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Analyzing private-pay potential through market research.

You have to go beyond estimates and guesstimates

The long-term care industry continues to rely upon minimally-financed government programs to meet the ever-increasing challenge of providing quality care. As a result, the revenue difference between being a marginal versus an optimum provider often falls upon the private pay resident. The use of market research can put an operator in firm control of determining a facility's private-pay potential.

Historically, facilities have been developed or acquired without first answering the fundamental business questions at right:

1. What is the demographic and financial strength of the facility's market and associated private-pay potential?

2. What is that market's demonstrated need for long-term care?

3. What is the price the market can afford to pay for long-term care services?

Rather, development and marketing strategies are driven by state mandates, the target market is defined as all elderly who need nursing home care, and daily rates are based upon operational costs and what the competition is charging. As a result, facilities that experience high Medicaid census do so by default -- that is, this census profile is usually attributed to a dependence on hospitals for admissions, and the absence of an informed marketing strategy to improve private census.

Market research for new and existing facilities has numerous uses and applications in marketing and operations.

* Market research identifies overall trends occurring in the senior adult population - specifically, whether or not market strength is increasing or decreasing in various age and income cohorts. Proactively assessing these trends enables the operator to capitalize upon market growth or hedge potential market declines.

* Determining private-pay market strength serves as a basis for developing meaningful census goals and provides a measure of the extent to which private census can be improved. Essentially, the operator can quantifiably confirm or deny the assumption that census can be improved, based upon market characteristics, rather than the typical crystal ball technique of making private-pay "predictions."

* By analyzing the financial qualifications of the market, the operator can identify rate structures that will allow maximum penetration and capture of the private pay market. A facility's rate structure has a significant influence on achieving and maintaining a high private-pay census. Aggressively high rate structures drastically reduce the pool of income-qualified households from which to derive residents and simultaneously accelerates resident spend-down. Rate increases should be driven by the market's financial characteristics as opposed to operational mandates.

* By applying industry utilization rates to the distribution of market strength among various age cohorts, the operator can also identify demands for various levels of care. For example, there may be a demonstrated need for additional intermediate or skilled care within an institutional setting, or an extension of the facility's services into non-institutional areas such as home care of adult day care programs.

* In the case of multi-facility operators, the analysis serves to identify and prioritize facilities that warrant an intense marketing focus and the lion's share of the total marketing budget. For example, if the demographic analysis reveals an over-bedded market and insufficient number of income-qualified households to support existing bed supply, the market strategy is on census maintenance. In cases where the analysis reflects an underserved market, and an unmet need in private pay segments, the marketing plan is assigned an "aggressive build" strategy, with associated objectives geared toward increasing private census. Facilities can be grouped and assigned a maintain versus build strategy, and marketing resources are deployed accordingly.

* The analysis also serves to define the facility's marketing strategy in line with priorities. Geographic segments within the market service area that contain high counts of the income-qualified market can be identified and targeted through select marketing vehicles.

* By estimating revenues generated through census increases, the operator or marketer can better determine the amount of investment to be made and program elements required to cultivate the private-pay market, such as the marketing program, facility repositioning, or physical plant improvement. The extent to which private census can be improved, as defined by market strength, should drive the level of expenditures that are necessary in both marketing and operations based upon calculated returns and net profits.

The first step in market research is to identify the facility's market service area. This is defined by a geographic origin analysis of current and past residents. Understanding the market service area is a function of auditing by either mileage range or zip code where the majority, usually 60 to 70 percent, of the facility's residents resided prior to admission. Demographic data can then be obtained which reports on the number of households that are located in the market area. The data contain information on age, income, and household composition reported in two- and five-year increments. Utilizing various analytical techniques, the reported income levels necessary to access the facility at a private-pay rate are identified. The final step is a determination of the estimated need for long-term care by the targeted age and income households and associated private-pay census objectives.

As with any feasibility process, a market study represents just one aspect of strategic planning. Factors that influence the successful implementation of the private-pay marketing program must be identified as well. Activities and health care challenges indigenous to certain locales should be determined to uncover and capitalize upon special service needs, which should carry the three-fold benefit of competitive edge, profit, and a continuum of quality care.

A marketing analysis is the basic business planning procedure of defining the target market, the depth of the market, and finally, market demand. As a result of this process, a facility can secure a successful future through leading rather than following industry trends.

Phyllis M. Thornton is President of Signum Marketing Services, Louisville, Kentucky, a firm which specializes in marketing long-term care, assisted living, and retirement housing.
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Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Thornton, Phyllis M.
Publication:Nursing Homes
Date:Jul 1, 1993
Words:955
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