Addressing Cost Increases with Residents

Addressing Cost Increases with Residents

“You’ve Got Questions . . . We’ve Got Answers”

We struggle with a very real and emotional issue; the annual increase in monthly service fee increase for senior living residents.  How do we address this issue with our residents?

You are dealing with a very significant financial challenge. First, the facts; 1) seniors will only get a Social Security increase of 0.3% in 2017, 2) short-term CDs and money market funds have returns of less than 0.3%, 3) inflation as reported by the September, 2016 Consumer Price Index (CPI) for all items is currently 1.5%.  These indices may reflect inflation of individual commodities, but the CPI does not appropriately track the real world of a senior’s typical costs incurred in senior living communities.  The two areas of highest cost for sponsors and owner/operators are dietary, representing approximately 20% of total operating expenses and direct care, typically representing over 40% of operating expenses.  In 2016, the annual increase in employee wages represented approximately 2.5% to 3.0%.  Similar increases are planned for 2017.

Current industry benchmarks reflect annual monthly service fee increases of approximately 2.5% to 3.5% for 2017.  The industry typically attempts to realize a 0.5% to 1.0% positive spread between a community’s annual increase in overall operating expenses and offset moderate increases in monthly service fees.

In attempting to make these numbers work, consider at least the following; 1) occupancy enhancement, 2) responsible expense reduction and 3) optimized unit pricing.  Enhanced financial performance represents both a pressing need and a huge opportunity frequently overlooked by many owner/operators.  In in 2017 and beyond, it will become a significant imperative.

 

An operations analysis by MDS will identify opportunities for improvement. A detailed overview includes Optimizing Income statements; expense management while increasing Net Operating Income, Operating Margin, Cash Flow. Contact MDS today for an appointment.

Save

Leave a Reply

Your email address will not be published.