CliftonLarsonAllen’s 2018 Senior Living Trends Report (Episode 45)

October 11, 2018

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Mark Gibbons: Hello from SmartLinx. Today’s guests are Cathy Schweiger and Mario McKenzie of CliftonLarsonAllen, which offers wealth advisory, outsourcing, audit, tax, and consulting services.

For the past 12 years, Cathy has assisted aging services and senior living providers to plan for their sustainable and successful future. Her experience spans market research, including survey and focus group facilitation, strategic planning and program development for continuing care retirement communities, continuing care at-home programs, home- and community-based services, and a wide array of senior housing and services. She is dedicated to developing new and impactful ways to serve the rapidly growing number of older adult consumers.

Mario has been working professionally assisting senior living providers for over 25 years. He works in strategic planning, feasibility study analyses, executive compensation analysis, as well as in master planning for communities. Welcome, Cathy and Mario. Thank you for joining us today.

Mario McKenzie: Well thank you for having us, and it’ll be hard since you have two of us, so we’ll try not to speak over each other, and I hope that we’ll moderate ourselves so we don’t both talk at the same time, but thank you so much for having us.

MG: Today we will focus on CliftonLarsonAllen’s 2018 Senior Living Trends Report, co-authored by Cathy and Mario. The report identifies seven major trends. Let’s take a look at each of these, starting with senior living options. Can you give us some insight on that?

Cathy Schweiger: Mario, do you want to start, or would you like me to?

MM: Sure, absolutely. You know actually, if I can just take a step back, one of the reasons why we assembled, if you will, the Senior Living Trends Report was that we felt that we were sort of at an interesting juncture and that, from a policy perspective, clearly there’s been a lot of focus but we also know we have significant issues as it relates to serving a population that’s going to grow pretty significantly. And it brought Cathy and me to think a little bit differently perhaps. Now, I don’t think these trends are going to be trends that you will go and say, wow, these are complete disrupters within the industry. On the other hand, our hope was to help organizations nudge or start moving hopefully in slightly different directions from their traditional silos—and I’ll use the word silos rather loosely. We put this together from the perspective of primarily a senior living provider. And we know within that spectrum there’s a variety of different business models around senior living, all the way from stand-alone assisted living, nursing, retirement communities, home health, there’s just a variety of market solutions. So our goal was to say, hey, as we look at all of these, what are some of the things or some of the trends that we think are going to impact many of these. So if you’re one of those providers in any of the different what we’ll call industry silos, the question was, could we look at these trends from those perspectives. So you know, with that said, the idea with senior options was really to get people to think slightly different around their role in the marketplace with consumers. So the example would be if I offer assisted living, and I define myself as assisted living, or if I define myself as a nursing home operator, I’m still intersecting with the broad swath of the community that’s aging, that’s needing services. So these options really relate to what can we as providers, or what can our clients as providers, start thinking about. How do we meet the needs of consumers, wherever they happen to be. And starting to adapt and evolve as providers.

CS: I think also a recognition that for many consumers, they’re first not aware and perhaps second not highly interested in what has been a more traditional senior living option. So there’s really the necessity to look and think differently at what we are and what we can be.

MG: Next, let’s talk about demographic growth. Is the “silver tsunami,” as it’s called, a real thing? And if so, how will it impact the senior care marketplace?

KS: Well most basically you know, there’s two major impacts here. Of course certainly we believe it to be a real thing, and it will mean that there will be an exponentially greater number of seniors to be served and cared for, being served and cared for by a workforce that is shrinking at the same time. So that will create its own unique set of challenges. But also the size, the vastness of the coming wave of older adults will really continue to attract entrepreneurs, sources of capital, all looking to create innovative, useful solutions for what has been a relatively traditional space.

MG: I was going to say, just like any other industry, it just needs to adapt with the times and the changes, and meet the demands of the market, which is in this case, the aging population.

