With $10 billion in debt maturities coming due in 2023, margins still compressed and staffing challenges still simmering, operators have their work cut out for them in the crucial months ahead. But for all the problems left to solve, there is still a sense that the worst is now behind the industry in many respects.
That has come through in some positive Q1 earnings results announced this week, and at the Argentum conference in New Orleans. There, I met up with LCS CEO Joel Nelson, who said he thought the industry is between its short-term challenges and long-term recovery.
“I don’t think the industry is where we want it to be in the future,” Nelson told me. “But we have a pathway to get there and we are making forward progress.”
At the event, executives were speaking more boldly about the progress they are making and the pathway to the future — including controversial ideas like federal reimbursement for assisted living and memory care.
In this week’s members-only SHN+ Update, I share top takeaways from the conference, including:
- Why now is the time for the industry to start considering federal reimbursements
- How the industry’s data analytics efforts are only getting started
- Where staffing is getting better and where things still must improve
Now is the time for bolder thinking on reimbursement
Solera CEO Adam Kaplan was not shy during a panel discussion about needing to find new ways to fund important senior living services in the future — a prospect he admitted other execs likely find “crazy.”
While the industry has made headway on providing assisted living and memory care services at a rate closer to the middle market, it is Kaplan’s belief that operators should push for federal reimbursements for those services similar to what the skilled nursing industry already gets.
For both operators and federal regulators, that has been a conversation full of reluctance. And while more operators are taking Medicare Advantage and some Medicaid dollars in their communities, the senior living industry still sees itself as firmly private-pay.
Kaplan bucked that notion when he predicted on stage that “assisted living and memory care will be reimbursed, they will not remain private-pay.”
I agree with Kaplan, and I have long thought federal dollars could potentially be an antidote to the industry’s middle-market challenge.
The fact of the matter is that assisted living is now much closer to the skilled nursing facility of old, as residents are entering assisted living needing a higher-acuity form of services than possibly ever before.
Many assisted living and memory care operators already do a good job caring for residents, but doing so is increasingly expensive given the cost of staffing and the sheer number of workers needed to make those communities run smoothly.
So far, operators have responded to expense pressures by passing the added cost onto residents and increasing the value of the services they provide through enhanced or new offerings. For now, that is a strategy that seems to be a winning one.
But after two years of strong resident rate growth, I wonder how much more residents and their families will accept without at least some pushback, added value be damned. While more holistic wellness services, impressive arrays of technology and shiny new communities are indeed helping to move the needle on move-ins, the simple fact is that occupancy for assisted living and memory care stem from needs-based demand. And solving for the very high labor costs to deliver that care has so far been a huge impediment to scalable mid-market AL and memory care.
By engaging in a veritable arms race of service offerings, I think the industry has a real risk of pricing out potential residents in the years ahead. To me, it would make more sense to try and attract a wider swath of potential residents — both for operators’ bottom lines and for society at large.
Of course, with any reimbursements would almost surely come more oversight from the federal government. Skilled nursing providers are dealing with their own woes in that regard in the form of a looming federal staffing mandate. And many of those same providers have run into big financial headwinds in recent years despite receiving reimbursements from the government.
But if the industry is stuck between a rock in the form of the middle-market operating puzzle and a hard place in the form of federal oversight, I think failing to deliver services to the mid-market segment is a far bigger risk to the future of senior living.
Data analytics kicks into a higher gear
Data has become a crucial part of senior living operators’ future strategies, and executives in 2023 are examining an ever-widening swath of metrics to track the financial health of their respective companies.
This is a trend I don’t see slowing down into the future, especially as big companies like Welltower (NYSE: WELL) tout data as a key differentiator in operations.
As the industry moves ever closer to widely adopting value-based care in operations, data is at the centerpiece of those efforts, according to August Health Co-Founder Justin Schram. Operators must not only tell payers of their outcomes, but show them with the data.
“You need to empower the executives and the leadership with the data to be able to drive improvements — if not, you’re flying blind,” he told me during the conference. “If you don’t have access to that data, how are you going to improve on your outcomes?”
Already, the industry seems to be moving in that direction. Nelson told me that a big priority for LCS in 2023 is analyzing data in a bigger way, including with a new analytics team led by a newly hired data scientist.
One challenge I have heard time and time again is the need for standardization and that different operators have different metrics for success. But Belmont Village President — and former Welltower EVP — Mercedes Kerr mentioned that she was more optimistic than ever before about the industry finding some standardization for metrics.
“I believe that the industry will have to come to terms with some level of standardization, whether it’s quality of care, whether it’s reporting or financial metrics,” she said. “It’s going to be a very heavy lift, but one that I think everybody is going to somehow eventually come into.”
Standardization of metrics also could not only support providers’ efforts to be reimbursed appropriately within managed care frameworks but could support eventual federal reimbursement. At the most recent NIC conference in San Diego, hospital-at-home pioneer Bruce Leff noted that nursing homes collect standardized assessment data on every patient via the Minimum Data Set, which not only is tied to reimbursement frameworks but enables all sorts of data-driven research and initiatives.
“There are instruments that have been developed like that for assisted living, they’re just not used, and, I think that is a major opportunity lost,” Leff said.
Staffing between crisis and recovery
Talk to almost any operator in the industry and you will likely hear how they have substantially or completely eliminated the use of agency staffing in 2023. While labor budgets were still blowing up in 2021 and to some extent in 2022, costs are not rising at a similar rate in 2023.
Of course, to say the problem is solved would be incorrect. A recent NIC survey of executives revealed that 12% of them had a quarter of their full-time positions left unfilled as of early May when half as many said the same in late 2022.
Nelson noted during our conversation that the industry still must pay a premium over pre-pandemic wage rates to attract workers from other industries. That is not to mention the fact that, according to the most recent Argentum stats, the senior living industry will need to have filled more than 3 million openings between 2021 and 2040 to meet projected demand — a lofty task given the red-hot state of the job market in 2023.
But with the bleeding stemmed as it relates to the cost of labor and turnover at the very least not getting substantially worse, there is a sense that there is now more operational bandwidth to implement much-needed initiatives.
Staffing is a big focus for Chicago-based Vi’s plans in 2023 and beyond. Tony Galvan, who is the operator’s AVP of Living Well, said he thinks senior living staffing is at an “inflection point” between its fiercest workforce challenges and recovery.
He noted that staffing is now at a place where the operator can begin to execute on other goals instead of “treading water” as the industry had done for the last few years. As such, Vi is now moving ahead with a new and revamped memory care program, among other initiatives.
“It allows you to have that capacity to say, ‘Okay, let’s launch some new and different things,” Galvan told me. “Let’s explore some of the things that we hadn’t been able to do over the last few years.”
Even so, Arrow Senior Living CEO Stephanie Harris said she still primarily worries about the workforce as it relates to the senior living industry’s future.
“We are a people business, and there are not enough people … for the challenges that are ahead and the numbers of people that we will be serving,” Harris said. “That really keeps me up at night.”
The bottom line is that for all of the industry’s staffing goals, the real work — marshaling those staff to implement change at the community level — still potentially lies ahead.