Assisted living facing several challenges
At its core, assisted living, like the rest of private pay seniors housing, is a consumer product. Its livelihood depends on consistent positive experiences with the “customer” whether it be residents, their families, hospitals or insurance providers. Ostensibly, customer satisfaction is positive. According to a April 2012 study released by the Center for Retirement Research at Boston College entitled “Cost and Concerns among Residents in Seniors Housing and Care Communities: Evidence from the Residents Financial Survey” that polled over 2,600 residents across 158 communities, the majority of respondents (59%) either “strongly agree” or “agree” to the statement “the community offers me good value for my money.” However, upon closer investigation, only 15% “strongly agree,” whereas 41% either are “neutral”, “disagree” or “strongly disagree." This implies that for every customer that is enthusiastic about the product, there are over 2.5 customers that harbor reservations about the value proposition.
Measuring customer enthusiasm, not just customer satisfaction, is becoming increasingly important to leading consumer brands. SAT Metrix created the “net promoter score” which subtracts the percentage of consumers that feel neutral or worse about a product with those that are highly satisfied. According to their 2012 benchmarks, leading brands, such as Apple, Amazon and Trader Joe's, have approximately a 75% net promoter score. In the lodging industry, the net promoter score ranges from -9% to 66% (Marriott) with an average of 28%. In contrast, applying this methodology to the data from the Boston College study, the net promoter score for Seniors Housing is -25%.
Clearly, there is an opportunity for communities to provide outstanding services to residents and their families in new and different ways, which is especially true as conditions and expectations change in light of a preference to age in place.
Aside from concerns about customer enthusiasm, assisted living appears to be in relatively good shape. It has weathered the storm of the housing crisis and recession quite well. According to NIC MAP, current occupancy stands at approximately 88.6%, which is down 200 bps from Q3 2006 but up 120 bps from Q1 2010, and rent growth continues to be positive. Investors continue to be attracted to the sector and place a high valuation on cash flows from assisted living communities, whether evidenced by historically low capitalization rates among AL properties or high cash flow multiples among publicly traded health care REITs.
However, upon deeper investigation, the value proposition may be decreasing. Anecdotal reports from operators, including at last month's ALFA conference, suggest that resident acuity has risen considerably over the last five to ten years as residents have preferred to have care delivered to them and communities have generally preferred to keep residents for as long as possible. Staffing ratios, training levels and care systems may not have adequately changed in suit, a concern for both consumers and regulators. Also, the cost of the product is expensive and increasing at the same time when affordability is becoming more important for many current and prospective residents and their families.
Next week, this column will look more closely at the implications of aging in place within assisted living. These implications include (a) the increased prevalence of older, frailer and demented residents, (b) customer needs for more than just housing & care, (c) increased staffing and training needs, (d) greater competition from historically lower and higher care settings and (e) the importance of having a seat at the table for healthcare reform, among others.
Ryan Frederick is the founder and principal of Point Forward Solutions.