MM: You know, it’s interesting. We’re talking about a sector if you will, an arena, as Cathy and I like to talk about it, that gets served in many different ways. But I think—don’t quote me exactly on this—but I think when you look at healthcare in a very macro way, so if any of these things intersect some form of healthcare, you know, the GDP expenditure is supposed to be about half being spent in this sort of arena. So to me, we’ve always pretty significant spending on healthcare, but now we’re going to add to that a very large proportion of the population that is also going to need assistance with aging and wellness, I mean those sort of brackets. We all from a population health perspective have the hope that people can age better, age well, and live longer independently, right, that’s sort of what we all hope as we age. And so think of entrepreneurs, think of capital, think of any type of investment fund or significant source of capital looking at market opportunities. I think everybody is clearly looking at this demographic, the silver tsunami, and fundamentally trying to say, how can we—we’re a capitalist society to a certain extent—how can we make some money in this sector. Now obviously you’re not going to make money without a customer value proposition. But the point is, I think we’re going to see a lot of innovation and a lot of entry into solutions on what may be viewed as non-traditional entries. In other words, not the assisted living or the nursing operators but other types of operators looking to find a connection between these consumers that are going to be aging and solutions to that aging. So I think it’s a great opportunity. I think I read somewhere one of the fastest franchises in the country right now is these—not home care—Cathy?

CS: Yeah, non-medical home care, companion care, that kind of thing.

MM: Right, companion care. Companion care is, for entrepreneurs, you have those, start your business and do something. And that’s one of the fastest growing franchises, so that’s pretty impressive.

MG: Wow. So moving on to the third trend, aging in place. It appears that most individuals prefer this over a community based setting. So how can senior care facilities attract residents in the face of these preferences?

CS: I think it’s clearly important for existing facilities and communities to make sure that they are keeping up to date, that they are continuing to offer or keep in mind their ability to offer what will be an evolving desire on the part of the coming consumer. But at the same time, I think in terms of aging in place it’s really important to realize that the majority of older adults really are not interested in residing within a senior care community, a senior living option. So our task really becomes to think about how we can create solutions that will help us to serve the majority of the population. How can we walk alongside them and assist them in maintaining their health and independence, their vigour, and to really be part of helping people to achieve their goal of residing in place in a safe, successful, and healthy way.

MM: There’s a saying that you want to be—people buy painkillers, they don’t buy vitamins. And the idea is, you know, one of the challenges is wellness is always well intentioned and everybody sees the benefits of activities that will improve wellness, that will enhance your ability to live independently. You know, the challenge has always been that people won’t necessarily invest in tomorrow, right, we invest in it today. And so, you know, Cathy’s got a saying—I don’t want to misquote this—but when we’re working on organization and strategic planning, often we’ll talk about this concept of inside-out and outside-in. And the idea is, we know what we do within our walls, and so how do we take what we do in our walls and take it to the outside. So that would be, for example, setting up wellness clinics, setting up programs in communities or trying to take what many of the providers that we work with, which is helping with coordination of care and knowing how to build wellness into the improvements of longevity and lifestyles, and to bring that to the outside and then conversely how do you use the programs that you have in your community to bring people fro outside that normally wouldn’t. So an example of that may be like free wellness screenings or other things that you would do for the broader community and bring them onto your campus. So we have the reality that for most of our providers, they’re bricks and mortar to a large extent, and they’re in sort of footprint, and it’s hard to get out of that footprint. But the initial start of that as Cathy said, when you look at penetration rates and market studies, the assumption generally is that the vast majority of people are going to stay home and age at home. So the sooner we can start—you know, we talked a little bit about influences. How do we become influencers to those that aren’t within our campus, and there’s many different ways you can influence individuals, but that’s sort of the seed in my mind to create programming and leveraging the two, in other words leveraging our infrastructure, bringing people to, and then taking our services out into the community. It’s sort of a great way to start thinking about small steps that start moving toward this idea of helping those that are aging in place. Technology, you know, they will need services, and many of the providers we work with are in a great position to become the leaders in the marketplace in providing those services.

