Inside the Art vs. Science of Setting Senior Living Rental Rates

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The senior living industry is gearing up for yet another year of sizable rate growth, representing the third significant increase since the start of the pandemic in 2020. But this time is different, as we reported this week.

Senior living residents and their families have already endured two years of rate increases, in some cases equaling 10% or higher. Industry sentiment in 2023 has shifted to a belief that steep resident rate increases could indeed imperil occupancy growth — and therefore margin gains — in the new year ahead.

Therefore, increasing rates at an appropriate level is especially crucial, and especially difficult, this coming year. Providers will be carefully considering a variety of factors as they come to a decision. As Ally Senior Living CEO Dan Williams told us: “There’s an art to rates.”


That’s no doubt true, but his comment struck me, because I think that setting resident rates could — and should — become more of a science, as technology evolves to enable more precision and even personalization in setting rates.

Whereas operators favored blanket increases in 2021 and 2022, in 2023 many have embraced “right-sizing” resident rates to ensure residents are paying exactly what they need to in order to offset care expenses.

Frontier Management is a good example of the shift at hand. The company under the leadership of CEO Greg Roderick was an early mover on aggressive resident rate increases, and expenses were a big reason why. Fast-forward to 2023 and although expenses are still elevated in many important ways, Frontier has shifted from all-inclusive rates to charging residents based on six different levels of care.


I think that is the right approach, and I believe that technology will enable operators to control rate increases in an even more granular way in the years to come. The challenge for operators will be how to set rates at an appropriate level without setting them too high for residents to move in or too low to recoup still-elevated operating costs.

In this week’s exclusive, members-only SHN+ update, I analyze recent resident rate growth trends and offer key takeaways, including:

  • Why rates are likely to be more of a science than an art in the coming years
  • Forward-thinking new strategies for capturing revenue
  • How new technology is enabling operators to fine-tune resident rates

Linking care to rates

In the not-too-distant past, senior living residents were charged primarily based on care divided into three care levels. Residents in any particular setting all roughly paid the same base monthly rates, with differences stemming from the size and location of their units.

But in recent years, senior living operators have grappled with residents who are arriving with more complicated care needs. That trend accelerated during the pandemic’s early days as some older adults delayed their move into senior housing, leading to potentially worse health outcomes when they arrived.

Thus, the kind of care offered in assisted living in 2023 is closer to the services one might have received in a skilled nursing facility just two decades ago. And one resident’s needs can substantially differ from their neighbor’s, even if they live in the same community wing.

At the same time, senior living operators are stuck paying a higher cost of doing business, particularly as it relates to wages for frontline workers, which compounds the already steep cost of providing that care to residents. Operators often tell me these days that the high cost of staffing is simply unavoidable, and it’s common knowledge that communities can succeed or fail based on how well they manage staffing.

Senior living operators now have an even more delicate line to walk on margins as a result.

For all of those reasons, some senior living operators have started to dissect their resident rates and fine-tune them to maximize returns. Take Frontier as an example.

The company’s leaders spent a year examining how and why the company charges residents for the care they receive, and came away with a new model for resident rate increases. Frontier assesses residents when they arrive in a community and places them in the corresponding care setting, with appropriate rates that reflect costs for those services.

“Residents have a very specific individualized assessment and service plan that drives their level of care, which then drives their cost of care,” Frontier COO Kandice Alcorn told me last week.

As a result, Frontier took a more measured approach to rates than in the past, and the company eschewed its usual blanket approach for market-specific increases in the 6% to 7% range on average.

“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,” Alcorn said.

Just like Frontier was an early mover on rate increases, I believe the company will similarly help lead the charge for a more granular method of charging residents for senior living services. And they are not the only ones with that idea in mind.

Technology plays a growing role

As senior living operators look to fine-tune revenue and set operational expectations, technology is playing an increasingly important role in that process.

Senior living upstart Evolve Senior Living, which is being spearheaded by industry veterans and former Anthology Senior Living leaders Justin Dickinson and Andrew Agins, is planning on using data as a differentiating factor in resetting margins.

The management company is spinning up a data platform dubbed Evolve Intelligence with plans to use a large language model similar to ChatGPT to fine-tune revenue and costs in order to grow margins. No doubt, resident assessments will be linked to care levels and costs as part of the company’s offerings.

As I was writing this article, I reflected on how quickly artificial intelligence and machine learning gained prominence in the senior living industry and wider world. Today, millions of people are using AI-powered tools such as ChatGPT. I can imagine a future when these kinds of tools play a much larger role in the senior living industry in domains including sales and marketing, activities, dining and care management.

At the same time, senior living operators and their REIT partners are collecting a continually wider swath of data with which they use to make decisions. I have no doubt that this data will in the not-too-distant future be used to help place residents in the right care setting with rates that match the cost of providing them.

In fact, that is already the stated goal of senior living EHR companies like Yardi and August Health. Both companies are focused on using data and reporting to help operators maximize their care revenue via getting residents into the right settings. In particular, they are more closely tracking health data as residents move up the care continuum — “one of the biggest challenges to driving care revenue right now,” Yardi Senior Director Richard Nix told SHN earlier this year.

More information also can help operators justify rate increases. Instead of telling residents and their families that the cost of care has risen, with the right health data, operators can instead show them with facts and figures.

As the last year demonstrated, residents are much more receptive to rate increases when providers can clearly describe why they are needed. With this in mind, these sorts of data-driven approaches will only become more important for operators in being able to continue to charge appropriately, even in less extraordinary economic conditions.

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