‘Press the Reset Button’: What to Expect in Senior Living Rate Increases for 2024

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Senior living providers are staying aggressive on rates as they look ahead to 2024, carrying over yet again another year of substantial increases while attempting to not impact occupancy figures.

From right-sizing rates for a specific market footprint to enacting blanket rental rate increases across an entire portfolio, senior living providers are taking different strategies to achieve greater financial health in 2024.

Unlike in the previous two years of rate increases, when operators were sure residents would be willing to pay a higher premium for their valuable services, that sentiment has shifted in 2023. Now, some in the industry are moderately concerned that occupancy could suffer as steep rate increases are put in place, while they still believe that demand for senior living in the current moment can help carry the industry through a period of more rate increases.

In many cases, the rate increases are out of operational necessity, as operators that spoke to Senior Housing News believe highlighting the industry’s value proposition becomes more important than ever. At the same time, operators are keenly aware that what they do now will help set a cadence and tempo for future rate increases farther beyond the pandemic years.

“I think we have to press the reset button, and we’ve created the new normal,” Distinctive Living CEO Joe Jedlowski said of how operators should approach future rate hikes. “For the first time in three years, we’re making good headway in having a more normalized bottom line as occupancy growth and volume has helped us out.”

12 Oaks Senior Living, Ally Senior Living, Distinctive Living and Frontier Management are among the many organizations planning rate increases for 2024. The average expected rate increase for these operators that spoke with SHN range between 6% and 10% and vary depending on local market conditions and other mitigating factors.

– 12 Oaks Senior Living: 10% average increase

– Ally Senior Living: 7% to 10%, with an average increase of 9%

– Distinctive Living: 10% increase

– Frontier Management: market-specific up to 10%, with an average increase of 6% to 7%

Inside the numbers on rates

In the second quarter of this year, the National Investment Center for Seniors Housing and Care (NIC) released its 2Q23 MAP Vision Actual Rates Report showing the growth of asking rates was “at near-record highs” across independent living (IL), assisted living (AL) and memory care units compared to 2022.

The mid-year NIC report on rates found that IL rates grew 9.8% since the same period last year. In-place rates were up 9.4% in 2023 compared to 2022 levels and move-ins increased by 8% this year as of the end of the second quarter. Discounting was reported to be highest among IL operators, who use them as a way to incentivize move-ins.

Growth in AL asking rates was 10.6% in May of this year compared to last year, representing the largest year-over-year resident rate increase reported by NIC, and that figure decreased to 9.7% in June.

A recent Senior Housing News pulse survey found that the most common rate increases seen this year was between 6% and 8%, while 25% of respondents said they pushed through 9% to 11% increases and just over 16% of respondents reported raising 2023 resident rates above 11%.

Of the 13 responses fielded by SHN, almost two-thirds of respondents said their companies had portfolios with at least 20 or more communities.

A total of 41% of respondents said they intend to raise rates between 9% and 11% in the coming year, followed by 33% reporting they plan to raise rates between 6% and 8%. Just 16% of respondents said they plan to raise resident fees at a rate between 0% and 5% in the year ahead. A total of 8% of respondents said they intended to raise rates by higher than 11%.

The steep rate increases seen this year also come with some concern among operators, especially when it comes to disrupting the steady flow of occupancy buildback that’s been widely reported across the industry in the last three years.

Nearly half of all respondents reported being “moderately concerned” of higher rates negatively impacting community wide census growth, with a quarter of respondents reporting that they were “not at all concerned” about higher rates, while 16% of respondents said they were “extremely concerned” when it comes to rates.

In its latest CFO Hotline poll issued by Chicago-based investment bank Ziegler of 250 nonprofit senior living organizations, executives anticipated a 5.03% increase in IL, 4.84% in AL and 4.91% in skilled nursing monthly fees. That’s below the 6.03% to 6.26% increases seen in 2023.

By region, the West could see the greatest increase in monthly fees of 5.2%, followed by the South at 5.04% and Northeast with a 4.87% increase and lastly the Midwest fielding a 4.74% projected monthly fee increase, the report states. The Ziegler survey also shows that 181 respondents said wages and labor were the top, primary driver of predicted fee increases, followed by inflation and food costs.

Rate pushes to survive, demonstrate care

Operations nationwide have taken different approaches toward recovering from the dark days of the Covid-19 pandemic, when occupancy was at an all-time low and rate concessions were commonplace. While expenses and staffing may be slightly improving across the industry, rate increases appear born out of operational necessity.

