing into senior living these days. I wanted to start with, I saw recently that a new IntegraCare community I think had a beer rathskeller. I don’t know that I’ve ever seen a senior living community with, specifically, a beer rathskeller. I thought that was interesting. That piqued my interest.
So, the question is, what consumer trends are people bringing into communities these days? What do you think that the incoming group of baby boomers are going to want from senior living?
[00:24:01] Larry: Well, I think more beer is always a good starting point for any senior housing. What do they want? Certainly, I think the idea of having more choice is important.
Actually, I’ll separate between IL and AL. For IL, this is a generation of baby boomers who are not a generation that are used to being shepherded onto buses. They want to be able to go where they want to, when they want to, do the activities they want to, et cetera. I think that one of the really interesting questions is, what does that mean for food service? Because, typically in an independent living community, one of the pieces of value proposition is getting your meals there. That’s partly about the food, but it’s partly about socialization. It’s really hard to provide great meal service in the variety that you want.
Most of us are used to eating out and trying different cuisines on a regular basis. If I had to eat at the same restaurant day after day, I’d be bored — except for if it was my wife’s cooking. My wife’s cooking is flawless. I’m kidding, but she’s a really good cook.
[00:25:18] Tim: Smart man, Larry. [laughter]
[00:25:23] Larry: I think the issue about what we do about food service, in IL, is one where we’re probably going to end up giving more choice to people. Maybe there’s more ties with local restaurants. Maybe they deliver this type of stuff. Maybe there’s more, I don’t know. I think that’s an area where we will see some innovation. Certainly, we’re trying to figure out what food service means in our communities going forward.
I think another area where consumer choice, a lot of people move into independent living wanting to basically be able to stay there as long as possible. Silicon Valley’s coming out with a lot of age-in-place technologies to help people stay in the buildings.
For assisted living, I think that it’s still the evergreen issue of, can you reliably provide good quality care in an attractive environment? I don’t see that changing very much.
[00:26:30] Tim: Another question I have for you is about technology. It’s a linked question to this last one. What technology do you think shows a lot of promise right now, and is there anything that’s on the horizon that you’re really excited about?
[00:26:49] Larry: I’ll separate between the front of the house and back of the house.
Front of the house, not so much. There are a lot of interesting technologies that are out there. I’m cautious with them because I think part of providing a reliable experience for residents is driving complexity out of the system.
Let me give you an example, in one of our communities, we put in this unbelievably advanced system where we had proximity locks so that people didn’t have to use keys to enter their room. That was tied to their call bell system and it was tied to the wander guard system, and it was this great all encompassing technology package.
It never worked the way that we wanted it to. There’s just so much time and effort went into it, so many disappointments. Trying to resolve it ended up being a headache — overpromising and under delivering. It made me particularly wary of that part. We definitely have simplified our technology package from that standpoint.
I think some of the fall-prevention or fall-detection technology has some promise. Call bells are something we take pretty seriously in our company. There’s some innovation related to that that I think we’ve just started to scratch the surface of.
Back of the house, though, is a different issue. There are some industries like the oil industry where the CEO can sit in his corner office and make big decisions about whether they’re going to drill certain oil fields or buy certain supertankers and things like that.
Policy decisions drive huge amounts of value in [those industries. By contrast, as in senior housing], I could sit in my office all day and say, ‘It shall be so,’ and it’s not necessarily going to be so. This is a business where thousands of people need to be doing the right thing on an hourly basis in the communities.
A lot of it is about, one, allowing the team to work on the right things at the right time; and then two, where things require collaboration, don’t let one person bottleneck the other. There’s this organizational flow that you need to go do. Let me give you an example of that.
A year ago, I remember I was on a call with an investor and we wanted to boost sales, and the investor said, if we’re going to boost sales, we need to have more leads, if we’re going to have more leads, we should really put out some print ads. We all went into this scurry about getting more print ads done, and the community ended up calling the regional director. The regional director took a couple of days to get back to them, and then they had to talk to the ad company and develop copy. Then the head of marketing needed to review it and the executive director needed to review it, and it just went on and on and it took like three weeks to get this done.
The kicker was, honestly, the community’s sales problem was not that it didn’t have enough leads. The problem was it was having a hard time at the bottom-of-the-funnel closing sales.
We spent a lot of time and a lot of effort delays essentially for an issue that was not at the core of what they needed to be working on. What do you do differently here? Fast forward a year, the systems that we have put in now are a combination of several things so that each community on essentially a weekly basis knows where they stand versus each of their sales metrics, and they will know the problem. They can then look through their list of levers that can go help drive improvement in that particular category.
