Reverse the chain of command to put customers first
By Jack Cumming
Steve Moran likes to inspire new ideas by unconventional thinking. It’s provocative and stimulating. He makes us ponder. A few weeks back he wrote an article “thinking that if a group of residents got together to build something, which would include figuring out financing and how to run it, the result could be pretty amazing, though I am sure not perfect. They would figure out the location, the size, the design, and how the program would work” (read the article HERE). He challenged me, by name, as a resident, to try. So, here goes.
I know of no other industry that employs a cadre of people as committed to those they serve as does senior living. It can be perplexing to discover that the industry attracts only a minuscule percentage of its market potential. Unraveling that reality calls for bold thinking. As a start, my core belief is that the most successful enterprises serve the customer first before enterprise aggrandizement.
It’s Easy to Rationalize
Most in senior living think they do just that. Still, when it comes to finances, people often put the enterprise first. That bias can be subtle, so let’s take an example. Residents consider entry fees, whether they are refundable or standard, to be advance payment for lifetime services. An industry practice that sets this commonsense perception on its head is a belief that entry fees simply initiate a monthly contract with an option to renew. After all, despite the forfeiture involved, a CCRC resident can move out. In short, there is a view that holds that an entry fee contract can’t be long-term since CCRC living is not life imprisonment without parole.
Prospects considering selling their homes to pay entry fees might hesitate if they thought that their provider only considered that payment as consideration for a monthly renewable contract, subject to refund provisions. And yet that’s a common provider view. Residents reasonably expect that entry fees will be reserved until services, including such deferred contingences as memory care, assisted living, and skilled care, come due. At a minimum, a resident might expect that an entry fee prepays monthly costs much like an insured life annuity. Many senior living enterprises, though, view their obligations as month-to-month and not lifelong. For most residents, entry fees are not charitable donations; they’re not an investment in the equity capital needs of the corporation; they’re consideration for a lifelong contract.
Attracting Younger Residents
This brings us to the assignment Steve has suggested. Steve’s list included: financing, location, size, design, and operations, i.e. how the program would work, and how to run the community. Rethinking the first and last of these – financing and operations – has the potential to attract younger, more vital residents. The rest are largely matters of business judgment. We can reserve those for a later article.
Unless senior living gains full credibility for trust and service, it will increasingly be limited to those who have no better choice. Younger people, weighing lifestyle alternatives, are rightly skeptical of entry fee payments, for which one has to sell one’s home, but which give no equity. No one wants to be a second-class citizen, a tenant, in a home they have financed. It’s no surprise that Active Adult 55+ communities are thriving while the average age at move-in for senior housing is greater than it has ever been. The younger oldsters, now moving to 55+ communities, are a lost market opportunity for more comprehensive senior living providers.
Here’s a resident equity model that can have market appeal. Give residents a cooperative ownership stake in the whole with a lifetime proprietary lease for a residential unit. The shares can be priced by the cooperative. If market conditions warrant, debt can be assumed, and cooperative owners are able to treat their share of the corporate debt the same as other home mortgage debt (IRC 216).
As a practical matter, the sponsor initially owns all shares with cooperative governance taking effect once, say, 35% of the residential units have been spoken for. The sponsor can continue to control the board until residents own 50%+. In the case of conversions, it’s customary for the sponsor, during the interim, to educate resident directors in their responsibilities for the cooperative housing corporation. Condominiums are less appropriate than cooperatives for senior living due to entanglements at death.
Cooperative ownership is not adapted to not-for-profits. Very few not-for-profit enterprises include residents as voting members, though most have a single corporate member or no member at all. Formal empowerment through voting memberships could make the prospect of trading homeownership for communal residence far more appealing.
In the long run, though, it might make more sense for not-for-profits to grow out of that status and to convert into the cooperative model. That can free capital for socially progressive activity, or for expansion, and can help promote the spread of communal living as the norm for aging. Executive commitments would be little different serving residents as cooperative shareholders from what they are now serving them as not-for-profit housing beneficiaries.
Bob Kramer, NIC founder and industry sage, envisions that “senior living is not about healthcare, but rather it is about helping residents live the very best life they can live; to achieve their goals for this time in their life.” From a resident’s perspective that’s about as positive and succinct an aspirational statement as one can find.
The Executive Director is central to the residential experience. If the Executive Director is an engaging, inspiring person of open character and high integrity, the residents are most often content. The alternative is an insecure, or corporately constrained, Executive Director who demands conformity or personal loyalty and who deflects suggestions feeling they are criticism. The best Executive Directors deflect negativity by listening to disaffected employees and residents and winning them to the mission.
In our idealized resident-oriented community, the Executive Director is primarily accountable to the residents. When an Executive Director, hired by residents, manages the community for their benefit, the residential experience is elevated. This reversal of loyalty follows naturally from the cooperative financing model.
Putting residents first means creating a positive experience for all residents from the very active to the very old. Today’s senior living industry does a good job with the very advanced elderly. It can benefit from stronger integration among primary care, long term care, and palliative care. Some organizations – notably Lynne Katzmann and Juniper Communities – are already moving in that direction. Others will follow. By opening the vision to be more resident engaging, it’s possible to make independent living more attractive resulting in a more appealing, more vigorous community.
Nevertheless, even the most active of independent living residents can find peace of mind in the availability of support services if they are ever needed. The ideal would be like that of a program now available only to the indigent, the Program of All-Inclusive Care for the Elderly (PACE), with the emphasis on the words “all-inclusive”. PACE programs commit to do whatever is needed to maintain the health and dignity of indigent elderly. There is no similarly comprehensive program, that I know of, for the affluent or wealthy. Who wouldn’t want such an integrated, all-encompassing protective plan as they age?
Recently, Dan Hutson, a senior living leader with sound instincts, wrote: “What makes people happy at work is the same as in the rest of life: a sense of belonging, social connection, and a purpose or meaning”. That wisdom applies not only for employees but also for residents. Even a person well along the memory care spectrum still wants to feel respected, acknowledged, and understood. In fact, many of the most difficult dementia behaviors are simply desperate cries for understanding.
Inclusion is an outlook that has to permeate an enterprise from the top down. When executives empower employees to think for themselves and to take initiative, the whole business benefits. When a business that serves its customers as intimately as does senior living, embraces those customers as intrinsic to the organization, then everybody benefits.
Resident empowerment requires a change from the common hierarchical model with the board at the top, cascading downward through executives, managers, supervisors, and employees, to customers at the bottom. The more modern model reverses the chain to put customers first, served by happy employees, which leads to enterprise prosperity. Reversing the governance and financial structures to put residents first can get people excited about moving to senior living communities.
 AICPA Guide, Chapter 7, Health Care Entities, §7.6.115 vs. FASB ASC 606.