Five Star takes steps to mitigate effects of memory care occupancy challenges

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Five Star CEO Bruce Mackey
Five Star CEO Bruce Mackey

Five Star Senior Living is taking several steps to manage revenue in light of continuing occupancy challenges from new competitors on the private-pay side of its business, especially in memory care, executives said Tuesday on a first quarter earnings call.

Independent living and assisted living revenues were flat in the first quarter, President and CEO Bruce Mackey said, but overall senior living revenues were down 1% compared with the same quarter last year. Memory care revenues were down 5.6% in the first quarter of this year compared to the first quarter in 2017.

“Memory care was the portion of the private-pay business where we were not able to overcome occupancy loss with increased rates, as this has been the fiercest source of competition over the past year,” he said, echoing comments he had made during the company's fourth quarter 2017 earnings call.

Occupancy at Five Star's owned and leased senior living communities for the first quarter was 81.7%, compared with 83.6% for the same period in 2017, the company said in materials released in conjunction with the call. The average monthly rate at the communities increased 0.8% to $4,796 in the quarter, from $4,756 for the same period last year. The percent of revenue derived from residents' private resources at the communities was 77.3% in the first quarter, compared with 77.6% for the same period in 2017.

One-third of Five Star's communities are now using the company's revenue management program, said Chief Operating Officer Scott Herzig, who added that he expects the percentage to increase because Five Star hired a director of revenue management in the first quarter.

“We have been focusing on implementing the system at lower occupied communities, and our next step will be to focus on the communities with greater than 98% occupancy, where we can begin to push our rates immediately and drive up revenue per available room,” Herzig said.

Communities where the system has been implemented have seen an 8% increase in move-ins year-over-year compared with those that are not using the system, where move-ins were “slightly negative” year-over-year, Herzig said.

“Our independent living and memory care units are producing the strongest results so far, and the long-term plan is to have a fully sustainable revenue management culture within our executive directors,” he said.

One effort is the increased use of the company's website to drive move-ins. “We are now getting 22% of our move-ins directly from our own company website,” Herzig said.

Senior living wages and benefits accounted for $136 million, or 49.6%, of senior living revenue in the first quarter, Chief Financial Officer Rick Doyle said.

Labor costs increased 1%, and benefits costs decreased 5.1% due to health insurance program changes and fewer high-dollar claims being filed in quarter compared with the first quarter of 2018, he said.

“Recently, we started utilizing third-party software to help ensure time-tracking compliance to reduce our overtime costs,” Doyle said, adding that 36 communities are using the software. “It is early in the implementation of this overtime initiative. ...We are continually assessing the feasibility to roll out these services to other regions and expect to see positive results from it in the near future.”

The company also is seeking to cut its operating expenses, Doyle said, by leveraging its size to negotiate national purchasing contracts and finding other more cost-efficient means of operating.

“As an example, in late 2017, we initiated a migration of our telephone infrastructure to an internet-based communication system,” he said, adding that Five Star expects to complete the initiative by the end of the second quarter.

Staffing challenges

The continued challenge of finding enough qualified employees, particularly at the executive director level, is affecting occupancy, too, Herzig said.

“When looking at our [continuing care retirement communities] and leased independent and assisted living communities in the first quarter, a majority of the weaker-performing communities, comparatively, year-over-year, had some sort of transition related to the executive director,” he said.

Five Star's Rising Star program through which executive directors are trained “continues to produce excellent results,” Herzig said, and the company also has established a mentoring program that pairs mentors with executive directors when they are new to the role, regardless of whether they are new to the company.

“In addition, we have built Five Star University, which is aimed at further educating our new and existing executive directors in all aspects of running a community, including, but not limited to, managing employees, marketing, financials and, of course, senior care,” he said.

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