CS: And also just in providing education and awareness and then being able to sort of parlay or leverage that in to that position as an early influencer, as a referral source of first regard. So again it’s just a different perspective and a way of looking at what you have to offer that can be really valuable to this growing population and growing need.

MM: And in a sense the old word, the trusted advisor in a local marketplace, who would be a trusted advisor in aging services for example.

MG: Exactly, being the thought leader in the space. Cathy, what can you tell us about workforce trends for this demographic? We already know that the industry suffers from a staffing shortage. Will it get worse before it gets better?

CS: We’re tracking several things that portend some increased challenges, particularly the age demographic of much of the senior leadership within our sector. You know, a vast majority—what is it Mario?—I think it’s 40% of the CEOs of the largest senior living organizations, the multi-site providers, will turn 65 within five years. That’s kind of a crisis of potential leadership, unless we have really strong succession planning in place. That’s at the top end, and then at the broader end of the employment pool, we really need to continue to publicize the benefits of our industry and what we offer to employees and to continue to work with universities and professional schools to ensure that we are part of the solution for attracting the tremendous workforce that we’ll need in the future.

MM: Yes, we do a lot of research focused primarily on the executive. But probably in the last year and a half, we’ve been doing a lot more work around what I would call the line level staff, and looking at the trends in pay, looking at the trends in vacancies. We’re at an interesting juncture where, if you look at the hospitality—why do I talk about hospitality, because outside of the clinical piece, you know, the housekeepers, the dining, the different types of individuals that do the support function that our communities need. You know, the competition for that labour—hotels, other types of ventures, you know, McDonald’s competes for somebody working, no different than the dining at one of the communities. And so what we’re finding is that, concurrent with great shortfalls in those staffing decisions, we also have the broader trend of the living wage, which is creating not just changes in the entry level, but then also the compression within the different bands. And so the idea of how do I get good market data, how do I look at our pay practices, and how do I make sure that I have a good sense of our market out there. Normally, for me to pay into an organization is the financial impact of taking the steps that need to be taken to secure your labour. And another way of saying that is, what if your cost of labour goes up 10% over the next couple of years. How are you going to handle that? Are you going to have less MPEs? How are you going to pay for that? And then I think the second piece, which is clearly within an organization’s control, is this question of the focus on employee engagement. I think we’ve all heard and know that engaged employees tend to turn over less and have more satisfaction with their jobs and lives. And it’s probably an area that I see many organizations making bigger investments in this question of how do we help develop engaged employees, so that sort of changes the culture. I think everybody wants engaged employees, but I’m saying that there is more efforts being made on the practices around how do we do that versus hey we like it. So I think being able to implement some of these strategies and finding, at least financially understanding, what the cost may be to the organization are great steps in starting to address this workforce challenge.

CS: And as you say, that engagement piece really is a significant investment. When done well, it requires not only economic but also time resources from the organization. It really is a long-term play to benefit from the work that’s done on the front end in attracting workers to the organization.

MM: Sure, there’s the old saying that employees don’t leave the company, they leave their managers. And a lot of data is supporting that. If you can somehow train your managers to learn how to engage their staff, you’ll have pretty significant gains in some of these areas. I’ll just leave that as sort of an interesting thought.

MG: It certainly is. Now one topic that’s been the focus of much discussion lately is healthcare reform. Mario, what did your report reveal here, particularly in terms of reimbursement?

