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Management buzzwords, such as “management by objectives” (MBO) and “total quality management” (TQM), come and go.  Often perceived as vague, complex, or confusing, they fade into the past before most of us really understand or appreciate their true benefit.

But benchmarking is one recently popularized concept that deserves serious consideration.  The concept involves a comparative analysis of industry operating factors, financial ratios, and business practices that answer the question: “How does my community really stack up?”  Benchmarking has seen limited application in senior housing, but the concept will eventually become a management imperative for many senior housing organizations.

Benchmarking – comparing your community against regional and national organizations – can be an early warning system. Benchmarking can identify impending problems and also provide a good way to demonstrate the sound performance of your operation.

Not-for-profits will find benchmarking especially beneficial.  Too many not-for-profits rationalize operational inefficiencies as being inevitable – a byproduct of fulfilling their mission. In fact, non-profits can implement change and realize substantial financial improvements.  Failure to do so is compromising their effectiveness and seriously impairing their long run mission objectives.  As a result, many boards of directors are asking increasingly pragmatic and penetrating questions, such as the ones at the beginning of this chapter.  Bond underwriters, rating agencies, and accreditation organizations are also looking for increasingly sophisticated measures of success.  Benchmarking may be the answer.  Let’s look at two vital indicators – the financial pulse of your operation.

The operating expense ratio shows the relationship between revenues and expenses.  The operating expense ratio represents total cash operating expenses divided by net revenues.  It generally excludes depreciation, interest, taxes, principal payments, and property leasing expenses.  It should include a management fee and a modest allocation into a capital reserve fund for future building improvements.

The expense per resident-day index is based solely on operating expenses.  It is your total annual operating expenses (as defined above) divided by your total resident population times 365 days.

Always look for symptoms. Typically, there are two possible problems:

1. Revenues may be too low;

or . . .

1. Expenses may be too high.

Say, for example, your operating expense ratio appears high.  By computing your expenses per resident-day index, you can usually identify the source of the problem.  For example, if your operating expenses per resident-day are also high, it is likely that your primary problem is excessive expenses and not suppressed revenues.

Nine Major Benefits of Benchmarking

Still not sold on benchmarks? Here are nine major benefits. Benchmarks will:

1. Improve your financial position.
2. Increase operational efficiency.
3. Develop competitive and creative pricing strategies.
4. Better position your products and services in the competitive marketplace.
5. Assist in developing new ways to increase resident satisfaction.
6. Introduce new quality of life initiatives.
7. Enhance the perceived value of your services.
8. Increase community value; your exit equity or your refinancing potential.
9. Generate increased, ongoing cash flow.

Other specialty areas of your operation that could benefit from benchmarking include accounting, housekeeping, routine and preventive maintenance, sales and marketing, and overall capital investment planning.  Perhaps the best targets for benchmarking are the things that cost you the most money, particularly those that directly affect the perceived value of your community.  Staffing, for instance, represents over 60 percent of total operating costs in senior living – and adequate staffing ratios are important to residents and their families.  Benchmarking can help you define realistic staffing patterns that strike a balance between high operational efficiency and optimum resident satisfaction.

Benchmarking also benefits food and beverage operations.  Not only does meal service account for up to one-third of a community’s operating costs, but it is usually perceived by residents and their families as one of the most important services offered – and it’s the one mentioned most critically in resident satisfaction surveys.  Certainly, food service is an area in which it doesn’t pay to cut corners. Yet, finding a way to improve efficiency could really pay off, if it can be done without hurting quality or resident satisfaction.

Benchmarking can sharpen your focus and provide a bridge that links your strategic goals and objectives with desired expected outcomes.  Finally, the process will force you to position, operate and price your community more effectively.

Call to Action

The return on the cost of a benchmarking operations analysis investment is a no brainer.  The significant return on investment makes operations analysis and benchmarking one of the most beneficial initiatives you could possibly execute.  It’s true that our primary mission is to consistently deliver high standards of care and quality of life to our residents.  But in doing so, we can’t let this noble objective either mask or oversimplify a rationale for grossly inefficient operations.  For your community, it may be time to bite the bullet.

I’ve not yet conducted an operations analysis that did not result in a permanent, ongoing savings of at least $50,000 per year.  A comprehensive third-party analysis typically involves a one time cost typically ranging from $18,000 to $25,000 depending upon the size of the community.  Call MDS today and let’s see if  benchmarking can help reduce your community’s expenses.

