Can household models pay off?

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Ritchie Dickey
Ritchie Dickey

An increasingly popular theme among providers who are struggling with occupancy and looking to replace their outdated facility is that the current market demands privacy and is willing to pay for it. So much so that many organizations are avoiding traditional designs in favor of the household concept.

The core principals behind the household concept are compelling. However, a certain amount of institutional soul searching is necessary before committing to the drastic changes necessary for the household model to work.  

Consumer Driven, Efficient, Costly

In many ways, the concepts behind the household model are similar to the common-sense philosophy behind modern manufacturing techniques, such as the Toyota Production System. With emphasis on satisfying the customer and eliminating waste, the household model is more adaptive and better able to facilitate meaningful connections between staff and residents. Although a traditional commercial kitchen and nursing station create efficiencies, these spaces are impersonal and it is more difficult for the care staff to be attuned to residents in the traditional setting.  

While consumers may demand to have more input and personalized care in a private space, their resources and willingness to pay are limited. The discrepancies in common space and ratio of private to semi-private rooms for household models make total square footage higher. The cost differential is about 15 percent higher in household projects compared to traditional nursing home designs.

Given the cost, providers must expect to realize higher revenues with the same expense structure as compared to the traditional model. It stands to reason that a new facility will attract an improved payor mix; however, the private-pay rent for a facility is largely dictated by the market and, in the case of skilled nursing, the potential Medicare census is limited by a number of factors. Unfortunately, reliable data on the payor mix before and after the transition for recently developed household projects is difficult to find. Anecdotal examples suggest that the same external factors (housing market and reimbursement rates) affect revenue regardless of design.

Making It Work

The long-term success of the household model depends on a radical change in culture. To be financially viable, a household project requires a flexible and educated work force that is both empowered and enabled to make decisions.

 It is possible to operate as efficiently in the household model as long as considerable discipline and training accompany the physical changes. Indeed, in addition to marketing advantages, some providers noted counter intuitive benefits:

  • Lower Food Costs — There is less spoilage when food is prepared as desired and as needed.
  • Lower Supplies Costs — Supplies typically are horded throughout a facility, regardless of the layout; however, the household model allowed for a more formal distribution of supplies.
  • State Survey Results — Some providers noted better survey results with better clinical outcomes after implementation.

Most household projects are associated with nonprofit providers, so mission is almost always a consideration in choosing a household design. The quality-of-life benefits of resident-directed care and the design have an intuitive appeal. However, a lack of fiscal discipline in the design or equipment budgets can lead to capital costs that are much higher than the local competition.  

While the temptation to fully embrace the household design may be irresistible, a phased approach is likely to be more financially feasible. It is important for anyone considering a new project to seek input from his or her accountant and financial adviser in conjunction with design and building professionals at the outset.

Ritchie Dickey is a vice president with Lancaster Pollard in Atlanta. He can be reached at rdickey@lancasterpollard.com.

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