MM: Yes, thanks for that question. Really what we revealed is, run. Just kidding. It’s an interesting shift. You can get to the specifics of reimbursement, and the way I’ll summarize it basically is that, we’ve been in a slow painful evolution from the old days of cost reimbursement, and I think many of the folks that are on this call may remember where you ran a nursing facility and the state government said, here’s how much we’ll pay you, and what we’ll pay you actually was based on what you actually spent. So you can spend up to X in operations, and we had operators that would spend the dollars right up to that cusp because it didn’t impact profitability. If they spent below it, it didn’t improve their margin. For every dollar they spent up to the cap, they would be reimbursed. So you had a system that, to a certain, extent tried to bake in improvements by setting the caps but to another end created bad practices because people were not focused on how to actually really transform the cost. And so where you see the shift, and where we see a lot of the shift coming outside of all the demo programs, pilot programs that are going, is this idea of moving towards payment for value. And payment for value should be a red flag for people because value is ultimately determined by outcomes as opposed to inputs. In other words, we’re going to reward you for creating an outcome in a condition or a length of stay or a quality, not so much in terms of how many FDEs or the inputs that go into that. And so as we think of reimbursement, generally speaking what I like to think is the question of, do the organizations that are going to be working in that environment have the capabilities to navigate the types of contract that they may want to create. And so we’re seeing a lot of nursing home providers create their own contracts, go out and, in essence, start building some capacity to contract for the specialty and get paid for this value. And these skillsets are very different than what providers are used to. So one of the questions around reimbursement in my mind is, do the stand-alone providers, the mom and pop operators, the smaller nursing homes, have the administrative capacity to do the analytics, the editorial work, the contracting work that may be necessary as we move to the value-based payments. One of the things we did in the study, for those of you that download it or get it, is actually we have this produce—it’s really big data analytics—we have the entire Medicare database for the last four or five years. And we did some pretty big data analysis with it. One of the things that I did for this trend study is, well why don’t we take by state all the nursing facilities. And when I calculated, for those of you that have a little bit of financial orientation, think of EBITA—which is earnings before interest tax appreciation—and I divided that by the operating revenue to come up with an operating margin. And we said, hey, our the last four years, what’s happened—in other words, for the operators that are running the business, what’s happened to their margins. And we put change in operating margin less than 0%, in other words, over a sustained four-year period, how many people averaging their bottom line. And that map, for those that download it, looks blood red in the sense that the vast majority of the states show there’s a very strong squeeze in the operating margin. A lot of that I think is the result of some of the things that we’re seeing in the reform, both rates at the state level with Medicaid and with Medicare, but also declining occupancies, and some of the penalties around low quality and declining volume. So what I would say is, there will always be tweaks on a year-by-year basis to what is happening to reimbursement that particular year, but the trend is clearly one where operators will be in essence asked to do more at a higher quality level with less resources. So looking at the world under that eye, you have to ask yourself the question, as a stand-alone, is this an environment that we’re going to be able to thrive in. And so we see a lot of acquisition work and a lot of consolidation happening in the sector right now.

MG: Right. Now you touched on a few topics that actually lead to additional questions. Cathy, could you tell us about CLA CLArity, your proprietary modelling tool, and just what you discovered about operating margins for nursing homes?

CS: Sure. So this is a little bit about what Mario was just referencing. CLArity is the tool that we have compiled, we’ve invested a lot of time over the past several years, a lot of financial resources, into organizing and mapping at this point what is over one billion data points. So we have all of the Medicare cost report data and the five-star quality nursing data for the 15,000-plus Medicare-certified skilled nursing facilities, in addition to a whole series of algorithms that allow us to take this vast database and make it really very agile, very accessible at the front end. And what it’s allowing us to do is to work with our clients to help them to sort of harness the tremendous amount of data that they’re confronted with, and to look at that data and to really focus on what has the greatest potential to positively impact their organization. So we have this huge database with a pretty neat front end that allows us to individualize and customize the benchmarking potential. So if I’m a provider, we’ve published our skilled nursing comparison report for many years—I think what are we, Mario, on 31? And that’s fantastic, it provides some very interesting broad industry data. But with CLArity, we have the opportunity to really dive into that data in a very individualized way and to allow an organization to choose those facilities that they feel are the best comparison for their operation. And then once we have executed that comparison, again the front end, the dashboard reporting type features allow a team of users from the organization to understand and conceptualize the data in a very user friendly manner so that they can quickly see where their efforts are going to have the most impact, where they’re going to really be able to drive the greatest results in terms of improving their financial situation.

