Assisted living: a brave new world.

As many in long-term care have noticed, assisted living for America s elderly is a growth industry. That growth is buttressed by the "greying of America" - e.g. the U.S. Bureau of Census projects that the number of persons age 65 and over will grow from about 31 million in 1990 to around 65 million by 2030. During that same period, the number of persons age 85 and older will increase from about 2.5 million to 8 million, and by the year 2050, to more than 15 million.

Meanwhile, according to the U.S. General Accounting Office, approximately 7 million older people needed assistance with activities of daily living in 1993. As the number of older Americans, especially those age 85 and over, continues to increase, it is estimated that the number of those needing such assistance will double by the year 2020.

Add yet another trend - an increasing number of persons living alone, due to spousal death, increasing divorce rates or decisions not to marry in the first place - and the need for assisted living facilities becomes crystal clear. It represents demand for care and services that historically have been provided by a spouse, other family members or live-in caregivers.

Nursing home companies are, of course, among many investors who are looking long and hard at assisted living as another potential revenue stream. Nevertheless, the management needs of nursing homes and assisted living facilities are very different. To get a sense of what a nursing home operator has to take into consideration when moving into the business of assisted living, Nursing Homes decided to talk with an expert who has managed both.

William F. "Bill" Lasky is President of Alternative Living Services (ALS), a company that develops, operates, and owns assisted living facilities for frail elderly residents and those suffering from Alzheimer's and other dementias. ALS currently owns and/or operates 17 facilities in four states, with six more under construction. Lasky is also Vice Chairman of the Assisted Living Facilities Association of America (ALFAA).

Before becoming one of the founders of ALS and serving as CEO since 1985, Lasky was a regional director for Unicare Health Facilities, with operational responsibility for a number of health care facilities serving geriatric, developmentally disabled, and mentally ill adults. He has also served as administrator for a large Unicare psychiatric treatment center and several nursing homes. Lasky has a bachelor of science degree in psychology and has completed the Health Care Administration Program at the University of Wisconsin, Milwaukee. He is a licensed nursing home administrator. Associate Editor David Patterson posed the questions.

Just to get definitions straight right at the start, what do we mean by "assisted living?"

Lasky: Assisted living facilities are for persons who need assistance with the activities of daily living, personal care, or some health care. They have unscheduled needs, with the possibility of care being necessary around the clock. Their needs cannot necessarily be met by someone providing home health care and assistance by appointment, but they do not have a typical nursing home patient's lack of independent mobility and need for heavy medical care. Assisted living facilities are for persons who cannot live alone but do not need 24-hour medical care. They best serve the frail elderly and anyone requiring 24-hour availability of care due to a disability or dementia.

From a business standpoint, what are the real differences between nursing homes and assisted living facilities?

Lasky: There was a time, before the social programs of the '60s and '70s, when nursing homes were driven by forces more like those found in the assisted living environment today. But all that changed with the advent of government reimbursement.

Today's nursing homes are a result of a great surge in the 1960s and '70s that brought the federal and state governments into a position of great importance in the industry. Government became the principal payer for care for elderly residents in nursing homes. The model of today's nursing home has been defined by governmental reimbursement practices. They determine everything from staffing to allocation of square footage per patient.

The other governmental factor has been the establishment of credit enhancement programs for the construction and development of nursing homes. These, along with the certificate of need process, determine how, where, when, and what gets built in this industry.

It is true that nursing homes have made positive steps to move to a more "homelike" setting, but the existing reimbursement system still rewards only a medical model of staffing and "departmentalization," similar to a hospital setting.

On the other hand, the forces creating the model of the modern assisted living facility are market-driven. Assisted living facilities represent probably the first time that a housing health care product - an environment to care for the frail elderly - has been created without a federal program as the driving force. Assisted living facilities have been developed with private risk capital to entice a population of private, self-paying residents.

In these settings, staffing patterns and physical plant environs have strong social-residential priorities. The resident and the family of the resident have been empowered to be customer/consumers, able to pick and choose among a variety of alternatives to focus on the facility of their choice and the level of care they want.

How does this affect how assisted living facilities need to be managed, as opposed to nursing homes?

Lasky: To begin with, there are different rewards and different risk assumptions. In nursing homes margins are tight because the reimbursement mode forces you to manage for expense control above all else; there is going to be little change in the revenue received per patient and service performance. But nursing home operators face little risk in achieving revenue, because they know that if they do what is required, according to the guidelines in place, in all likelihood they will have patients and they will be paid. The challenge is to run the business successfully within margins determined by someone else.

Assisted living has higher operating margins because it can institute services and care and determine what to charge for them. But the revenue risk is higher. They must attract customers and then perform in a way that keeps each individual customer satisfied.

Assisted living operators have the opportunity to manage both the expense and the revenue sides of their business. Since only a few states have a certificate of need process, competition is a strong reality in assisted living. The market - what our customers want - drives our product in assisted living, not what we are required to do to meet a government reimbursement program. Our customers judge us based on our outcomes, i.e., how good a job do we do in meeting their needs and wants.

As long-term care needs evolve, are nursing homes and assisted living facilities likely to become more alike or more different?

Lasky: Both. A blurring of the differences will occur as we all recognize - state regulators included - that a lot of medical care can be provided in a building that looks like a residence. Technology has allowed medical care to become portable. Many procedures typically administered in an inpatient setting can now be performed in one's home. Therefore, as medical needs intensify, the need to disrupt the resident's placement lessens. Assisted living facilities in some ways will become more like what nursing homes have been; while today's nursing homes take on the responsibility of being subacute care facilities and, in some ways, become more like what hospitals once were.

Why might the elderly find assisted living to be preferable to nursing home care?

Lasky: Independence and freedom of choice. The assisted living resident chooses how he or she is going to be taken care of and to what extent. Though residents have protected rights within the nursing home setting, these are limited to choice within the confines of one standard model or approach - they don't necessarily apply to access to innovation and creativity by operators. As I mentioned, assisted living facilities are a totally "market force" product, and the voice of the resident is much louder in an environment like that than in one driven by reimbursement practices and policies.

If they're so different, why might a nursing home company want to get into the assisted living business?

Lasky: As an operator, You have more independence in managing your business and you have greater freedom to find and develop opportunity, to determine your profitability and, ultimately, your survival. That's one very large part of it. The other is that assisted living facilities and nursing homes are all part of the same continuum of health care. If approached with appropriate management styles, they offer business opportunities that complement one another.