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Ten money losing assumptions in Assisted Living: Part 1

September 1, 2001
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Accurate resident assessment and pricing are essential-and often mishandledBy Lynette Jones, RN, PHD
Ten Money-Losing Assumptions in Assisted Living: Part 1
The need for services is growing in assisted living, and so is the need for accurately pricing those services

b y L Y N E T T E J O N E S, RN, PHD In the past decade the assisted living industry has grown into a $14 billion industry with as any as 30,000 homes. Because of the demographics of the aging population, and the fact that most elders would prefer not to be admitted to a nursing home, the industry appeared to provide a certain growth opportunity with a handsome return on investment. Subsequently, financiers poured hundreds of millions of dollars into building an infrastructure for the "graying of America."

However, operating costs for assisted living organizations have climbed exponentially, while competition has grown significantly. In reality, assisted living organizations often exceed their budgets and fail to produce an adequate margin. For investors, earnings ratios have suffered and stock prices have, at best, been sluggish.

What follows in this and a subsequent article are 10 erroneous assumptions that assisted living operators make, resulting in unnecessary losses in revenue and increases in expenses. Also included are recommendations for doing something about these assumptions. This installment will address the first (though not necessarily the top) five:

Assumption #1: Resident Assessments Are Predictive of Resource Consumption

Most assisted living organizations use some type of assessment tool to measure a potential resident's needs prior to move-in so that the resident can be billed for the appropriate level of care. Most assume that their assessment tool is predictive of resident resource consumption and that it will ensure that residents are charged the appropriate amount. This is where assisted living organizations begin to lose revenue.

In the assisted living industry, the assessment tools used differ across organizations, are typically developed by the organizations themselves and have had little, if any, statistical or parametric testing to determine whether they are predictive of resource consumption. Statisticians and epidemiologists can tell you that the only way to ensure that an assessment tool is predictive of anything is to test it on a relevant sample of the targeted population. By using a statistical procedure called Cronbach's Alpha, the tool can be tested to determine whether it is truly measuring what you want to meas-ure, and not some other extraneous or unknown factors of which you're not aware. We have not encountered any assisted living organizations that have tested their assessment tools to this degree.

Working with local universities to develop an assessment tool that predicts resource consumption is the first step in preventing losses in revenue. Graduate schools in health services, nursing, education and social work can help assisted living organizations develop predictive tools and conduct the appropriate statistical tests to ensure that the assessment tool is reasonably predictive of resource consumption. However, no assessment tool will ever predict all resource consumption, and communities will want to supplement assessments with other methods of tracking changes.

Whether the assisted living industry needs to develop a standardized assessment tool like the Minimum Data Set (MDS) used by the skilled nursing home industry is an important issue. The Centers for Medicare and Medicaid Services (CMS, formerly known as the Health Care Financing Administration, HCFA) requires facilities to complete 400 MDS data elements per resident at least quarterly to receive payment-a cumbersome and expensive requirement. Interestingly, although HCFA conducted time studies and significant statistical testing before mandating use of the MDS, its predictive power is only about 60% (i.e., resident resource consumption is predicted accurately only 60% of the time). It is, therefore, no wonder that skilled nursing communities are finding their current levels of reimbursement inadequate. In addition, the work that HCFA did to develop this tool has been widely criticized. For example, the methods used to measure actual care provided to residents did not include multitasking and working with multiple residents, as caregivers often do. As government becomes more involved in the reimbursement of assisted living organizations, their leaders should demand better research methods and higher predictive power for any standardized assessment tool that might be developed or adopted.

Assumption #2: Families Can Accurately Report Resident Care Needs

Families generally underestimate the amount of care their loved ones require. Unless they have been full-time care-givers, most families do not know how much care their family members require, and their answers to assessment questions are often inaccurate. In addition, residents often behave differently around family members than they do around strangers. The presence of family members might temporarily improve the cognitive orientation of a resident, particularly in the early stages of dementia. Once away from people and objects that are familiar, residents might become disoriented and require considerably more attention.

When a family is unable to provide accurate answers to caregivers' questions to predict a resident's care needs, the amount of care needed is underestimated and the resident is often placed at the wrong service levels. The resident consumes more care than he pays for, and the organization incurs nonreimbursed expenses.

Improving the predictive power of the assessment tool will not be enough. Facilities need to employ other methods of measuring the needs of their residents, as well, such as the tracking of services used every day.