MG: Great. Now big data, that’s another buzz phrase in business today, which we’ve touched on. At SmartLinx we tap into the power of predictive analytics for our customers. So Mario, based on your findings, what role does that play?

MM: We pride ourselves in buzzword lingo. Just kidding. CLArity was our CLA in this, as Cathy highlighted, was a start to leverage big data in a way that would allow our clients or providers to find pathways based on what the data was showing. Some of those pathways were around quality, some were around financial metrics, but ultimately the idea was, the data’s been out there. I mean, the problem is that individual organizations, it’s hard for them to make investments to access that data. And so you know, the concept of big data, I mean when you look at what Microsoft, Google, some of these other organizations are trying to do with big data in healthcare, that intersection, right. They are getting into Gigantor data, as I call it, which I think the stand-alone providers, the smaller organizations, are probably never going to be able to get to that data analysis. But the reason I brought it up as the trend is that we really have an opportunity here in that every provider has access to data. We touch people, we have data that comes in our door. And the question is, what are we doing with that data. So you highlighted what you do on the predictive side of the data. And what I see as the opportunity here for providers, not only I’d be the first to say this is the type of project that might be better served by networking. Like, what if five providers that aren’t directly competitive with each other were to band together to create something with data, right, and then we could avoid some of the HIPAA implications. But what if we were able to start creating analytics with the data we have to look at things that correlate with preventive services or preventive activities. You know, the old idea is, hey it’s great that somebody falls in a room and we can be in the room within a minute to help them with the fall, but it would be really much better if a week before that fall we had already measured and seen a lot of the predictors that precede a fall, and therefore were able to intercede before the fall happened, right. That’s a good example of how this transition in the data. Just as an aside, I was at a conference speaking with about 30 CFOs. And I was talking about actually data and saying hey, what can you do as a first step with this big data. And there was a little bit of bricks and mortar around—not bricks and mortar but you know—really at the detail of saying okay, here are some things that you might want to start thinking because there’s really a huge gap between the packages and how organizations operate. And this transition to how should I even start capturing data and doing something with it. So we talked about it, and here is the interesting thing. Out of these 30 CFOs I asked the question, how many of you have a physician dedicated solely to doing data research and analysis, and not a single hand went up. I said, well how many of you would plan for a position if you didn’t really have a sense, a charter if you will, for what that position would accomplish. And not many people raised their hands. And so the link here that I think I’m suggesting is that organizations have to have a little bit of confidence that if they invest in some level of resources to start taking that journey, you don’t necessarily know what the outcomes would be but I think that’s part of the big data, is you throw it on the wall and then see what sticks. And of what sticks, hey is this something that we can change, is this something that we can improve. And so I think because of the ease and the low cost and tools like Excel and Microsoft BI and just all these other types of statistical tools, you know, organizations are at a point where they can develop some of their own data analytics and move into what you guys are doing, which is the predictive side of the data. So I think we put this in the perspective of this is the shift that’s happening, and those that figure out how to access data are going to figure out how to impact the consumer quicker and better. And so it was, yes other people can do it, but the sooner you get on to doing, the sooner you’ll learn more about the process and improve upon it.

CS: And what you were saying too is making me think. I mean we recognize it’s really a challenge to compile and report out meaningful data, and that really I was thinking about the part of CLArity where we’re able to provide the cost of hospital, of a post-acute visit, from our provider organization as compared to other providers in the market and how just that one piece of data, because it’s really the start of the ability of the organization to negotiate and contract with the health system as you mentioned earlier. And you know it’s great for an organization to begin that journey and to invest and try to gather that data, but there are other ways of accessing or obtaining the information that’s necessary to get started.

MG: Excellent. So lastly, let’s talk about partnerships, mergers, and acquisitions. Mario, should for-profit and non-profit organizations approach this in the same manner or differently? And why?