The above content was taken from Jim Moore’s book Independent Living and CCRCs: Survival, Success & Profitability Strategies for Not-for-Profit Sponsors and For-Profit Owner/Operators.  For a copy or to set up an appointment with MDS, call (817)731-4266 or email Jim at JimMoore@m-d-s.com

July 1st is here! We are half way through 2018; how is your community doing? Look back at the goals you set for the year and evaluate how you are doing. 

•  Financial goals and progress
  • Net Operating Income (NOI)
  • Cash Flow
• Operating Efficiencies
• Customer Service Improvement
• Dining Service Improvements
• Resident Activity Program enhancements
  • Resident Satisfaction
• Employee Training and Satisfaction
• Sales, Marketing and Social Media Campaigns
  • Lead Generation
  • Closed Sales
• Internal Communications

Now is the time to re-evaluate and recommit to your goals and objectives.  If you discover any deficiencies, decide how you will adjust to address them.  Even if you see a minor deficiency, if you keep the same path, by the end of the year, it could become a very large deficiency.

There’s still time to make changes by the end of the year and Moore Diversified Services, Inc. (MDS) is ready to help. We’re halfway through the year, but there’s still time to have a positive impact on your bottom line.

You might be surprised at how making small changes can have big results.  For example, if an average 80 unit community at 93% occupancy (or 74 occupied units) could save just $2.00 per resident day (PRD) or realize $2.00 PRD in revenue enhancements, that’s 13,616 resident days from 7/1/2018 to 12/31/2018 or $27,232 for the remainder of 2018. And that’s just on $2.00 PRD of savings! What a great outcome by the end of the year.

Take Action

Through our Operations Analysis, we will benchmark the income statement for your current operations to see how you stand with industry averages. We’ll assist you in digging into each department’s revenues and expenses and help you discover ways to enhance revenues or decrease operating expenses. Some broad areas we generally see room for improvement include dietary, employee retention, direct care staffing ratios, and general administrative expenses. We will review cash flow and NOI and deliver solutions, as your financial success is our goal.

You’re not alone. We’re the experts in this field with more than 40 years of experience and are here to help you. We understand how busy you are with your day-to-day responsibilities of running your community. At MDS we know you and your professional staff are constantly putting out daily fires and attending to your residents, assuring they have the best quality care and achieving highest resident satisfaction available. We also know that attention to detail with your income statements can unintentionally fall in priority status as time goes by, but this is something we can also help you with.

Get Results

Let us help you optimize your income statement and cash flow. As with our established clients, once we begin the Operations Analysis we then work with you to create a plan to reduce operating expenses. We work with you and your professional staff to ensure that these changes will not affect the quality of care you’re providing your residents.

There is still time in 2018 to make substantial changes that make a difference. The positive results will not only be reflected in 2018 financial results, but for many years to come through increased NOI, increased cash flow, and increased property value. Give MDS a call to set up an initial consultation and let’s get started!

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

How and why is the senior living management function becoming more complex?

Here are three reasons; 1) The management function must now deal with a very complex business model.  Due to senior consumer preferences and increasing acuity, the senior living continuum is blurred and subject to extensive overlap.  2) Third-party management companies are developing or acquiring increasingly complex resources.  These resources include state-of-the-art software, systems and procedures and sophisticated intellectual property.  3) Regulation and licensing issues are presenting future challenges.  Management must strike a delicate balance between operating in an increasing regulatory environment, optimizing resident satisfaction, clinical excellence and avoiding litigation while dealing with increased resident acuity within a blurred overlapping living continuum.

These three are just a sample . . . there are many more including covering increasing costs and sustaining economies of scale.

Jim Moore is president of Moore Diversified Services Inc., a national senior housing and healthcare consulting firm based in Fort Worth, TX, that has been serving clients for 47 years. He has authored five books about senior living and healthcare, including Assisted Living Strategies for Changing Markets and Independent Living and CCRCs. He has published senior living monthly columns for the past 27 years.  Jim Moore can be reached at (817) 731-4266 or jimmoore@m-d-s.com.

Creating a Financially Viable Improvement Plan

In several of our previous posts, we have addressed one of the most significant challenges of senior living today – the physical plant aging process.  The problems that come with aging buildings are relentless and every year issues become more serious. We have listed what items needs to be evaluated for repair and upgrades and how to work those into your capital budget, we discussed what needed to be accomplished.  Now let’s discuss how to pay for these campus improvements.

