Pockets of wealth: although revenue is tight for long term care facilities, other sources exist--you just need to know where to look.

Caught between a rock and a hard place, nursing homes and assisted living communities are struggling with rising costs and diminishing revenues: government funding for health care has tightened in the wake of hard economic times, state budget battles and public outrage at any new taxes; Medicaid and Medicare reimbursement cannot keep pace with costs.

Small wonder, then, that innovative members of the long term care community are searching for new ways to add value.

But what are these sources? How do you, as the operator of a long term care facility, go about finding them? How much do you need alternative revenue sources? And do you anticipate that this need will grow?

In a "round table" discussion, Contemporary Long Term Care asked industry leaders and financiers these pivotal questions. Their ideas may encourage you to consider options available and come up with new revenue sources of your own.

CLTC: How much need exists for alternative revenue sources?

Ray Lewis, senior vice president and chief investment officer, Ventas Inc.: Clearly there is a large need. The more dependent you are on government reimbursement, the less control you have over your revenue line. It's important to diversify your revenue line and develop ancillary revenue sources.

Monique Bimler, lender, GMAC Commercial Mortgage, Birmingham, Ala.: I take that question to mean, "How much of a need exists for facilities--assisted living--to maximize the revenue potential within their own facility?" To maximize what facilities already have, operators must make certain that they have control of their operations, keep track of what they provide and charge accordingly without lag time. What often happens is that a resident gradually requires a higher level of care. Staffers, preoccupied with their day-to-day duties, find themselves providing extra services without even realizing that new expenses should be added. Without good operational controls, there may be a lag time before the resident is charged. That is all lost revenue.

Jim Wang, chief financial officer, Hearthstone Assisted Living, Houston: We are always on the lookout for incremental sources of revenue. In today's competitive environment, a creative and aggressive approach in seeking ways to provide services and create incremental revenue is essential.

Roth Weaver, vice president, Ancillary Services at Horizon Bay Senior Community, Tampa, Fla.: The need is huge. I am the vice president of Ancillary Services, a new division of our company devoted to pursuing alternative revenue sources. The fact that we would create an entire division for this purpose clearly indicates how important we think it is to identify and implement alternative revenue sources. Also, new programs and services are good for our customers. It's important that we do everything we can for our customer, to intertwine in different aspects of their lives.

CLTC: Will the need for alternative revenue continue to grow?

Ray Braun, president, chief operating officer and chief financial officer, Health Care REIT Inc., Toledo, Ohio: There is a need, and given the governmental budgetary issues for long term care and the graying of America, that need will continue. Medicare and Medicaid have been under funding pressure for years. Private pay occupancy and rates have been affected by competition from assisted living. With increasing operating costs, operating margins are slim. Alternative revenue sources can add incremental margin to the facilities.

Roth Weaver: [The industry has] squeezed the inner line over the last few years because companies have not been able to raise monthly fees enough to correspond with operational costs--especially the rising price of labor and insurance. The recession had an impact on the annual incomes of seniors. Many who would have chosen assisted living are now moving in with family to save money. The entire industry has gotten creative about enticing customers with financial incentives. With high operational costs and competition for residents, the need for alternative revenue sources is going to grow.

Jim "Piet" Pietrzak,, president, Smith/Packett Med-Com, Roanoke, Va.: Certainly for skilled nursing facilities, the situation is dysfunctional. We have a system where every facility that takes an indigent loses money. I saw a state report recently that shows that a facility loses $10 a day for every Medicaid patient it takes. [Skilled nursing facilities] must rely on Medicare and private pay residents to make up its losses on Medicaid patients.

Richard Brockman, president, Camden Nursing Facility Inc., Camden, Ala.: The short answer is that there is always a need to increase revenue especially with our problems with Medicaid and Medicare reimbursement. We're seeing a lot of states cutback Medicaid funding. And we know that Medicaid reimbursements do not keep pace with inflation, which means that many nursing homes are inadequately funded.

