Assisted Living: Where Are We Now? (Feature Article).

INTERVIEW WITH JIM MOORE

At first glance the field of assisted living would appear to be in the doldrums. Plunging stock prices, widespread financial reorganization, a capital drought and emerging "horror stories" (see, for example, Time magazine, August 6, 2001) have hit companies that not long ago were among Wall Street's most fair-haired darlings. Now word among financial circles is that nursing homes just might be a better bet (believe it or not).

Jim Moore, though, sees the situation as merely temporary. To him, assisted living offers too much and meets too many very real needs to ever go away, and it will grow again--but not without a lot of savvy and hard work.

Moore's words carry weight. As president of Moore Diversified Services, he has served for years as a leading national and international consultant to the field. His recently published Assisted Living Strategies for Changing Markets (*) addresses in deep detail the many steps that assisted living operators (including nursing home operators just catching on to the market) can take to get their organizations squared away and growing with steady market demand. He offered his perspectives in a recent interview with Nursing Homes/Long Term Care Management Editor Richard L. Peck.

Peck: On the scale of "boom to bust," where do you place assisted living today?

Moore: Assisted living resembles the boom-bust cycle of real estate, which is determined by the availability of capital and the exuberance--or lack of it--of the developers. A few years back there was tremendous availability of capital for IPOs in assisted living; lenders and investors were willing to provide debt and risk capital to operators who had already raised $100 million in equity because they could come in behind that first-dollar risk. To keep Wall Street happy, operators had to launch a relentless supply of announced projects just to meet their quarterly projected earnings. Private developers proceeded to jump on the bandwagon, and we had a situation that much resembled the dot.com boom that followed.

The nonprofits got caught up in this, too, by the way, expanding their campuses and adding to the oversupply.

While all this was going on, the market on the demand side grew predictably and steadily. It's true that the over-85 age group is the fastest growing part of our population, but the hard numbers are really not all that significant as yet. That's steadily changing, and that's what's going to bring the market back again. Now that new development pipelines have been cancelled or curtailed, and demand continues to grow, we'll work our way through the oversupply in about 15 to 20 months. The market will tighten up, and we'll be on our way.

Peck: Doesn't it seem, though, that the demand would be so much greater if assisted living was made more affordable?

Moore: People often ask, since we have subsidized programs for public housing, why not for assisted living? The answer is this: In assisted living, 70% of the monthly service fees goes to cover operations--food, caregiving, housekeeping and so forth. Unfortunately, these expenses are unavoidable, regardless of the senior's income or affordability. If someone actually gave you the building, that would account for only 30% of your expenses. (The cost breakdown is similar in nursing homes, but assisted living comes in at 25 to 30% lower total costs.) In public housing, the situation is the reverse: 70% of costs are for the housing and 30% for the very limited services provided. It is much easier to cope with covering this one-time cost, as contrasted with covering services day in and day out throughout the residents' remaining lives. For this reason, public-housing-type subsidies would obviously not have the same impact in assisted living.

Peck: What about the Medicaid waiver program, which would swing more public coverage toward covering home- and community-based services?

Moore: The waiver program needs a lot of sorting out. States are saying they want to keep the elderly out of institutions, but at the same time they're saying that those covered by Medicaid waivers must be nursing home eligible. At this level of acuity assisted living starts running into licensure issues, and you end up with a Catch-22 situation.

Similarly, if states are focusing on home healthcare as an answer, they're frequently misguided from a cost standpoint. You can get one hour of home-based care for about $40 to 90 a day. In assisted living, you can get that one hour of care plus round-the-clock attention and completely cover all living expenses, such as taxes, utilities, food, housekeeping and home maintenance costs, for about $90 a day. Waiver programs focusing on emphasizing home care are not really addressing these relative cost issues.

Peck: What about the political issue, though, of people preferring to stay at home?

Moore: It's a matter of finding the line between new technology enabling people to stay longer in their homes or communities vs the technicalities of state licensure law. There's no question that the acuity levels in assisted living are much higher than anyone had anticipated they'd be. This is partly a result of assisted living facilities wanting to maintain occupancy and reduce resident turnover. Some organizations are even setting up specialized units for Alzheimer's and the like. But there is a line: They want no part of administering IVs or catheters.

Here's where there is an interesting development, though. The nursing home industry is beginning to realize that nursing facilities already have the licensure issue solved. For them, expanding into assisted living is less a challenge legally--and some of the more savvy operators are doing just that.

Peck: What should nursinghome organizations know about assisted living before they attempt to move into that market?

Moore: They should realize that assisted living growth is about marketing and not admissions, and the people who are doing this don't look like the actress Kathy Bates in a white nurse's uniform. The approach is more like, "Mrs. Jones, when would you like help with bathing?" rather than, "Mrs. Jones, it's time for your bath." Even though assisted living is long-term care, it's still a very different business from skilled nursing.

Peck: Some are saying that in view of the "aging-in-place" dilemma you're describing, free-standing assisted living facilities are becoming obsolete. What's your view?

Moore: One thing these facilities will notice is that as they provide higher-acuity services, their incoming residents will begin to self-select for that level of service and, as a result, the average age and acuity level of their community will start to accelerate. Providing residents access to multiple levels of care in a campus-type arrangement can slow that process. Similarly, nursing facilities that integrate with assisted living will find less rapid erosion of their private-pay clientele and of their average lengths of stay. There's also the overall financial advantage of the campus arrangement: The more you spread your fixed costs across additional revenue-producing units, the better off you are financially.

Peck: What sort of opportunity might the active adult market offer to assisted living and nursing homes?

Moore: Chances are for the age group that the active adult communities serve--typically, 55 to 70--it's a location move; they're not generally moving for reasons of healthcare, There's also a good chance, however, that these people will have at least one aging parent--and this is why you will find assisted living and nursing facilities springing up around the outskirts of these communities. Eventually the active adult residents' own needs will change and the long-term care facilities will become even more relevant. Meanwhile, it's interesting to see long-term care campuses evolving in just the opposite manner--they're starting with nursing homes and assisted living and developing active adult and independent living communities on the perimeter of their campuses. In general, the operator who is able to reflect all the major components ofthe long-term care continuum in his offerings is likely to do well.

In sum, like just about every product and service, senior living in general, and assisted living in particular, will experience market-driven business cycles and external competitive forces. But, as the Internet companies are learning painfully, strong business fundamentals and prudent financial planning will clearly separate the winners from the losers in senior living.

(*.) Assisted Living Strategies for Changing Markets is published by Westridge Publishing, a division of Moore Diversified Services, Fort Worth, Texas. Price: $40.