Ten money losing assumptions in Assisted Living: Part 1

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.

Assumption #3: Acuity Changes Slowly

This assumption leads assisted living organizations to overlook how rapidly resident acuity can change-and how quickly this change can push up expenses. What seem like subtle changes can rapidly incur significant costs.

Start, for example, with a resident who is relatively independent. The resident can toilet and dress herself, walk to meals and feed herself. All the resident requires is medication supervision. Since medication supervision for this resident is taking about 15 minutes per day of staff time, you place her in the lowest service level you offer. After a few weeks, the resident begins to experience increasingly generalized weakness. It affects her ability to walk without assistance. Although the resident appears to be about the same to most caregivers, those who work with her most often note that she needs more help walking. They might or might not, however, report this to their supervisor.

Particularly with frequent staff turnover so prevalent in the industry, staff often do not recognize a significant change in a resident’s health status, much less a minor change. Days might pass before a caregiver notifies a licensed health professional that a resident requires a little more help. This “little bit of help” means the resident now requires assistance with walking to the bathroom, to the dining room, to get her medications and just about everywhere else. Since the resident now needs help getting to the toilet, and caregivers, when paged, might not arrive in time, the resident is now experiencing occasional incontinence episodes. When caregivers discover these episodes, they must stop what they are doing, help the resident change clothes and then clean up the area.

Suddenly, staff are spending about three hours per day helping this resident. At $10/hr., over the course of a week this has cost the organization $175 in employee time (not including the cost of benefits, taxes, etc.). Your health services director performs a reassessment, changes the service plan and negotiates with the family for an increased service level, a process that takes two to three weeks. The 10 hours that the health services director has spent, at $20/hr, has cost you an additional $200. This situation has already cost your organization $830 in labor costs, and there could be other costs associated with this resident’s decline, such as more housekeeping or maintenance services. Thus, a small change in a resident’s acuity can cause a cascade of events leading to multiple unexpected expenses for your organization.

The industry needs a pricing structure and billing practices that are flexible enough to accommodate sudden changes in acuity and resource consumption. Since a resident’s health status can change so rapidly, a periodic reassessment will not be a reliable predictor of resource consumption. With high staff turnover and staff working different shifts and staggered schedules, staff can hardly be relied upon during reassessments to retrospectively provide accurate reports of changes in acuity.

Assumption #4: Periodic Reassessments Will Cover Any Adjustments in Resident Resource Consumption

This assumption-that changes in acuity will be caught during periodic reassessments-is closely related to the assumption that resident acuity changes slowly. However, the periodic reassessments most assisted living organizations use to determine whether the residents are in the correct service level are often grossly inaccurate because they are based on staff estimates of care requirements, not on the actual minutes of care consumed. Significant error is introduced here because the licensed nursing staff that usually conduct these assessments seldom provide direct care and are, thus, often unable to accurately estimate how much care a resident really uses. In addition, they could be unaware of care demands made on other shifts.

In a study done by our firm of a 90-bed community, licensed nurses were unable to estimate, by a wide margin, the amount of care required for one-third of the residents. Thirty residents were improperly categorized into the wrong service level by as much as three to five service levels, representing revenue losses to the community of $25,000 per month.

Assumption #5: Point Systems Based on Estimated Times to Perform Tasks Will Cover Expenses

Most assisted living organizations develop some type of point or unit system that determines at which service or charge level a resident belongs. Global assumptions are made about how much each service or task will cost in labor time. For example, the organization might assume that it takes, on average, 15 minutes to provide a resident a bath. Next, a specific number of points or units are assigned to each task. Service levels are developed based on the number of points a resident is likely to consume. From this, the community develops a pricing schedule estimating how much it will cost to provide services for residents in each service level.

The assumption that average times can be used to estimate how long tasks will take to perform is highly erroneous. Our database of more than 270,000 tasks, timed at the point of care, has shown that there is no such thing as an “average time” for a task. The standard deviations on the tasks we have measured are very large, which means that there is a huge variance for the same task performed on different residents. There is also significant variation in the time it takes different caregivers to perform the same task on the same resident, as well as significant variance in performing the same task on the same resident by the same caregiver on different days. As most caregivers will tell you, the same resident can be cooperative one day and not the next. Under such a system, there will be frequent and significant variances from budget day to day.

This erroneous assumption is at the crux of why assisted living organizations will continue to experience unanticipated increases in operating expenses and lost opportunities for generating revenue.

Another negative effect of using a point system is that residents with low care needs subsidize the care of those who have greater needs. The resident whose bath takes 10 minutes subsidizes the resident whose bath takes an hour. To be able to charge residents only for what they consume would likely be a significant marketing advantage for any assisted living organization. This makes a case not only for the ongoing tracking of services provided, but also for tracking the actual timing of these services.

Technology can be used to track services provided to a resident on an ongoing basis and to adjust billing appropriately. These data can be compared to the resident’s service plan to determine if the resident is consuming services outside those agreed upon during the last review of the contract and service plan. If his use of resources exceeds or is less than those agreed to in the plan, then the resident will need a service level adjustment. In addition, the extra services provided during the time the resident was in the wrong service level can be charged for on an “a la carte” basis, thereby allowing the community to recoup some of its losses.
Organizations can accomplish this either by using technology that measures time spent with residents on an ongoing basis or by conducting intermittent time studies of these services. Handheld computer technology is now available that makes the timing of services almost effortless. Caregivers can easily track the times to provide services without increasing their documentation burden. NH

Part 2 of this article will discuss five more money-losing assumptions from which today’s technology can save the struggling assisted living industry.

Lynette Jones, RN, PhD, is founder and board chair of Point of CareWare, a technology company based in Bellevue, Washington. For further information, call (425) 378-0200, ext. 111, or fax (425) 378-0300.

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