They’ll say, ‘Oh, model rooms, having better model rooms is one way to go to drive bottom-of-the-funnel conversion.’ We then have an intranet in the company, so that instead of calling up a regional and saying, “What do you know about model rooms and what should I do?’ Essentially it’s available to them to go pull down, self-service when they’re ready for it, and get a whole bunch of material on model rooms. They then can start to coordinate activities through another project management system they have.
Instead of using a real travel agent to go book your travel, essentially, you’re doing it now itself on Expedia, managing that yourself and the ability to have cycles and be working on this, on the right things and not let other people bottleneck you is, I think, an important part of what we’re doing. That doesn’t happen by accident. That happens through technology investments around those issues.
[00:32:05] Tim: I like the travel agent analogy. I hadn’t quite thought about it that way before, but that makes sense to me. We have another question from our audience. This is actually a question that I was going to ask you later, but I figure if we’re getting questions about it now, I’ll ask you now. The question is, where is value-based care on your strategy list? My question was, what do you think the value-based care movement can bring to the senior living industry?
[00:32:41] Larry: I am incredibly excited about value-based care. Again, for those who aren’t familiar with it, it’s essentially figuring out that there’s a big move in the industry to take the provision of healthcare services out of high-cost, acute care settings like hospitals, and deliver that in the home. However, if you’re a healthcare company trying to deliver a lot of healthcare in people’s homes, that’s hard. It’s hard to get people to do things. It’s too fragmented.
Healthcare services can be much more effectively delivered in people’s homes if their home is an apartment building with a whole set of seniors and where there’s staff in place 24 hours to deliver the services.
I think senior housing is incredibly well-positioned for the future of healthcare, the provision of healthcare services in the house. How do you turn that into reality? There’s at least a couple of things that I think are of value for it.
For example, diabetes care. I think all of us who’ve worked in the industry know that a resident who’s trying to manage diabetes in their own home, sometimes they’re not managing it very well. They’re not eating right, and they’re not exercising, and they’re not getting to the doctor when they can and they’re on and off on their insulin, and then they end up in the hospital and then bounce back, back and forth. It’s just not managed very well.
They move into one of our communities, and honestly, we’re there making sure their insulin tests are taken and delivering the insulin when it’s needed, trying to get them to eat three square meals a day, doing the exercise, giving them the doctors, et cetera. The outcomes for residents with diabetes in our communities are so much better, so much less costly, than it is for someone to try to manage in their home. Well, historically, it may have been less costly, but the ones that got the real windfall were the insurers. Because the individual was paying to live in our community and the insurer got the benefit.
Now, insurers aren’t stupid and they understand over the course of time if we can get residents … in communities, we will save money. There’s a couple of ways in which I think that that will play itself out. One, and the most immediately, one that we’re actively pursuing is being part of a Medicare Advantage plan that is specifically geared towards senior living. Lynne Katzmann has been a pioneer on this. Pennsylvania is also Katzmann country, and so Lynne’s expanding her Perennial Advantage program to us. We are very actively involved in being one of the pioneering companies in that.
I think it’s a great example of how multiple communities compete with Lynne in some ways, in some markets, but this is an area where we can collaborate and I think have better outcomes. I’m very enthusiastic about the participation, the development of that. I think a second area is, in certain cases, insurers will start to help supplement [payment] for certain residents. If a resident with diabetes can’t afford to be in senior housing, they may figure out how to help supplement that.
I see value-based care as one of the most interesting and exciting things that’s happening in our industry, and frankly, is one of the ways that the middle market will be able to afford what we’re doing.
[00:36:30] Tim: You mentioned a moment ago, Lynne Katzmann Perennial, I don’t actually remember if we’ve talked about this before. When did you start collaborating with Perennial Advantage?
[00:36:42] Larry: We started the effort maybe eight months ago, and it takes a while. It takes a few years to set up a new MA program in a state, but fortunately, she has the patience and the vision to do it, and I’m happy to be part of it.
[00:36:58] Tim: Your point about competitors coming together on value-based care, even though they compete with one another in their communities, that seems very important right now.
Something else I’m curious about is business intelligence. I know that you’re an analytics guy. You like to track numbers. I’m very curious to know what you like to track, but before we do that, I just want to know how you collect information and track data?
[00:37:34] Larry: It’s a good question. I do a lot with data here. Again, in part because of what I said: All of us have more going on. There are far more things on our things to-do list than we have time to accomplish it. A big part of management is having people say, this is what’s important and this is the stuff you’d like to get to, but honestly, you’ll never get to, and making sure that they know what their priorities are.
