Sizing up assisted living.

It's not just a "nursing home without walls"

The assisted living industry is rapidly changing in response to resident needs, family expectations and the evolving health care environment. Once characterized as "board and care" homes providing minimal assistance to their residents, assisted living (as generally defined today) provides 24-hour individualized assistance to meet their residents' scheduled and unscheduled needs. Assisted living has become a successful combination of housing, health care services, and assistance with activities of daily living that are specifically designed to allow a resident to maintain a higher level of independence and dignity than has often been possible in traditional long-term care settings. Assisted living is also not as government-regulated at present as the nursing home industry. Regulations, where they do exist at a state level, vary widely by state. All in all, nursing home operators considering their options for entering the assisted living market need to understand how it differs from their traditional operations.

A Choice-Driven Product

Nursing home care has generally been a "need-driven" product. The marketing focus for nursing home operators has been directed primarily toward hospital discharge planners, social workers and physicians who refer residents to these facilities because of their "need" for nursing care. The decision to relocate to an assisted living facility is frequently made by residents' families and, often, by the residents themselves. While other facilities may be competitive, assisted living operators recognize that their primary competition is often a resident's home - the biggest competitor to any senior living alternative. In many cases, the resident's care needs can be met at home by a spouse, family members, home health care providers and other fee-for-service providers. As such, assisted living is, in many cases, a combination of "need" for care and a "choice" for a home-like residential environment.

Construction

State-of-the-art assisted living facilities tend to be constructed toward a residential model rather than the institutional model of nursing homes. Assisted living facilities frequently provide residents with a private room and private bath (as well as, in many cases, a kitchenette), thus providing adequate individualized space to provide for a comfortable, home-like living environment. In addition, these facilities provide for significant common areas for resident activity and socialization. Residents living in this home-like setting (and, just as important, their families) have the knowledge and comfort that trained assistance is readily available for their personal needs.

State regulations differ as to construction specifications for assisted living facilities. However, it is generally less expensive to construct a residential model assisted living facility than a nursing home. Operators are able to share these construction cost savings through lower monthly fees for their residents.

Payment Sources

Funding for assisted living also differs from the nursing home norm. Today's assisted living programs grew through a combination of seniors' housing and nursing care for which government payment programs generally did not exist. Assisted living continues to be primarily a private pay market (as were nursing homes prior to the Medicaid and Medicare programs). Residents or their families generally pay for the cost of living space and care.

Government payments for assisted living remain limited. Some state and local governments provide subsidies for rent or services for low-income persons in need of assisted living services. Others may offer subsidies in the form of additional payments for those receiving Supplemental Security Income ("SSI") payments. The Federal Medicaid Home and Community Care Options Act of 1990 authorized state waivers from usual Medicaid rules, providing states the option to use Medicaid funds to support assisted living services for low-income, frail elderly. These waiver programs provide for the payment for services in an assisted living facility but, generally, not for the housing component, which must be covered by other means (i.e., SSI payments, in many cases).

Private health insurance programs and/or long-term care insurance are increasingly providing coverage for assisted living care, inclusive of the housing component. However, as recently as 1993, less than 5% of our over-65 population had private long-term care insurance coverage. Over the last few years, insurance companies have improved the quality of these policies and their coverage. Improving the quality and reputation of long-term care insurance is likely to have a favorable impact on the number of policies sold in the future.

Operations

Similar to nursing homes, salary and benefit costs are the most significant operating expenses of an assisted living facility. Assisted living operators, however, have tended to move away from the "departmental" operating environment of a nursing home toward the concept of the "universal worker." A resident care assistant (generally a CNA) does assist residents with their activities of daily living, but also will, in many cases, be responsible for other duties, such as serving meals, preparing residents' laundry and housekeeping duties.

A creative nursing home operator considering the addition of assisted living has a unique opportunity in the staffing area not available to many freestanding assisted living providers. By sharing services such as, but certainly not limited to, dietary, housekeeping and maintenance, they can reduce the operating costs for the new care setting and, ultimately, contribute to their overall bottom line.

Managed Care

Managed care will certainly have a growing impact on assisted living as managed care companies recognize that assisted living can be an appropriate and efficient care setting compared to institutional care. HCFA'S recognition of assisted living as a care setting is likely to help, but the real attraction will be the lower cost of assisted living care compared to nursing home care - lower, according to some estimates, by as much as $10,000 per resident per year.

A 1993 survey by the Assisted Living Facilities Association of America reported that the average per diem for a semi-private room for a private-pay resident in a nursing home was $98, and for a private room, $111. The corresponding average per diem for assisted living facilities was $43 for a semi-private room and $66 for a private room. Furthermore, it has been documented that as many as 30% of the residents currently in nursing homes could be appropriately care for in an assisted living environment. Another survey indicated that the percentage could be as high as 70%. Statistics such as these will likely be of particular interest to states if future health care reform legislation is enacted.

Summary

Each of us wishes we had a crystal ball to predict the future of health care. As the assisted living market grows in popularity, nursing homes are quite likely to lose some of their current residents to this care choice. The trend has already begun in many areas. Rapid growth is expected in the assisted living industry over the next decade, with some estimates indicating that the industry will double in size over the next five years. The assisted living industry is also "segmenting" itself to address its residents' specific care needs such as Alzheimer's care. In addition, some assisted living operators are experimenting with models designed to care for lower-income residents.

Nursing home operators are taking an interest in assisted living, as they should, since assisted living is likely to continue to have an impact on the way they run their businesses. Many nursing home operators are considering constructing or acquiring assisted living facilities to provide for a "continuum of care." Others are forming relationships with existing assisted living providers to address their future needs. Whichever option nursing home operators select, they should recognize that the assisted living market is much different than that to which they have become accustomed.

Ronald K. Tinsley, CPA, is Director and National Senior Living and Post-Acute Care Industry Leader for Coopers & Lybrand L.L.P. He has more than 14 years of health care and entrepreneurial business experience.