INDUSTRY INSIGHTS | FALL 2010 EFFECT

Occupancy and Efficiency
Challenge Senior Care Organizations

by Cory Rutledge 

The business of caring for aging individuals is rapidly changing. Many Americans are opting to grow older in their homes. State revenue streams are drying up. And new health care legislation focuses on high-quality care at a reasonable cost. How can senior services organizations respond to these market forces and changing revenue streams?

Issue one: occupancy

Due to the housing collapse, many seniors are unable or unwilling to sell their homes, and many would prefer to age in place, even if the housing market strengthens.

Opportunity

Provisions within the Patient Protection and Affordable Care Act (PPACA), have expanded home and community-based services (HCBS). Section 10202 increases federal medical assistance percentages (FMAP) to states that remove HCBS barriers to Medicaid-eligible individuals. The new policy creates financial incentives from 2011–2015 for states that rebalance their expenditures toward community-based services rather than residential care. Section 2402 of the act broadens the HCBS eligibility requirements to individuals with incomes up to 300 percent of the maximum Social Security payments (up from 150 percent) through a Medicaid state plan. As a result, some senior living organizations are using this incentive to develop or expand their HCBS services.

Solution one: add low-cost home care service

HCBS services are often less expensive to operate and allow providers an alternative source of income at a time when it is increasingly difficult to rely on skilled nursing facility revenue. HCBS can help you bridge occupancy shortages, and as an additional revenue stream, HCBS don’t require much capital start up.

In addition, customers who are happy with the home care you provide will already be familiar with your organization when they need more sophisticated services in the future. If they are satisfied with your services, you are engaging a future resident. If you are willing to expand service lines to include HCBS, it will help you stand out in the marketplace. HCBS are in high demand, and if you don't strive to provide those services in your area, you are missing an opportunity.

Solution two: get creative with your marketing strategies

Since the sale of a home is a typical precursor to moving into a senior community, the soft housing market has forced many providers to get creative in attracting potential residents. I have already seen organizations offer the following incentives:

• Discounted or waived entrance fees
• Fee deferral until the resident sells their home
• Rent holidays and concessions on monthly service fees
• Relationships with local realtors to help prospective residents more successfully market and sell their homes

Because a high occupancy rate is one of the keys to profitability, creative marketing efforts that benefit potential residents will also benefit your organization.

Issue two: inefficient operations

While providers can’t control legislation or the housing market, they can control how their operations are run by borrowing concepts from manufacturing, such as Lean production principles and Six Sigma initiatives (often called Lean Six Sigma).

Opportunity

The goal of Lean Six Sigma is to preserve value while reducing waste, but up until a few years ago, it was seldom utilized in the health care field. Yet, imagine the waste a multi-facility continuing care retirement community (CCRC) incurs when, for example, each of its locations organizes and monitors supply closets in a different manner. Employees may be spending time looking for supplies that may not have been ordered—a waste of time and resources that could affect quality.

Solution: get leaner

I recently spoke with one of my clients who hired a director of process improvement. This person has an engineering background in manufacturing, and his job has been to look at every single process in the organization, with the goal of reducing waste.

This multi-site CCRC operation has found particularly effective results. The engineer determined ways to standardize processes across all locations and create enterprise-wide best practices. Some of the results include:

• Morale and organizational culture have improved, because employees are encouraged to share their ideas for better processes. This is a key component to Lean Six Sigma. Frontline staff is closest to the process and therefore needs to be involved. And job satisfaction naturally improves when people have a say in matters that impact them.
• Resident satisfaction has improved due to standardization in the process of asking for, analyzing, and implementing resident suggestions and requests.
• The organization has improved its utilization of resources. For example, when there are too few employees in one area, and too many in another, management can redeploy resources.
• Most importantly, this CCRC has reduced waste and saved money, helping it to become financially stronger.

The organization plans to carry these efforts into additional programming areas. For example, are dietary and therapy services delivered in the most efficient way? Is the admission process handled in a friendly manner? Are sales leads properly managed?

Since health care is a regulated industry, not every area in your facility will lend itself to the most efficient process. There are times when you will have to play within a certain set of rules (for example patient/resident safety). This is an additional challenge of applying lean principles within the health care industry.

Still, given the changes in consumer preference and the recent economic challenges, status quo is not an option for senior living organizations. Some providers have recognized the urgency and have already begun expanding service lines, updating their marketing strategies, and delivering services more efficiently. You can do it, too. In fact, you must.