Data is a really important way to do that. Obviously, we measure all the normal financial and labor management statistics about ours and cash flow and AR and stuff like that. Those are all table stakes. I think in addition, there’s a series of metrics that we pretty regularly look at to go help guide our organization. I think some of them are resident facing. I think things like the call bell responses.
Every Saturday morning I wake up and I look at call bell responses in our communities for the past week. Basically, where we’re not doing well, I make the local teams aware of it. Online reviews; every two weeks I get a summary of the online reviews and then distribute that to the team; the US News satisfaction survey, which is the resident survey; fall data — all those are things that kind of feed in to help us understand if we are doing a good job from a resident standpoint.
I think similarly with team members, there’s a bunch of team member statistics. The most important, for me, are the managers working the floor. Our paychecks come out on Friday. Every Saturday I get a report, which says how many hours each manager worked the floor.
That’s an incredibly important barometer for one, what’s happening with staffing pressure in our communities. Two, how likely is it that my managers are going to leave? We have lost some really good people over the last three years because they didn’t have time to do their job and they were short staffed. They ended up passing meds on the overnight shift over and over and over again. There was no hope. They said, ‘I just can’t do this anymore.’ We have started tracking how extensively the manager is working the floor.
As you can imagine, it started up here. [gestures high].
There were hundreds and hundreds of hours every week that managers were working the floor through some part interventions, recruiting, other types of things, have been able to identify the weakest links in our staffing and have worked that down pretty significantly.
Now we are in low single digits in terms of the number of managers. The threshold that we set is that if the managers are working the floor more than 10 hours a week, something’s not right. A few hours a week, you pick up a shift here, that’s life. But if it’s more than 10 hours a week, then we flag that; and if it’s more than 10 hours a week, 3 weeks in a row, then senior management personally intervenes and says, ‘What do we need to do differently to get that person off the floor?’ That’s one where I think we’ve got a fairly good process for spotting potential problems and then addressing it.
The new hire retention we talked about and that every week I get statistics on, you can see starting day one, 100% of people show up. If you hire 100 people in a month, 100 of them show up on day one, but then attrition starts after that over the course of time, and so the question is, how does this month’s class compare to the norms and are we making a difference in getting them above the average? Those are statistics that we look at every week and where we see problems, we jump in and say, okay, what’s the root cause of this?
[00:41:31] Tim: The middle-market. I know that you have said that you think that demographics are going to be served by older communities because they have a lower cost basis. I think the last time you said that was maybe a year ago, so I want to check back in. What do you make of the middle-market opportunity these days? I think I remember it’s not your biggest focus, but I’m curious to know if it is on your radar at all right now.
[00:42:19] Larry: It’s an opportunity we have to figure out. I think strategically for IntegraCare, it’s important that we figure it out because we’ve set a lot of boundaries about what our strategy is. We operate in 3 states, Pennsylvania, Maryland, and Virginia. That’s where we’re going to stay. We’re not going to go to New Jersey, we’re not going to go to Ohio, and we’re not going to do the rest. We do independent living, assisted living, and memory care. We don’t do skilled nursing, we don’t do active adult, and there are a bunch of other boundaries we put.
We want to create operational density so there’s multiple communities. The question is, if you put all of these constraints on your strategy, one thing you have to flex on is the ability to serve within a particular geography, multiple price points.
If I want to have multiple communities within easy driving distance of each other, they can’t just all serve the rich people in those markets. You have to be able to have the middle-market, and so that’s why part of our growth is through development, part of it’s through acquisition. We are committed strategically to do it because it’s an important part of building that cluster density.
Now, having said that, it’s hard. From a revenue standpoint, obviously, you can only get so much. Expenses you can only cut so much before you start to really cut the bone, and nobody wants that. I think that there are certain things, we’re trying to shake costs out of it.
Regulators have certain expectations. Fundamentally margins will always be thin in the middle market. That’s okay if you’ve got low capital costs, if you’re able to have mortgage costs that are low and equity providers don’t need it. I think that there is some role for that, partly by buying old communities at a decent basis, partly through probably some HUD programs and stuff like that. I do think, coming back to something I said before, I don’t think that we’re going to solve this all on our own with the mid-market.
I think that the whole healthcare industry, and whether it’s Medicare Advantage and the benefits that come from that or the insurers helping place, I think that additional value getting some of that value pool [from insurers] back into the senior housing is going to be part of the way we serve the middle market. I just don’t see private pay individuals being able to pay for the full freight themselves. The healthcare piece that has to be part of it.
