Senior Living Operators Manage ‘Balancing Act’ of Rising Acuity, Falling Margins

Senior Living Operators Manage ‘Balancing Act’ of Rising Acuity, Falling Margins


Rising resident acuity is impacting senior living margins, and in response operators are getting creative to make bottom line improvements even as challenges remain.

In recent years, especially with the pandemic, operators have said residents are arriving in senior living communities with more care needs than in the past. That phenomenon is shaping the future of the senior living industry and changing the pace of the senior living sales cycle, putting pressure on operators’ bottom lines.

“There’s a married relationship between acuity and margin,” Eskaton CEO Sheri Peifer told SHN.

Faced with compressed margins, Eskaton and other operators, including Senior Lifestyle, Integral Senior Living, Cogir, Pegasus Senior Living, Distinctive Living, Northbridge Cos. and Presbyterian Homes & Services, are taking various approaches all aimed at improving operating margin, from adjusting levels of care and tweaking rates to capture more appropriate revenue to improving staffing to make it more efficient.

Margin improvement shaped by acuity, care structure evolution

As residents come to communities with higher care needs, operators have reshaped care structures in order to capture new revenue that once fell through the cracks of broader care levels among the traditional senior living continuum.

Chicago-based Senior Lifestyle has seen operating margins increase by over 12% in the last three years driven by increased occupancy, rate increases and mitigating staffing costs, according to Senior Lifestyle Vice Chairman and Chief Investment Officer Jerry Frumm.

“This is all a matter of getting paid for the care we provide and to track those care levels accurately,” Frumm said. “It’s essential, but it’s not always easy and you have to stay on top of our assessments and have those difficult conversations with families.”

Carlsbad, California-based Integral Senior Living has seen similar operating margin improvements since 2021, and CEO Collette Gray said primary drivers came from occupancy gains and higher market rates. ISL is nearing but “not quite back” to its pre-pandemic 40% margin range as slowed by increased wages and expense inflation pressures, Gray said.

“It’s the new normal,” Gray said in regard to rising resident acuity impacting margin. “You’re going to have higher acuity, you’re going to need additional staff but you’re also going to need to change your price offerings. So it all goes in line and it’s about managing that.”

By increasing care levels to include 10 different options for residents, Freehold, New Jersey-based Distinctive Living is capturing additional care revenue while capitalizing on higher acuity.That has had the effect of optimizing operations to provide even greater levels of care, according to CEO Joe Jedlowski.

Having hit “rock bottom” on margins in 2021, Jedlowski highlighted the company’s margins having improved to stabilize between 25% and 33% across assisted living and memory care properties. Independent living properties, as seen across the industry, have maintained stronger margins between 28% and 45%.

“It’s taken us a few years to see these stabilized margins as we have truly had to dissect every component of our business model,” Jedlowski told SHN.

By drilling down on assessments of residents to adequately bill for care, Dallas, Texas-based Pegasus Senior Living is adjusting to the increasing speed at which acuity needs rise for residents, according to CEO Chris Hollister, who called assessments “fundamental” in maintaining margin and care revenue.

Across the company’s entire near-40 community portfolio, Hollister said margins could range approximately between 24% and 30%, depending on communities hitting projected budget figures assuming 80% to 90% occupancy gains.

But in order to more closely define the health of its communities, Hollister said Pegasus emphasizes net operating income per occupied unit per month, as “the uber metric we track.”

For IL communities, Pegasus recently saw up to $1,200 of NOI per occupied unit per month. Within AL, that figure ranges over $2,000 with “decent rates and care levels appropriately assessed and billed,” Hollister noted.

Hollister added he believed the company’s NOI per occupied unit monthly average could increase to over $1,600 per month in the fourth quarter of this year following rate increases and sustained census growth, up from $1,300 reported in February.

Increasing transparency between families and operational care staff creates a “balanced” value proposition and sets the stage for capturing additional care revenue, according to Northbridge Cos. CEO Jim Coughlin. The company’s leaders use proprietary training to teach employees about capturing new care needs for residents. Coughlin added the organization has succeeded in balancing workloads and reducing turnover.

“We’re able to track that and collect that data and get paid for that,” Coughlin said. “It’s a balancing act with our caregivers, and it really develops a partnership between families and staff by giving them empirical data to start that conversation.”

Tailoring operations to support rising acuity

Senior living providers in recent years have taken renewed approaches in improving resident lifestyle and wellness amenities as consumers demand more choice-driven programming that emphasizes independence.

As care needs rise, so too does the need for additional staffing resources, from care staff to additional sales staff to capture projected demand, according to Cogir Management Chief Operations Officer Gottfried Ernst.

As residents wait longer to enter senior living communities, length of stay continues to shorten, even as changing consumer preferences drive new approaches to programming. That comes as the average age of Cogir assisted living residents has increased from 81 years-old in 2021 to 85-years-old in 2024.

“We’ve had to focus more on personal wellness and an increasingly personalized approach to managing resident acuity,” Ernst said. “So we had to tailor some of our activities and programming that we could offer at higher acuity levels.”

By taking an “ala carte” approach to required staffing levels across Cogir communities, combined with a new “ala carte” level of care structure, the organization was able to drive new revenue while improving resident care. That’s allowed Cogir communities to tailor care plans for residents and helped improve bottom line performance, Ernst said.

At Cogir communities, the new care model has brought care margins to “neutral” and “at least making the care department cost neutral” going forward in a higher acuity reality. Margin suppression waned in 2021 and carried over into 2022 but saw improvement last year.

“2024 is about being strategic about approaching our margin optimization platform in various markets based on where our communities are located, and those components will play the most part in impacting margins in 2024,” Ernst said.

Margin goals for Cogir among higher acuity settings of assisted living are 40% in assisted living, 25% in memory care and 50% in independent living, Ernst added.

For nonprofit senior living providers, the hunt for increased margins is similarly challenging, impacted by the same acuity trends impacting their private-pay counterparts.

Presbyterian Homes and Services expects a total margin of 4% to 5% in 2024 that will go to new growth and support its affordable housing locations, according to PHS Senior Vice President Michael Bingham. That comes after a negative total margin in 2022 and trended positively last year.

“We expect 2024 to be an extremely strong year,” Bingham added. “If you do well, if you have higher acuity in assisted living and memory care you can capture it through rate structure, but it’s harder to do that but the reality is we’re seeing an increase in demand for higher acuity assisted living and memory care.”

For nonprofit senior living provider Eskaton, the Carmichael, California based organization manages fixed costs associated with staffing requirements in its home state. In partnering with third-party health care providers, from home health, hospice and palliative care providers, Peifer said she sees future opportunities to expand partnerships,and in turn, grow margins. Those margins fuel reinvestment into Eskaton communities, she added.

“It’s about how we leverage them by implementing them and finding these amazing partners,” Peifer said.



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