Determining the Cost-Effectiveness of Capital Improvements

Previously we identified the need for improvements to both individual units and common/public spaces.  Some of your capital investments will require difficult value judgments to determine whether they are really worth the dollars you would have to commit.  I like to use a quantitative approach that reduces the decision to the lowest common denominator.  This decision process should be viewed from two perspectives:

1. How much will I have to raise monthly fees in order to cover (i.e., break-even on) the added capital costs – assuming the necessary funds were borrowed at market interest rates?
2. How will the value of my community be enhanced with the new capital improvement investment? Try to be very specific in your value assessment.

To answer the above questions, let’s look at the two major areas where improvements would be made:

• Individual living units
• Common/public areas

Improvements to Individual Living Units

First, let’s evaluate the cost recovery of investing money in your individual living units by determining how many additional dollars an existing resident will have to pay each month in order for you to break-even on the additional debt service needed to fund those improvements.

1. Dollars invested. Determine the amount that will be invested to enhance each individual living unit. Let’s use $20,000 as an average per unit cost as an example. Some upgrades may cost more.
2. Cost of capital investment. Determine the interest rate and principal to be paid on the newly borrowed funds.  This could be approximately 5 to 6 percent for a for-profit or a not-for-profit community.
3. Adjust for debt service coverage ratio (DSCR). This ratio simply states that your friendly lender wants you to have about $1.30 in bottom line available cash (after operating expenses) for every dollar you owe in debt payments.

By following the above steps, you can now judge whether the perceived value of those improvement investments is worth the increase cost passed on to residents. Your resident might experience mild sticker shock, primarily due to habit, not necessarily due to affordability.  However, a new prospect viewing an improved vacant unit might see considerable value and give a deposit without flinching at the price.

Note that $20,000 can usually fund significant capital improvements for a single living unit.

Improvements to Common Areas

 Communities can calculate what the individual cost increase or allocation for each resident’s occupied unit would be when substantial dollars are invested in common areas or the physical plant in general.  The analysis is the same as the one for improvements in a typical unit with one big difference.  In this case, we allocate or spread these new debt service costs across all of the total occupied units.  For example, approximately 140 occupied living units in a typical 150-unit independent living community at 93 percent occupancy.

Calculations indicate that a $200,000 investment in improving the public/common spaces, staff areas, and “back of the house” resources of your senior living community will require each resident’s monthly service fee to be increased by less than $14 per month.  That could be less than a 1 percent increase.  The leverage of investing in common spaces is very significant, because we are spreading the new debt service cost for common/public space improvements across all occupied units. The new prospects first favorable impression. That’s a tremendous bang for the buck!

The Big Picture Rationale

 Surprisingly, the cost recovery sensitivity for a CCRC campus is frequently favorable.  In other words, you can invest significant amounts of capital and pass the cost recovery on to the residents in an effective, affordable manner – at least on an attrition basis as units are vacated and resold due to resident turnover.  Properly planned, incremental campus improvements may present short-run challenges, but they will result in substantial long-run benefits.

Call to Action

 Determine how much you will have to raise fees in order to fund capital improvements of both independent living units and common/public spaces.  Next determine how much the value of your community will increase once capital improvements are made.

Finally, consider implementing an improvement plan in two phases:

1. First, the common/public spaces – This offers the biggest bang for the buck at a very nominal cost per resident.

Then . . .

2. Upgrade the living units – At least on an attrition basis as units turn over.

You may be pleasantly surprised at what you can accomplish.

The material was taken from Jim Moore’s book Independent Living and CCRCs; Survival, Success & Profitability Strategies for Not-for-Profit Sponsors and For-Profit Owner/Operators.  The book provides greater detail and explanatory exhibits, formulas and tables to outline these concepts in greater depth.

Jim Moore addresses senior housing issues  monthly in McKnight’s Senior Living.  below is one of Jim’s featured pieces:

I want my sales and marketing team to sharpen their strategic focus.  How can I do it?

Most seniors, their families and their financial advisors need answers to critical senior living questions.  That’s because a number of deal killing misconceptions continue.  The Frequently Asked Questions (FAQs) concept is a very effective and credible marketing communication strategy.  In creating FAQs, avoid long rambling text.  Use the approach directly on specific important issues.  Here are some FAQ examples:

1. With my Medicare and Medicaid entitlements, aren’t almost all of my future health care costs covered?
2. It appears that living in a retirement community is much more expensive than staying right here at home. Am I correct?
3. Is there a way to control my future health care costs so I don’t spend-down my life’s savings?
4. Some entry fee communities charge quite a bit. Won’t I seriously reduce my current net worth if I decide to move to one of them?
5. If I pay a big entry fee, how will I be able to leave a legacy to my children and grandchildren?
6. Are there any special income tax deductions available for some assisted living and health care costs?

