Build value and sell it to assure growth.

One of the more positive aspects of projecting nursing home market developments is do there is no shortage of ideas for ways of dealing with the inevitable "Building Pressure" to upgrade facilities - the topic of this month's issue. So what if money is tight and regulators are tough -just roll up you sleeves and deal with it! Of course, there are differing recommendations on how to go about doing this, but that's the fun part - you get to pick and choose.

Two such perspectives were offered recently by George E. Molloy, President of the marketing consulting firm M&M Associates and author of the recently published Marketing Success(*) and Jeffrey A. Davis, President of the Chicago-based Cambridge Realty Capital Ltd., an investment banking and consulting firm long-experienced in arranging long-term care financing.

To Molloy, "packaging" the physical facility is part of an overall marketing strategy aimed at one goal: increasing your percentage of residents who are private-pay. Overreliance on Medicaid to support your facility is an invitation to disaster, in his view. To attract and gain more private pay patients, he says, one must "merchandise" the nursing home i.e. define its specific value), promote it properly, sell it skillfully, and package it attractively. As for packaging, he offers in his book a graphic example of what not to do, based on a visit to a client's facility "The room was semiprivate accomodation. There were pink walls. The paint was peeling from the ceiling. The bedside tables were scratched and stained with what looked like milk or perhaps Milk of Magnesia. One bed, which had no pillows, had a yellow breadspread. The other with pillows, had a blue bedspread.... The floor was a green linoleum or tile material. Pink walls and green floor - get the picture?"

Molloy's advice to the client: Fix up the room to make it appealing to someone paying full freight. And then, rather than get into a budget-stretching renovation of the entire facility, fix it up one room at a time.

There are other "packaging" concerns, Molloy told NURSING HOMES. "Taking care without shows that you take care within: Make sure there are flowers near the entrance and that the grass is cut and maintained. And inside the facility, don't mix living areas with functional areas. I remember visiting a facility where visitors were stunned to see physical therapy being conducted in the dining room. You have to make sure that the environment is appropriate for the people who are using the space."

In short, thinking "private pay" means determining the value you wish to offer, creating that value, and then letting everyone know about it.

From the standpoint of Jeffrey Davis of Cambridge Realty, repackaging to meet the needs of today's residents is a good idea; that's a large part of Cambridge's business, after all, which includes some $90 million in nursing home financings in several major cities in the past few years. However, counting on private pay to save the day may lead to disappointment, in Davis's view. "First of all, you've got to find these people. And then, with private pay, you are always subject to the vagaries of the market. This particular resident can always afford to move on to another facility, if he or she decides they like better. Medicaid is like a least from the government - you may not know when you'll get paid, but you know you'll get paid."

Another private resource, private investment, looks like it won't be much help, either, Davis says. Analysis by his firm indicates that virtually the only source of funding available for most nursing home renovation or expansion these days is the HUD 232 program. Private lenders - i.e. life insurance companies, pension funds, real estate investment trusts (REITS), credit companies, commercial banks and bond sellers - tend to be either too skittish, too expensive or both, Davis notes.

"What it comes down to is that the value of a nursing home is in the quality of its management. Unfortunately, most private investors don't know anything about nursing home management, and they're worried that they'll get stuck if something doesn't work out - this, despite the fact that there are nursing home managers out there who could take over failing operations, if necessary, and who are often higher-quality than the office or industrial managers these investors are used to."

Davis adds that their reluctance is also based, in part, on concern about Medicaid and its future, and on the fact that some investors were "burned by the over-optimistic projections for retirement facilities, which turned out to be very high-rent operations." But Davis has his own prescription for dealing with "Building Pressure:" Work with someone who knows the ins and outs of HUD financing. Get your management into tip-top shape. Start educating private investors about what value in nursing homes truly is.

Indeed, while differing in tactics, Davis and Molloy seem to agree on strategy: To succeed in the nursing home marketplace these days, you have to know value, create it and sell it. Waiting for the "demographic imperative" - i.e., pressure from the burgeoning elderly population - to force change may well take longer than you have.