A convergence of market pressures is bearing down on the nursing home industry. Changing demographics, old infrastructure, new competition, rising labor costs and a plethora of never-ending reimbursement pressures have all battered what was once seen as a business with infinite demand.
In the midst of those troubles, however, lies a solution—one built on turning something old into something new.
First, the bad news. Nursing homes have seen demand plummet, and occupancy rates are at all-time lows. Amazon’s recent guarantee of a $15 minimum wage is sure to apply even more pressure to the business model, which, with its high acuity patients and round-the-clock care, already faces high labor costs.
Then there’s the added competition. At one time 30 years ago, nine out of every 10 Medicaid dollars for long-term care went to nursing homes. Now those same homes only get four of those dollars, with the rest going to home- and community-based services, including assisted living facilities.
Now the good news: For struggling nursing homes there is a viable path forward. A way to turn negative margins into something more positive.
Older homes facing an uncertain future can and should entertain the idea of rehabbing and repurposing their buildings in order to convert to assisted living, a style of care that allows for much lower labor costs.
These rehabs are far from easy. Any renovation, whether on your own home or in a 10-story building that’s as old as the Eisenhower administration, is bound to uncover problems hidden under layers of paint and plaster. But given that nearly 300 nursing homes now close their doors every year, the risk would seem to be worth the reward.
For years, assisted living facilities have eaten into the market share previously occupied by nursing homes. They’ve also created a new market opportunity. Newly released data shows that assisted living growth continues to outpace absorption, as it has for the past three years. That means there’s more units than there are people to fill them.
The response from assisted living facilities to this competition for customers has been to double down on pricey amenities. Swimming pools, spas and chandeliers in dining rooms are now common features. The only problem with this arms race is that it adds to the bottom line. And the opulence alienates potential customers, especially the demographic that came up during the frugal post-Depression era.
For the kids and grandparents touring facilities, the amenities may impress. But it’s clear that for the people who actually live in those facilities, their needs are much more straightforward. In a survey of potential customers, seniors ranked affordability as their top priority. Almost all consumers showed a strong preference for comfort over elegance. And nearly 80% of respondents said that dining quality was a “must-have,” compared to just 41% for modern decor.
Because of these factors, old senior care facilities around the country are getting a new lease on life. The Tekoa Care Center in Tekoa, WA, for example, is in the midst of its own conversion. Like other homes seeking to make the switch to assisted living, the 65-bed facility is paying for some structural changes — such as getting up to code for fire safety — while also making changes to how its new customers will interact. Since assisted living facilities feel more like apartments than hospitals, conversions often come with an expansion in the amount of common spaces available to residents.
The market for modest assisted living is so strong that it’s even resulted in the repurposing of buildings that were never used as nursing homes. The conversion of a 50-year-old hotel in Aurora, Ohio, into the Atrium at Anna Maria is just one example of many around the country. Completed a few years ago, the facility now has traditional apartments and assisted living memory care units.
Whether the makeovers are modest or extravagant, the result is the same. Instead of having to contend with rising land and construction costs for a new build, nursing homes can leverage their biggest asset—an existing structure—into a brighter future.
Mere survival isn’t the only benefit, either. Any change that makes it possible for a nursing home to hang on for another 10 to 15 years also increases the likelihood that the facility will benefit from the long-awaited silver wave of 74 million baby boomers in search of long-term care.
Those new customers may look very different than their parents. They may even care as much about the spa and chandeliers as they do the daily special. Until that day, however, there’s one clear path forward for struggling nursing homes. It may not be lined with gold, but for the owners and operators of those homes it may well lead to some.