Lessons for our future: what tomorrow's managers need to know. (Finance).

EFFORTS TO DEVELOP A NEW GENERATION OF LEADERSHIP IN long term care are every bit as critical now as ever. Each year, problems with meeting new federal regulations, staffing requirements, overbuilt markets, and encroaching competition challenge even the most proficient leaders. But up-and-coming managers can be groomed to prepare for the responsibilities of tomorrow.

Brush up on history

Tomorrow's managers must learn from the past. They need to understand the underlying principles as well as the critical drivers that have propelled the evolution of the profession.

Joe McCarron, principal, BBK Ltd., sees a trend toward the regionalization and integration of the industry. "Over the past 5 to 10 years, we saw the emergence and then downfall of national providers who, fueled by capital markets, enjoyed ambitious and accelerated growth," McCarron said. This up-and-down cycle has put the emphasis back on operations.

Often, better managers tend to be regionally based operators who are focused on their own markets. Corporate managers are best positioned as resource centers. History has shown that this is not a one-size-fits-all business. Allen Lynch, partner, Nixon Peabody LLP, explains, "This is, and needs to be, a customer-driven business, and what might work in one place may not in another." For example, some people believe you need a certain number of units to be profitable. But those operators building small numbers of units are succeeding. Managers need to learn from them, too.

What you need to know

Development and finance are areas that need to be understood. The financial difficulties that so many communities are experiencing can be traced to insufficient revenues, excessive operating costs, and an inadequate understanding of the basic principles of successful development.

More emphasis needs to be given to the effective integration of operations management with development planning, such as design implications for time (and therefore, cost) of enabling staff to reach residents' rooms.

Successful development projects also result from financial structures for capital formation that have realistic and attainable operating plans. Leverage (percentage of debt to total capital) decisions should be based on debt coverage ability, which in turn, should be based on realistic operating fill projections. A common pro-forma figure is to base move-ins on four a month, However, if fill time is greater than about 9 months, then move-outs become significant and drop the net move-in rate to about two a month.

McCarron sees a trend in the industry toward integrating the financial and operational disciplines. "Historically, facilities have had administrators or executive directors that were caregivers first and financial managers second, if at all," he said. "Now the industry is demanding a combination of the two skill sets."

For many years, administrators and executive directors were often not held accountable for the financial performance of their operations. Third-party payor programs offered little incentive to do so inasmuch as revenues were driven largely by costs incurred. Today, however, we witness trends toward "capitated" payment programs promoting, if not mandating, cost-effective and efficient operations.

Changes in the regulatory system, including moving away from growing dependence on Medicare and Medicaid reimbursements, are demanding that managers be more cost-effective. One key is to integrate and interpret key financial and quality indicators effectively. Quarterly key financial indicators can be used as benchmarks for comparing an individual facility's performance against the industry at large. (See "Key indicators,' above.)

Successful managers rely on four critical functions: selecting qualified staff, setting performance expectations, motivating employees to achieve company goals, and encouraging employees to reach their highest potential. Perhaps Lynch summed up the best what it takes to succeed: "Never forget that this is a human-relations business."

RELATED ARTICLE: Key indicators

Financial indicators

* Occupancy rates

* Move-in rates

* Construction starts

* Capitalization rates

* Loan performance

* Days of cash on hand

* Days of revenue in accounts receivable 

* Nursing hours and costs per resident

* FTE and employee turnover statistics

* Facility census/utilization reporting

Quality indicators

* Decline in activities of daily living

* Weight loss

* Inadequate pain management

* Number of bedfast residents

* Improvements in walking

* Re-hospitalizations during long term care stay

For a current compilation of key indicators, go to <www.NIC.org>.

Paul Willging, PhD, currently on leave from his position as the director of the Johns Hopkins University/NIC Seniors Housing & Care Program, is president and CEO for the Assisted Living Federation of America (ALFA). For more information on the Johns Hopkins University/NIC Seniors Housing & Care Program, visit <www.NIC.org>.