[00:45:00] Tim: IntegraCare was on US News and World Report’s best senior living list last year. I remember a few months later we checked in and you said after that accolade, residents and their families prospects were actually traveling maybe 10 to 15 minutes farther to visit a community knowing that. I’m very curious, has that kept up since then? I know that was the first of its kind in terms of that list with US News and World Report. Are people still traveling a little bit farther to visit communities that might be on a list like that? 10 to 15 minutes, as you know, that can be very significant.
[00:45:59] Larry: It’s certainly one of those accolades when you are in the consumer’s shoes, you are constantly trying to figure out, “What can I tell the difference between these places?” They all look similar. What do I do?”
Having the US News certification is well-recognized. We certainly have seen people try to travel further. Interestingly, the US News organization, I’m not sure if you’re aware of this, is taking some significant steps to try to deepen its role in the senior housing community. They have first of all set up their own website where they have every senior housing community in the country, they have certifications for it.
We submitted a bunch of photos to them and descriptions of the properties and then the certification of who it is that were winners or not. They’re essentially developing an online list of that and the ability for consumers to go there and then to be able to refer those consumers to the communities.
US News, I think, is working to become a trusted advisor to the people that read US News just like it is for colleges and for hospitals and so forth. I would keep an eye on what they’re up to because I think that they aim to be a major influencer of consumer behavior in the coming years.
[00:47:23] Tim: That is very interesting. I will definitely keep my eye on that. I am also curious — what’s working in sales and marketing right now? Has any strategy moved the needle particularly?
[00:42:48] Larry: It’s just basic blocking and tackling, Tim. It’s a cliche to say that, but ultimately we are not Nike. We’re not trying to sell some image. The brand aspect of what we do is not nearly as important as the peace of mind and comfort and respect that we deliver.
That stuff does not come through fancy advertising campaigns. Nike can do a fancy advertising campaign to be an aspirational lifestyle brand. We are not an aspirational lifestyle anything. What we are is essentially trying to say, “For what you need in your life, we are where you want to be.” A lot of that is just making sure that the people who are happy are getting their online reviews on there, that’s something I would say that we’ve been successful at and makes a difference.
If only your squeaky wheels ever get on your online reviews, then your ratings are going to stink. The happy people don’t put it on by themselves. You actually have to nudge them and encourage them to do what they can. We’ve got a campaign around that.
Certainly training salespeople. Particularly as the industry grows, there aren’t enough experienced senior housing salespeople to fill every role. We have to recruit from the outside. How do you do that onboarding and training? Again, this is not fancy stuff. It’s about just making sure that you’re in front of new people in the industry and making sure that they do that. I’d say we’ve been hit-and-miss on that. We’re better than we used to be, but there’s still more that we can do. I think it’s just basic execution.
[00:49:33] Tim: We talked a little bit earlier about the future and how you feel optimistic, but let’s zoom the camera out to the next 12 months or so. At IntegraCare, what are you preparing for in the next 12 months in this senior living industry? What kind of market are you preparing for?
[00:50:09] Larry: I think the next 12 months look pretty good. We’re hitting our marks growth-wise. We want to grow by two to three communities per year. We want to see a lot of organic growth within our communities. Both are happening. I think that the capital markets are a little sleepy right now. The good news is we’ve got a good reputation in our market and we’re pretty focused on the mid-Atlantic area and we stick to our knitting and I think the capital markets like that. We haven’t particularly had trouble with that.
I think the next 12 months will be pretty solid. As long as we can deal with some of the spot debt service issues. Longer-term, I’m concerned about the labor pool. We just don’t have enough people working in our industry to take care of the baby boomers, and we’ve got to fundamentally change something about our value proposition to employees, to team members, to attract more good people that want to work into senior housing.
I could talk your ear off about one of some of the things I see that need to happen there. I think that’s what has me more worried than anything else. If we don’t take steps now, five years from now when the baby boomers start to really start to demand more, we won’t have time to react. We need to be planting seeds now to make those things happen.
[00:51:33] Tim: I know that IntegraCare in terms of growth favors joint ventures, I know that you’ve done a lot of those. Do you see a lot of opportunities right now from potential JV partners to link up with new potential companies like yours, or given the construction deals slow down this year, are things maybe a little bit slower than they have in the past on the JV front specifically?
[00:51:56] Larry: In terms of the development, there’s no question that development has slowed down. Good deals are still getting done, but the marginal deals are not. I think what has grown is that we’re starting to see more deal flow for oftentimes newer assets that may have opened just before the Covid, or during Covid and never quite hit that threshold, being able to cover debt service.