MM: Well you know, I think there’s common things in the process of looking at affiliation, mergers, and acquisitions, although I will say there’s different individual goals going through that. And I don’t want to be overly differentiating of for-profits and non-profits outside of making the point that non-profits, their goal is to have a succession organization, right, I mean openly there’s a mission, the goal is to be able to pursue that mission as long as possible in the marketplace. For-profits, I think they have a slightly different impetus, which is obviously to make a profit for its proprietary owners, and you know, we’ve learned that obviously that’s a great link to innovation, etc. So outside of really understanding that there might be slightly different motivations, to get to the outcome of the sustainable organization or profitable organization you have to do the same things, right. In other words, does the consumer care that you’re for-profit or non-profit? A lot of the studies have indicated that there is a greater level of trust in a non-profit than a for-profit. But I would argue, as long as the quality is high, the services are good, the reputation is high, you would think that an average consumer probably views both as attractive solutions to what they need to solve. And so from a consumerism perspective, I’ll put that aside for just a second. On the merger and acquisitions, I view this sort of that the shift that I find probably interesting—at least in a non-profit side, but for-profit just that—but on the non-profit side, you know, we’re seeing a shift from affiliations from a perspective of weakness. What do I mean by that? Well, you know, organization A is weak, and they might be out of business within a couple of years, and so the board says, you know, let’s see if we can find somebody that will acquire, who can we merge with, in essence, to give us greater strength, help us navigate a period of economic weakness. So in the past, many of the affiliations that you might have seen were strong entity acquires weak entity, or strong entity acquires entity out of bankruptcy. And you saw a lot of this type of activity. Probably over the last couple years you’re seeing a lot more activity around what I’ll call the strategic acquisitions, mergers, in other words an acknowledgement that for the level of investments we’re going to do in the future, for the level of innovation that we need to bring to the marketplace, for the ability to create success at leadership levels, for the ability to create opportunities for staff to grow. There’s just a whole plethora of reasons why two strong non-profits might consider affiliating. So the motivation, once again, is around what can we do in the marketplace, what can we accelerate doing in the marketplace. So if I do it on my own it may take ten years to make the move that I want to make in the marketplace, but by affiliating I might be able to do it in three years. So if that makes sense. Also by talking about affiliation, not just mergers and acquisitions but anything that the range of collaboration particularly for non-profits as opposed to straight up affiliations, so we’re seeing a tremendous amount of partnering, of trying to develop resources together, a lot of fun stuff like that. But what I would say is we definitely see a move towards strategic affiliation as a result of trying to position for the environment of the future. And on the for-profit side, we have a group that does mergers and acquisitions, due diligence, and either sell-side or buy-side assistance. And you know, they’re seeing what you would expect, a lot of consolidating, somebody trying to buy a whole bunch of medical practices, put them together and create a portfolio. And so there’s always equity capital being chased in the business of becoming larger portfolios of a particular type of provider. But in either case, we do think that it’s a strategic trend and a strategic option that organizations should ask themselves. And we always say ask it when you’re financially strong because that’s when you have the most options, picking the suitor or picking the organization that your best aligned with. And if those require leaving at the door some of the legacy type of issues—who our founders were, what denomination are we—you’ve got to have a pretty high sense of confidence around what your mission is and what you want to accomplish in the marketplace and how an affiliation can help that. And if you can answer those, we’re hopeful that organization is going to get past the legacy type of issues that have typically prevented these strategic affiliations. Cathy, I’m not sure if you want to add to that?

CS: I think the bottom line is, there are advantages in being a local or regional provider that has a really keen knowledge and connection to the community, but at the same time clearly scale is an important advantage, when we think about all of the trends and disruptions that we’ve just spoken about, still can really help us to deal with many of them.

MG: All excellent points, there is so much to consider in terms of partnerships, mergers, and acquisitions, and affiliations as you’ve pointed out. Thank you both, Cathy and Mario, for sharing insights on your Senior Living Trends Report today. I know we only scratched the surface of the information it contains. But this was such an educational session. I really appreciate your time. And to all our listeners, thank you for taking the time to tune in. For more information about CLA Connect, visit And if you’d like to learn more about SmartLinx and our fully integrated suite of workforce management solutions, visit us online at

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