Making a pivot in strategy could also make the difference in making headway on rates. Frontier Management pivoted to a new resident rate strategy this year, moving away from a blanket rate increase strategy across its 124-community portfolio to a more market-specific approach, according to Chief Clinical Officer and Chief Operations Officer Kandice Alcorn.

Frontier is capping rate increases for the year ahead at 10%, Alcorn told SHN, with the average increase between 6% to 7% for next year. That is a departure from last year, when the operator implemented a 10% rate increase for residents.

“We’re really looking at where our buildings are within their current market, and we’ve really tried to be specific to each community and not take that blanket approach,” Alcorn said. “We’re maintaining that drive and focus on the level of care as well as doing some base rate adjustments.”

Company leaders have over the last year analyzed Frontier’s six care levels and developed assessment tools to right-size care revenue.

“Residents have a very specific individualized assessment and service plan that drives their level of care, which then drives their cost of care,” Alcorn said.

Alcorn added: “It’s been a real joint effort to make a determination what each community needs for continued margin growth but then what they can tolerate based on the market they are in.”

The effort to right-size rates, and better define levels of care, is also underway at Distinctive Living. The Freehold, New Jersey-based provider spent the last 18 months getting residents into their correct care level, and by extension, into an appropriate resident rate structure.

That was due to Distinctive Living “missing the front and the end” of the senior living continuum, with the company defining 10 levels of care based on services provided to residents. This reflected in care coordination costs differing dramatically across the continuum, according to CEO Joe Jedlowski.

“We are trying to expand the offering, expand the length of stay and expand those services in our communities,” Jedlowski said. ‘We have to be truthful about what it costs to live here and what it costs for us to take care of your mom and dad.”

After a 10% to 12% increase last year, Jedlowski said the company reported “good revenue growth” for over the last nine months. That’s caused in-part by expenses “normalizing a little” this year, Jedlowski noted.

Regarding the year ahead, Distinctive Living is “absolutely going out with double-digit rate increases,” and building off of last year’s strong push on rates, Jedlowski said. He noted that the rates would be market-specific based on current, in-place rates.

“One of the things we base our 10 levels of care on is the actual cost to pay our staff and we’re going back and looking at each building,” Jedlowski said.

Dallas, Texas-based operator 12 Oaks Senior Living will look at an average of 10% rate increases, but make increases specific for each community based on market and the overall health of the property, according to Senior Vice President of Operations Aaron Catoe. Properties are examined to determine the best course towards new revenue generation, from in-place rate increases to new-move-in rate increases.

“We are looking at our high-touch model and each property line-by-line and to determine its health,” Catoe said.

On average, Roanoke, Texas-based Ally Senior Living will enact a 7% to 10% increase on rates for 2024, but be specific to each property. Some may get no rate increase, while communities going through the stabilization process could see double-digit increases due to previously underpricing units, according to CEO Dan Williams, with the average increase expected to be 9%. Each resident’s situation is examined on an individual basis to determine the course forward for future rates, he added.

“We try to ease the burden but the reality is that residents understand prices will increase,” Williams said. “They don’t want them to, but they do understand.”

Balancing rates with resident feedback

While operators have pushed through steeper rent increases in the last three years, a high amount of demand, mixed with the reality of ballooned expenses, have not resulted in wider pushback from residents on the whole.

But operators said they are taking a balanced approach to raising rates and continuing to demonstrate the value of senior living communities. With high occupancy, operators are able to demonstrate service and demand to prospective residents so as to not to give prospects sticker shock.

“It’s all about highlighting the value and emphasizing that we’re providing superior service,” Jedlowski said. “We’re seeing the right absorption and occupancy is generally very high in our assets.”

By demonstrating value to residents, Alcorn said Frontier has avoided largely “any real pushback.” By re-evaluating its approach to rates, Alcorn said Frontier was able to remain competitive as competing operators also raised care rates, which allowed some daylight for revenue expansion.

“Everyone understands that it costs more to hire and it costs more to care,” Alcorn said. “Costs are up and certain things continue to go up.”

Being able to make rates work in today’s climate is complex and Williams said getting rates right was like a detailed painting.

“There’s an art to rates,” Williams said. “We look at a quarterly basis and we determine where we could increase or decrease rates depending on the units that are available.”