These FAQs are just the tip of the iceberg.  Don’t assume the market knows about all the relevant questions that need to be asked . . . and answered.  Implementing a comprehensive FAQ approach sharpens the market positioning of your community and dramatically increases the competency of your sales and marketing professional team.

Jim Moore is president of Moore Diversified Services, Inc., a national senior housing and healthcare consulting firm based in Fort Worth, TX that has been serving clients for 46 years. He has authored five books about senior living and healthcare including Assisted Living Strategies for Changing Markets and Independent Living and CCRCs.  Jim Moore can be reached at (817) 731-4266 or jimmoore@m-d-s.com.

Sponsor and consumer desired outcomes really come together when we can position our senior living options as a prudent and necessary financial planning decision.  There are at least 25 senior living personal financial and investment positioning and planning strategies.  Here are six:

1.  Offering hassle-free living that avoids the increasing hidden costs and growing complexities of home ownership for seniors over age 75. The key challenges these seniors face are increasing real estate taxes, complicated home maintenance and upkeep, and escalating insurance and energy costs.  A common concern is the loss of future home value appreciation when opting for senior living.  But this financial concern is usually more than offset by the more controlled total cost of senior living, while seniors realize the returns by investing their liquidated home equity.

2.  Hedging many of the risks of runaway health care service delivery costs by accessing reliable, high quality services on an as-needed basis within a senior living campus.  This is frequently a high value alternative to premature nursing home admissions, ineffective and costly home health services or the delaying of necessary preventive or corrective health care initiatives.

CCRCs offering various levels of guaranteed life care can deal with this consumer concern very effectively.  But remember, the actuarially driven financial risks to the offering life care sponsor can be significant.

3.  Recognizing that a senior’s home equity is really at the core of most senior’s financial planning resources.  Progressive communities are showing seniors how to put their liquidated home equity to work while frequently preserving most of the cash value of this asset plus their current savings portfolio principal as a future legacy to their estate.  If you charge up-front fees, you should also show a direct or indirect return on the senior’s investment.

4.  Structuring prudent spend-down plans may be necessary for some seniors in order to private pay for desired services that maximize independence and quality of life.  Over 70 percent of the patient-days in institutionalized nursing homes are Medicaid reimbursed because many of the patients have spent down their assets at a much faster pace than is really necessary with today’s senior living options.  You should show seniors how to avoid unnecessary spend-down, while offering moderate income seniors reasonable approaches to prudently planned spend-down that will not leave them destitute within the period of their remaining expected life.

5. Tax shelters and financial arbitrage are not just for high rollers or sophisticated Wall Street investors.  Advise seniors that, under specific conditions, they can deduct a significant portion of the monthly service fees and entrance fees paid to the community as a medical tax deduction.

6. Creative pricing by some sponsors are showing seniors how to put their home equity to work now.  As stated earlier, preserving much of their home equity proceeds and their current savings portfolio value as a legacy to their estate is a major objective for many seniors.  Let’s face it, when you start talking about entry fees, refundability, monthly fees and spend-down, many people start to get nervous and possibly tune out.  Sure, they may be getting tangible benefits for the cost, but you’ve got to go the extra mile to clearly communicate those benefits.  If you think you have trouble really understanding and explaining your entry fee actuarial analysis, imagine how an 80 year old senior must feel!

Call to Action

It’s time to take a new look at an old problem.  Most of us try to prudently hedge future lifetime risks.  We have wills, trusts and life insurance and sometimes even long-term care insurance. We try to make sure that we have enough retirement income to live a normal lifestyle.  But after age 75, many seniors’ lifestyle is far from normal and surprisingly little specific thought is frequently given to preserving an estate accumulated over a lifetime of conservatism.  The sobering reality is that there can be a large gap between a comfortable and financially responsible retirement and the final reading of the will.  Many older seniors resist the realities of planning for the future.  Astute senior living sponsors can provide significant help while sharpening the favorable market positioning of their senior living community.

A senior’s final years should never be seriously compromised in order to just maximize the financial aspects of their estate.  We have an opportunity and an obligation to show seniors how that final phase of life can be executed as an optimum, financially responsible plan.

