What does the new year hold for senior living? I recently spoke with Lisa McCracken, senior vice president of senior living research and development for specialty bank Ziegler, to get her perspective, especially as someone who is in frequent communication with chief financial officers and other leaders at not-for-profit senior living communities.
1. Staffing and workforce issues
Recruitment and retention remain a challenge across all types of for-profit and not-for-profit aging services providers — residential housing, home healthcare, hospice, etc. — McCracken said.
“Thinking of collaborative approaches to tackling that problem is going to continue to be a focus for providers in 2018,” she said, adding that operators, even competing ones, are considering creating pools of staff members from which they can draw as needed or offering housing for staff. “Those are things that we never have heard in recent history,” McCracken added.
Especially in skilled nursing and post-acute settings, she said, providers face a “perfect storm” of an increasing minimum wage, numerous retirements, evolving staffing requirements due to changes in the resident/patient mix, healthcare reform and other issues.
Operators would do well to address the basics, McCracken said. “In addition to compensating people well, you’ve got to know how to engage with your staff and provide a meaningful workplace,” she said. “Really think of your staff as customers just as much as your residents and your patients.”
2. Changing business models
Facing length-of-stay decreases, patient/resident volume changes and reimbursement that might be decreasing due to managed Medicare, for-profit and not-for-profit skilled nursing/post-acute providers that do a high volume of care of patients discharged from the hospital are considering changes to their business models, McCracken said.
“The dollars and cents may be more lean and challenging than in years past,” she said. “Many providers are saying, ‘What is our role in this space moving forward? If I were to do this 10 years ago, this is how many skilled nursing beds I would plan. Is that number going to be the same today?’ ”
Operators are considering converting semi-private rooms to private rooms, reinvesting to make units more homelike rather than institutional or getting out of the skilled nursing business altogether and beefing up offerings in personal care or assisted living, among other options, she said.
The latter option may be more appealing in settings with a relatively smaller skilled component, such as some continuing care retirement communities, also known as a life plan communities, McCracken said. “If you have a 200-bed skilled nursing unit, it’s a little harder to shut that one down then if you only have a 25-bed unit,” she added.
“I think we’re going to see providers continue to figure out what their place is in the post-acute world,” McCracken continued, noting that a provider’s approach to the future will vary based on its experience and the regulatory environment in which it operates.
“Some CCRCs and life plan communities, particularly those with type A contracts, do not do much as it relates to hospital discharges and are not very heavily reliant on on any type of post-acute care for revenue,” she said. “So they are feeling that they have a skilled nursing exposure and threat a little less than some of the others.”
3. Continued consolidation
The challenges faced by senior living and other organizations along the healthcare spectrum are continuing to drive consolidation, McCracken said.
“Every day, we see different health systems that continue to come together,” she said. “Even ones that we think were consolidated are consolidating.”
These mergers, not just of larger and smaller organizations but also of equal-sized ones, are “changing the game” for providers, McCracken said.
“It’s really largely today, compared to five years ago, more strategically driven,” she said. Leaders, she added, are asking, “Can we do this alone? We might be able to still be here eight to 10 years from now, but can we be in a much stronger position eight to 10 years from now if we partner up with someone?”
The necessity for and success of such transactions, she said, will depend on the market. Operators in more competitive markets “may be more inclined to have those conversations sooner rather than later,” McCracken added.
4. New approaches to financing projects
The new tax law preserves the use of tax-exempt private activity bonds to finance acquisitions, new construction and renovations by not-for-profit organizations, but it eliminates the ability of not-for-profit organizations and others to undertake a one-time advance refunding of a bond, lowering their overall borrowing costs.
The change may affect not-for-profit provider decisions to start new projects or campuses in the short term, McCracken said.
“Generally, what has allowed not-for-profit providers to venture into those types of projects is knowing, ‘OK, this many years down the road, once we fill up, we stabilize, we prove that this is successful and we’re good, we can refinance that debt and bring the cost of capital down,” she said. “If their hands are tied with that, that’s going to cause people to sit back and say, ‘OK, how does this impact our growth plan?’ ”
Longer term, McCracken said, initial financing deals may be structured differently to account for the change.
But the tax bill contains more not-so-good news for operators, she said.
“With the corporate tax rate going down, those with bank debt will likely be seeing some higher costs of capital as the rates fluctuate,” McCracken said.
Senior living operators will continue to adopt technology to address the challenges they face, McCracken said.
“We’re hopeful that reimbursement and regulation can continue to follow,” she said. “Telehealth and telemedicine present a number of solutions as relates to some of these challenges, but [providers] have to think, ‘How do we get paid for this? Can this get reimbursed, or is this just something that we pay for ourselves knowing that it’s going to solve “x, y, z” type of challenges we’re having?’ ”
Lois A. Bowers is senior editor of McKnight’s Senior Living. Follow her on Twitter at @Lois_Bowers.