There’s a certain amount of financial distress and with that, they’re fundamentally good assets, oftentimes good markets, but just they’re in that rut.
Partly it’s a financing solution. That’s why good middle lenders exist to go help them through it. Oftentimes there’s a sense of exhaustion, frustration by the current operator. We’re seeing some deal flow in our core markets because a lot of people know that we’re mid-Atlantic people. This is our territory. If they’ve got a deal, they bring it to us and they say, “Hey, Larry, would you be interested in this?” I think from that standpoint, we’re seeing more good stuff and particularly more good stuff at an attractive basis than before.
Coming back to your question, if you as a management company are going to go to all of the effort and time and agony to go turn around a property, get it going to where it needs to go to, you’re not going to do it for strictly a management fee. There just needs to be some upside in it and an attractive basis makes that possible. In that context, JVs I think are doable for acquisitions, not just for development.
[00:53:32] Tim: Interesting. Can you tell us about what other avenues of growth you see ahead for I IntegraCare? You’ve already mentioned some of this, so maybe sum it up again.
[00:53:39] Larry: We’re in three states. We’ve run Western Pennsylvania on the one side to Eastern Shore; Maryland, on the other. That’s where we’re going to stay. Our growth is to build density within that existing footprint. We’re not going to New Jersey, we’re not going to Ohio, et cetera. We’re keeping to our knitting around IL-AL-memory care.
Within that though, that’s still a pretty fertile territory to get spot opportunities for good development projects and for the acquisitions. My real challenge is if you’re only going to do two to three per year, you have to call your shots. I’m in a blessed situation where I can to some degree chart my destiny on these things. We’re an independent management company, we are not tied to a development company, we’re not tied to a financial company.
There are some operating companies that are tied to significant developers. Wherever developers want to build, they then send the management company to go run them. That’s not us. If it’s in the geography we don’t want to be in, we are not there. Similarly, there are some operators that are tied to financial services companies. There’s an acquisition arm, a big company that goes and does deals, buys an attractive basis and then tosses them across the wall of the operating company, and say, go run it. Again, that’s not us.
[00:55:44] Tim: As you look ahead, again, next 12 months or so, what are you most worried about and what are you most excited about?
[00:56:01] Larry: What am I most worried about? Again, over the next 12 months, not so much. We’ve got to wake up and we’ve got to work hard every day. It’s hard. Let me pause. It’s easy for me to say this, because I’m thinking at this level. There’s still a lot of work that happens at the community level that is hard. My first and foremost job is to support that and make my team’s life easier.
What am I excited about? I think what I’m really excited about is going back to the reason why we all got into senior housing, which is to focus on creating a great quality of life and quality of care for seniors.
You may say, ‘Well, why haven’t you been doing that all along regardless?’ Yes, it’s all what I’ve wanted to do, but a lot of it has been dealing with Covid, dealing with staffing problems, dealing with census over and over and over again. The normal process of how you create a great experience at a decent profit margin for owners is something I’m excited about coming back to.
[00:57:07] Tim: If you had a magic wand and you could wave it and change one thing, what would you change about the senior living industry and why would you change it?
[00:57:27] Larry: I think it would be to change our reputation as an employer. Some people perceive this as a nursing home. Some of it is perception. Some of it is the perception of this as a nursing home.
Part of it, though, is reality. We’ve got long hours and we’ve got staffing challenges and the work of a caregiver can sometimes be scutty and distasteful and it’s not great pay. All those are realities and reasons why our industry does not have this cache that others do. On the other hand, there’s a lot to love about our industry. It’s caring for people. For mission-mindedness, I would stack up our mission against anyone else in the country.
I think there’s a lot of autonomy if you’re a nurse. If you’re an LPN nurse, you could be a small cog in a very big hospital, nine levels down, or you could be working at a senior housing community and be the top dog as a nurse. The LPNs are the ones who run the show. I know which I’d rather be, and that I’d rather have the ability to have long-term relationships with residents rather than a hospital where the patients are churning every three days.
We have to overcome some of the bad things. I think figuring out how we do that, because we’re a fragmented industry. We don’t have four companies that dominate the industry. There’s lots of small providers. Our ability to fund a promotional campaign to go increase the overall attractiveness of the industry, somewhat limited. That’s what I’d like to be able to figure out how to do: Tell our story differently so that we can attract more good people into it.
[00:59:08] Tim: Well, those are very, very good words to end on. Thank you again, Larry. I really appreciated it.
[00:59:23] Larry: It was terrific, Tim. I really enjoyed it.