The above content was taken from Jim Moore’s book Independent Living and CCRCs: Survival, Success & Profitability Strategies for Not-for-Profit Sponsors and For-Profit Owner/Operators.  For a copy or to set up an appointment with MDS, call (817)731-4266 or email Jim at JimMoore@m-d-s.com

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

 Jim Moore addresses senior housing issues  monthly in McKnight’s Senior Living.  below is one of Jim’s featured pieces:

What are some Senior living challenges that will be difficult for operators to address in 2018?

Here are three big challenges: 1) Future minimum wage increases – these increases will vary from market-to-market.  You may not hire any minimum wage workers, but there is another pricing tier starts at about $1.50 per hour above the prevailing minimum wage in a particular area.  That means those workers expect to have a wage “premium” over and above the prevailing minimum wage.  Cash flow and operating profit margins will likely be impacted.  2) CNA labor shortage – due to shortages, many CNAs are opting for other employers who offer higher base salaries and the perception of future and better benefits.  Many senior living operators are having to resort to higher CNA wages, dealing with more expensive contract labor and third-party agencies.  3) Aging physical plants – some operators are actually in their third generation with their older physical plants.  Many communities no longer look like the state-of-the-art competitors emerging in many primary market areas.  When considering moving to senior living, new prospects and their families are focusing on many competitive issues such as favorable first impressions, cosmetics, innovative designs and new technology.

The senior living business will continue to get more complex . . . we have to deal with it.

Jim Moore is president of Moore Diversified Services, Inc., a national senior housing and healthcare consulting firm based in Fort Worth, TX that has been serving clients for 46 years. He has authored five books about senior living and healthcare including Assisted Living Strategies for Changing Markets and Independent Living and CCRCs.  Jim Moore can be reached at (817) 731-4266 or jimmoore@m-d-s.com.

Jim Moore addresses senior housing issues  monthly in McKnight’s Senior Living.  below is one of Jim’s featured pieces:

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

Is 2018 going to represent a year of favorable Senior living opportunities or a troublesome year involving numerous challenges?

It will depend on your individual performance.  Just two current issues can make a big difference; minimum wage impacts and CNA turnover trends.

Walmart recently announced an $11.00 per hour entry level worker compensation.  Other businesses and cities are rapidly adopting a $12.00 to $15.00 minimum wage requirement.  Entry level workers do not work exclusively at fast food outlets.  They work for you in housekeeping, food and beverage and a number of positions in direct care.  Furthermore, other lower paid workers expect to maintain approximately a $1.50 per hour premium over the prevailing minimum wage.  Unemployment is low and expensive employee turnover is increasing.  Our analysis shows cash flow and operating profit margins are significantly impacted in assisted living, memory care and nursing operations.

The availability of CNA workers is becoming critical.  Senior living operators are increasingly using expensive contract labor or workers provided by third-party agencies.  There is a current preference by many CNAs to work at hospitals and Home Health Agencies.  Many CNAs indicate a reluctance to work in assisted living and nursing communities.

There are a number of other opportunities and challenges to address.  2018 is the year to stay focused on fundamentals for success.

Jim Moore is president of Moore Diversified Services, Inc., a national senior housing and healthcare consulting firm based in Fort Worth, TX that has been serving clients for 46 years. He has authored five books about senior living and healthcare including Assisted Living Strategies for Changing Markets and Independent Living and CCRCs.  Jim Moore can be reached at (817) 731-4266 or jimmoore@m-d-s.com.

Jim Moore Receives Senior Living Hall of Fame Award from ASHA

On February 1, 2018, Jim Moore, president of Moore Diversified Services, Inc. (MDS) was an inaugural inductee into the American Seniors Housing Association Senior Living Hall of Fame.  Jim was one of six first inductees for this prestigious award.
The other inductees included:

• Granger Cobb, Emeritus Senior Living
• Bill Colson, Holiday Retirement Corporation
• Bill Kaplan, Senior Lifestyle
• Bill Sheriff, Brookdale Senior Living
• Stan Thurston, Life Care Services

The Senior Living Hall of Fame Award showcased that “Jim Moore, over his 50 plus years in the industry, may very well have been the single most influential individual engaged in virtually every facet of the seniors housing business.”

In accepting this prestigious award, Jim stated, “I’m not retiring.  The MDS team and I will continue to work with a wide spectrum of industry professionals to assist them in addressing their business opportunities and challenges, to enhance the state-of-the-art of Senior living products and services and most importantly, optimize the lifestyle satisfaction of our residents and stakeholders.”

Click here to view the complete Senior Living Hall of Fame award publication.
Congratulations Jim !!!