Ten Money-Losing Assumptions in Assisted Living: Part 2

Assisted living has grown into a $14 billion industry as financiers poured millions of dollars into building an infrastructure for the "graying of America." Yet operating costs for assisted living organizations have climbed exponentially and competition has grown significantly. Now 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.

In the September 2001 issue of Nursing Homes/Long Term Care Management ("Ten Money-Losing Assumptions in Assisted Living: Part 1"), I reviewed ways that information shortfalls, based on unwarranted assumptions, can lead to financial distress in the typical assisted living project. We started with five such assumptions (Table), and here are five more:

Assumption #6: Poor Quality Does Not Affect the Bottom Line

Quality problems in assisted living can be defined, at a minimum, as services scheduled but not provided, services provided poorly and services provided to the wrong resident. Most assisted living organizations have staff who train other employees and monitor the quality of services delivered. Historically, these staff have been limited to conducting retrospective reviews of records and making incident reports. Usually variations in quality are not identified until long after they have occurred.

For example, when a resident is scheduled for incontinence brief changes and they do not happen as frequently as needed, the resident's skin begins to erode and breakdown occurs rapidly. The resident develops a skin wound and, as it grows, mobility becomes painful. As a result, the resident begins to require additional staff time to perform activities of daily living (ADLs). The resident also has an increase in care needs and begins using two hours per day of staff time. This costs the organization $140 per week in labor time.

Further costs develop in this scenario. Medications must be ordered at a cost of $100. Depending on regulations and organizational policy, the resident might require a transfer, perhaps in an ambulance. This costs the organization $500. The labor cost in preparing a resident for a transfer usually consumes about three hours of staff time. Multiple documents and forms must be completed. The execution and coordination of all these activities consumes numerous hours of staff time, much of which is licensed nursing time. Let's assume the licensed nursing time is 10 hours, costing $200 in labor time. After this occurs, quality assurance staff spend four hours reviewing the paperwork on the incident, costing another $100.

So far, this quality problem has cost $1,070-and the family is a very unsatisfied customer.

Let's not forget that while staff are dealing with this crisis, other residents are probably not getting the care they normally require, thereby incurring still more quality problems.

In a 100-resident community, even if you assume that quality problems arise with only 5% of your residents, the cost of these problems would be at least $5,350 per year. If you own 50 properties, this 5% quality problem is costing you $267,500 per year. Preventing quality problems is the only way to avoid these costs. By monitoring quality proactively, organizations can avoid the pitfalls that accompany adverse changes in resident health status.

Any monitoring system you use should facilitate the ongoing analysis of cost versus benefits of services provided, i.e., the services should be monitored against resident benefits or outcomes. All services have a point of diminishing returns, at which time they no longer provide additional benefit or the benefit is not worth the cost. Providing them beyond this point is a sure money loser.

Assumption # 7: Labor Is a Fixed Cost

Some organizations simply allocate care staff to their properties based on the size of the property. Meanwhile, assisted living organizations are competing for residents in an environment of increasing service amenities. Assuming such services are not outsourced, the more services offered, the more labor costs will vary, and these variable costs usually comprise more than 80% of the organization's budget. More importantly, these are variables that operators can "play with" to improve their bottom lines.

Let's consider a few examples. What happens when a resident or several residents experience a decline in health and there is no commensurate increase in staffing? If two residents in a 100-bed community require an increase in care of three hours per day, where does this care time come from? When labor is considered a fixed cost, there is no budget to meet such changes in resident care needs. Instead, too often increases in some residents' care needs mean that other residents don't receive the care they need and are paying for.

Assisted living organizations without a plan for adjusting staff as care needs change are at very high risk for quality problems. Such organizations should be monitoring their resident outcomes very closely to prove that their staffing model is supporting and not harming residents. Conversely, when labor is considered a fixed cost per facility, and resident care needs are low, is staffing decreased accordingly? If not, the organization is incurring unnecessary expenses.

The solution is to begin tracking minutes and hours of services provided for each resident, as well as peak and low service demand times for all residents. From these data, communities can begin to staff based on hours and minutes of service consumption per resident. By tracking the amount of time that staff spends in direct resident care, one can track subtle decreases in resident resource consumption and decrease staff accordingly. This should, however, be monitored in conjunction with the staff's adherence to service plans. If service plans are not being fully executed, staffing might be too low.

Assumption #8: Your Residents Are Not Consuming Much in the Way of Supplies

Assisted living organizations often supply incontinence briefs for residents who run out or for whom the family has forgotten to supply stock. In a 100-bed community, if residents "borrowed" 10 briefs per year from the community at a cost of $4 per brief, the cost to a 10-community organization would be more than $40,000 per year. This only reflects the cost of the briefs and does not include the labor cost involved in purchasing and stocking the supply. Fortunately, there are numerous automated proprietary systems on the market that track supplies consumption, and the assisted living organization should investigate these resources.