CLTC: Do alternatives exist for facilities that need additional revenue sources?

Jim "Piet" Pietrzak: There aren't good alternative revenue choices for some skilled nursing facilities. One of the biggest problems for many is an aging inventory. Their 30-year-old building is not going to attract high revenue sources. Most of their residents will be on Medicaid, which is inadequate to meet costs. And another enormous drain on nursing facilities is liability insurance. That's where a large percentage of our revenue goes.

Monique Bimler: Alternatives exist. Some of our clients are adding to their revenue line by providing hospice services through an arrangement with local hospitals. Others are offering skilled nursing to non-residents for special treatments or therapy.

Paul Diaz, president and chief operations; officer, Kindred Health Care, Louisville, Ky.: Unfortunately, there's no room to cut costs. We've cut as much as we can and still maintain a level of service and staff. [Instead,] we're looking at markets that we, as skilled nursing facilities, can tap into--such as our units for Alzheimer's and dementia patients. We're looking at expansions and service options that will make us more attractive to private pay residents. Our goal is to increase and maintain private pay and overall occupancy.

Jim Wang: Hearthstone provides assisted living and Alzheimer's programs. Our alternative revenue sources are programs such as adult daycare and respite care. We hope to convert program participants into permanent residents by showing them and their families the quality of our care, our facilities and services.

Ray Braun: [A company's] options depend on the skills of the operator and the unmet needs in the market. Revenue can be added by developing new programs or by leveraging existing programs. New programs could be: specific disease management, medically complex care and specialized care.

Disease management programs include Huntington's disease, Alzheimer's, dialysis, HIV/AIDS and psychiatric care. Medically complex care might be care for ventilator, traumatic brain injury or specialized rehabilitation patients. The specialized care group includes hospice, prison units and adult day care. Leveraging existing programs means expanding the uses of staff, property, buildings and equipment to increase revenue. Some examples are catering services, home health, nurses for hire, staff training and placement.

CLTC: How can additional revenue sources be found?

Ray Lewis: Operators [should] identify non-government sources of revenue or government reimbursement sources in addition to the traditional Medicare/Medicaid. Some operators provided pharmacies or therapy services. Others seek additional, different groups of patients, such as veterans. There are many ways to maximize profitability.

I advise operators to cultivate relationships with referral sources--doctors and discharge planners. I tell them to sit down with these groups and figure out areas of need in the community, such as facilities for mental retardation or developmental disabilities. If the operator has an empty wing, he could consider converting it to provide this care.

Roth Weaver: To come up with ideas about new services, operators should note what their customers seek outside of their assisted living community such as groceries, drugs, support groups, moving services. All of these things could be considered as options for alternative revenue.

CLTC: Are there risks involved as you consider these alternatives?

Roth Weaver: Brainstorming ideas is not hard but implementing ideas about alternative resources could be. Operators must gain the support of their operational staff, who will certainly ask how much more work a new plan will entail, how the work will be handled, who will do what and how much money it will make. It is essential to determine how to market new services and set up lines of communication.

Ray Lewis: I advise operators to think carefully about change, determine if facilities can be used for more activities. Of course, changing can be difficult or risky. It may be hard to identify and find options for alternative revenue, evaluate the profit potential, then figure out how to price services.

Operators should ensure that they're capable from an economic standpoint and from an implementation standpoint of providing services. Thorough and detailed research is wise. An operator who thinks about opening a wing to mentally retarded or developmentally disabled patients may discover that this type of care is very different from providing long term care. He should ask himself, "Do I have the staff, facilities and reimbursement plans in place to support this change? Can I meet the expectations of the referral sources and families?"

Monique Bimler: Operators should [also] determine the specific needs of their market before expanding. They need to go out and meet with people in the community who can give them suggestions. I believe that many operators will find that they can raise their profitability by filling their facilities--continuing to provide their core business--while maintaining good controls.