Consolidation in the long-term care sector is occurring at a more rapid pace than in the past. One business expert advises senior living and other owners and operators not to wait too long to explore potential mergers if they see warning signs of escalating issues within their own walls.
The pace of business transactions in senior living and care — including mergers and acquisitions — has picked up since 2015 but was fueled by the COVID-19 pandemic, according to Mary Munoz, senior managing director of Ziegler’s senior living finance practice. She addressed related trends, along with other factors affecting long-term sustainability and survivability, Wednesday during a LeadingAge membership call.
Preparing for the upcoming release of the LeadingAge Ziegler 200 rankings of the largest not-for-profit multi-site senior living and care providers, Munoz said that some of the trends she is seeing include some focus on the middle market, half of organizations working robustly in the home- and community-based services area, growth in the supply-starved sector of affordable senior housing and slight growth in Programs of All-Inclusive Care for the Elderly.
‘Smoldering’ issues
Several issues, including financial challenges and occupancy declines, have been “smoldering” in the senior living and care industry since the Great Recession, Munoz said. COVID-19 acted as a “fire lighting” on those issues, compounding challenges with length of stay and government reimbursements, she added.
For-profit construction projects — mostly in stand-alone memory care, assisted living and/or independent living — are “sucking up consumers and prospects” from not-for-profit entities, Munoz said.
“Product differentiation is as important as it’s ever been,” she said.
Most construction at new locations is taking place under for-profit entities, whereas not-for-profits are “hanging back” and expanding their existing locations, Munoz said. But Wall Street, venture capitalists and strategic equity fund managers see the older adult demographic wave coming and want to invest in the sector, she added.
“Not-for-profits are a little scared and nervous and sitting on the sidelines,” Munoz said. “I would encourage them to think about stepping out — if they are on stable ground operationally — to look at growing and expanding the not-for-profit mission industry wide. We’re really shrinking.”
Addressing issues before it’s too late
Munoz shared a not-for-profit provider checklist covering an organization’s vision, resident experience, employees, the changing healthcare marketplace, growth and financial health. Using such a checklist, she said, organizations can determine where they fall on the spectrum of innovative and trend-setting leaders, person-centered care, employee support and training, financial health and resource application to improve their communities and facilities.
“Do a quick self-assessment,” Munoz said. “If there are any categories with no checkmarks, it’s a good indicator of something that should be part of your strategic planning activity.”
Organizations should start with a deep-dive financial analysis to determine which business lines are profitable, she said, and they should follow that analysis with a thorough examination of their expenses and revenues.
Along with recommending that organizations turn a critical eye to workforce retention and monthly service packages, Munoz said that organizations should explore the market and competition as well as look for alternative revenue sources.
“For too long, not-for-profits have been satisfied with negative or breaking margins on operations,” she said. “I would encourage you to think about being profitable on operations.”
