By Mark Pavlovich
Several days ago I read an article by Steve Moran titled “Three Senior Living Truths That Are False” and after reading it I got to thinking I am not sure he is right. I would argue the conventional wisdom that says “95% occupancy is a magic solution to financial success”.
What is Success?
While every community needs a minimum number of customers to keep the doors open, I’m not sure that we are able to quantify and qualify the myriad variables and combinations of these variables that will equal financial success on a daily basis. While I’m certain that we understand the positive impact of our services on the lives of our residents, I’m not as optimistic that we understand how the unique needs of residents impact our businesses.
I think we have become so over-reliant on traditional metrics of success that they have reached a level of sacred mythology and therefore can’t be challenged — even when faced with hard data to the contrary.
My Favorite Myths
Here are a few of my favorite myths — and some challenges based on reality.
High occupancy is always good — the reality is that there are many examples of communities that are financially stable with FEWER residents relative to budget. Likewise, there are communities that are approaching or exceeding “Budgeted Census” with disastrous financials.
Strict adherence to budgets equals financial success — This is only true IF communities continuously have the exact same number of residents whose acuity and care needs never change. And there is never a lack of staff; never a need to pay overtime; and, never a need to use agency staffing.
That happens exactly never!
The reality is that income, expense, resident, and staff variables are constantly changing. Budgets help at the C Level, but in the trenches, all “variations to budget” mostly create more work for leaders, requiring meetings to explain the variances followed by expressions of mea culpa publicly, and a promise to improve. Those meetings take valuable time away from leaders who should be using that time to improve their communities.
When census is low, the sales team needs to generate more referrals — The real data here requires a bit of a nuanced analysis. Yes, more referrals are generally associated with more admissions/move ins, but . . . the reality is that merely increasing the number of referrals puts a strain on the system to find qualified referrals.
A SNF might get hundreds of referrals for patients with diagnoses they haven’t seen before. If admitted, the census goal will be met, but the financial goals may suffer. An assisted living community may get hundreds of increased inquiries after a sales blitz, but if none have the finances, the sales blitz didn’t produce results.
While a good CRM program can help parse these referrals they can’t really help get to a better solution.
Today’s market chaos including PDPM, PDGM, changes in public and private funding, and yes, COVID-19 are all opportunities to look at your business in a new light. Yes, we all have to keep our heads down and continue to solve the day-to-day problems of keeping our residents and staff safe. But at the same time, leadership needs to start looking into the future to assure that communities are still there to serve residents.
A Little Myth Busting
Trust each community to develop a single, objective metric that defines ‘success’, and then let the executive director/manager/nursing home administrator manage to that number.
For example . . . let’s look at an annual metric for financial success — call it ‘Margin’ or ‘Net Revenue’. Once the number is set (this is where the traditional budget process is helpful), community staff are free to experiment with all the variables that impact Margin/Net Revenue as long as they provide high-quality care and deliver excellent patient/staff satisfaction in a legal, ethical, and moral way. Census may go up or down, expenses may rise in relation to a higher acuity patient, sales focus may shift to attract a different demographic, and clinical expertise may be added to serve a growing diagnostic subpopulation.
Moving the Needle
Owners and operators of nursing homes will likely find these decisions improve financial performance:
- A lower census of a specific diagnosis or group of diagnoses hits the financial metric, but adding just 1 more admission would flip the margin negative
- Entering an ACO contract
- Exiting an ACO contract or decreasing the percentage of Manged Care admits
- Expanding telehealth
- Employing prescriptive analytics
Owners and operators of assisted living communities will likely find these decisions improve financial performance:
- Adding or removing amenities
- Starting a home aide program
- Partnering with restaurants/food truck businesses to add variety to menus
- Develop communities to attract resident with similar interests
- Using data proactively
Challenging conventional wisdom and busting myths are never easy. Our industry is in chaos – this may be the best time to re-imagine our services. This will require new methods, new operations, and new data skills.
We can do this.