Assumption #9: Caregivers Are Not Sophisticated Enough to Help Improve the Bottom Line

We often hear operators of assisted living organizations complain that their staff are low-skilled and could not possibly participate in any efforts directed at making the organization more efficient and effective, particularly if it involves technology. This is another erroneous assumption. When we have conducted focus groups of caregivers, they often claim that operators do not give them enough information to provide adequate services for their residents. Our organization, for example, has been able to train in two-hour sessions hundreds of caregivers with less than a high school education and/or English as a second language to use handheld computer technology. Some organizations have used such training as a staff recruitment incentive or have made it part of a career ladder. Some make use of technology part of their criteria for performance review.

Caregivers can also be taught the principles of continuous quality improvement whereby organizations form quality circles that continually work to improve operations. They can help identity bottlenecks and redundancies in work processes. They can be taught to collect data about their own work processes and begin to formulate plans for working more efficiently. As experts in quality improvement can tell you, small improvements in processes that occur frequently can save significant dollars.

Assumption #10: High-Touch Is Incompatible With High-Tech

We sometimes encounter organizations that believe that the presence of technology will somehow diminish their high-touch atmosphere. On the contrary, technology has through the ages afforded us a more sensitive means to view and manipulate our environment. We could not see the difference between the planets and the stars before the telescope. In long-term care, technology can help staff answer resident pages and call lights faster. Radiofrequency devices can alert staff to wandering residents. Computers can be used to predict declines in resident health status. Computers can also perform ongoing quality assurance monitoring to inform communities about their adherence to regulations and the quality of work performed. Technology can be provided to residents to help them communicate with their families. Wireless and handheld technology can be used to update caregivers with changes in residents' service plans, health status and physicians' orders. Resident service plans can be transmitted to physicians and electronically approved.

Moreover, technology can be used as a revenue source for assisted living organizations. Residents can be offered appliances for their televisions to order services, movies and music. Group e-mail accounts can be offered to residents' families for planning visits and coordinating assistive care among siblings. Families at a distance can approve service plan changes over the Internet. The measurements described throughout this article-changes in resident acuity, compliance with service plans, peak service demands and the minutes involved in providing each service used by each resident-can only be tracked through technology.

The assisted living industry is maturing. Competition abounds, and it is now time to focus less on expansion and more on operational issues. Fundamentally, the industry will need to decrease its dependence on assessment tools to determine pricing. By using technology to track minutes of care provided to residents, the resulting data can be compared to predictions made by your assessment tool. Over time this will show communities how accurate their assessment tools are. Thanks to technology, reassessments can be performed on an ongoing basis as opposed to sporadically. Data on changes in resident acuity and patterns of service demand will facilitate flexible staffing models. It has become obvious that the industry must decrease its use of point and unit systems that are simply guesstimates of resource consumption.

Assisted living organizations must begin to monitor quality in real time. Retrospective monitoring of quality problems is an expensive and ineffective way to create a high-quality service organization. The technology solution you choose should be a system that monitors your compliance with a resident's service plan on at least a daily basis so that variances can be corrected immediately. Quality monitoring should also include a predictive function, creating "red flags" to alert your staff to potential negative outcomes.
Any monitoring system used should facilitate the process of locating the point of diminishing returns whereby the services provided no longer provide additional benefits to residents. Finding this point, difficult though it might be, is the crux of maintaining quality service.

The technology now exists to measure all the operational facets I've discussed. And it is quite affordable. What's more, the usability of these devices is evidenced by the fact that children use them routinely. Ultimately, revenues and caregiver job satisfaction should increase, particularly because employees will appreciate that an organization has enough confidence in them to invest in increasing their skill sets.

Until, however, the assisted living industry begins to understand the nuances of providing services to its ever-changing population, improves its ability to manage its variable costs and maximizes its opportunities for revenue enhancement, its promise will not be realized. It might well assume itself out of business. NH

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.

Table. The 10 Money-Losing Assumptions in Assisted Living.

1. Resident assessments are predictive of resource consumption.
2. Families can accurately report resident care needs.
3. Acuity changes slowly.
4. Periodic reassessments will cover any adjustments in resident resource consumption.
5. Point systems based on estimated times to perform tasks will cover expenses.
6. Poor quality does not affect the bottom line.
7. Labor is a fixed cost.
8. Your residents are not consuming much in the way of supplies.
9. Caregivers are not sophisticated enough to help improve the bottom line.
10. High-touch is incompatible with high-tech.

Topics: Articles , Finance