For leaders in senior care, it’s true that recent market data suggests some silver linings for the state of the industry — occupancy rates are climbing and wage growth is stabilizing a bit — but these incremental improvements don’t reverse the deep damage done during the pandemic. Much of the industry remains in financial distress. Public health emergency funds have dried up, even as operating costs have surged in an inflation-fueled economy. Debt loads remain high, contributing to rising bankruptcy rates. Medicare Advantage plan enrollment has crossed the 50% mark in many regions, locking in per-patient-day revenue erosion for the foreseeable future. It’s a convergence of external forces that leaves many senior care operators struggling to stay afloat. In a distressed environment, our advice to clients remains constant: take decisive action on what you can control. You can’t reverse the market trends that are disrupting the senior care industry, but you can choose how your organization will respond. Will you double down on current operating models or take a blank-sheet approach to restructuring? Will you act on new insights from market data or rely on legacy reporting? Will you pursue longer-term success or focus solely on the next revenue cycle?
There isn’t a one-size-fits-all plan for remodeling financial and operational strategies. A for-profit nursing home scrambling to survive from one 13-week cashflow to the next will need a different action plan than a fully funded nonprofit just starting to feel the pinch of higher operating costs. Yet some fundamentals remain the same. Time and again, we’ve seen that proactive change is the common denominator behind the best outcomes for protecting senior care operators from distress and preparing for growth.
Whether you’re trying to preserve, recover, or create value, the following fundamentals will help your senior care organization face transformation head-on — and emerge positioned for longer-term success.
Using baselines and benchmarks
In an industry with razor-thin operating margins, it’s tempting to focus on baseline metrics that might help you anticipate next month’s cashflow. The result, however, is akin to driving forward while staring in the rear-view mirror, where objects may be distorted by poor data controls or fragmented reporting systems. While baseline performance shows you where you’ve been, external benchmarks reveal the landscape ahead and your position on the road.
Benchmarks put your baseline metrics into actionable context, revealing how your organization is performing against current industry averages and how you compare to national and regional competitors. They can also signal opportunities or warning signs ahead as you begin to map out your next move. For example, is your current pricing in line with market averages, or do you need to adjust? Are your quality metrics capturing the value drivers that mean the most to senior care residents? How does your current capacity utilization stack up against regional and national trends?
To help answer these questions, senior care operators often engage an objective third party to analyze data across the organization, uncovering critical insights to guide difficult operating decisions, manage risk, improve patient care, and stabilize costs. A set of external eyes can identify root-cause issues that may have been hindering the business since long before COVID-19 and recommend operational adjustments to address those adverse outcomes moving forward. They can also distill the key performance indicators that will have the greatest impact on your go-forward strategy —a strategy that can be firmly rooted in both baselines and benchmarks.
Mapping a sustainable transformation
Armed with the right metrics and market data, senior care operators can begin charting a strategic course that aligns with market realities and positions them for success beyond the next revenue cycle. There is no one-size-fits-all approach to transformation. Transition activities can range from an operational reset, affiliation, merger/divestiture, acquisition, joint venture, or — if there’s no other viable option — closure. Organizations in dire financial distress will need to achieve rapid stabilization, while more proactive organizations can start moving forward with strategic planning and development.
Regardless of where they start the journey, every organization seeking to transform will run up against common industry pain points. For example, ongoing staffing challenges have hindered both existing operations and growth potential and aren’t likely to abate anytime soon. According to the Urban Institute, nationally, the workforce population ratio is expected to decrease by more than 50% even as growth in the senior-aged population more than doubles through 2040. During the planning process, market studies can drill down to determine the ratio of the workforce population to the people 80 and over to understand the balance of caregivers to care-seekers in any given market. As workforce shortages intensify and the skilled nursing talent crisis deepens — potentially worsened by minimum staffing mandates and higher recruiting fees — senior care operators need business plans that anticipate and respond to these market shifts.
Once a strategy is mapped, its success often relies upon effective change management. For organizations coming out of financial distress, one of the most challenging shifts can be learning to operate effectively within new parameters. Long-term growth requires different operational muscles and mindsets than short-term survival. Organizations that don’t embed accountability and disciplined measures into their daily operations can quickly slide back into financial distress.
Accelerating progress with financial restructuring
From cashflow improvements to divesting assets and exploring new revenue sources, financial restructuring can help senior care organizations achieve the best possible outcomes. There will always be external factors at play — for example, the current high-interest-rate environment makes debt refinancing problematic (if not implausible).
Our advice continues to hold true: focus on what you can control. Consider this, suppliers in your ecosystem are deeply affected by the industry’s distress, which jeopardizes their own financial viability, rates, contract terms, over/under penalties, etc. You can respond to this stress in the system by renegotiating with suppliers, exploring payment plans, and assessing the ripple effect of any upcoming liquidations. Know the financial goals for your turnaround plan and identify those levers that can help drive sustainable growth, even if your near-term progress is incremental.
Many senior care organizations accelerate their financial restructuring efforts by engaging external expertise. Advantages of this approach include the ability to keep internal resources focused on daily operations and quality of care, while external resources assess capital structure, viability, liquidation options, and more. As cash flow forecasting becomes more disciplined and financial projections become more reliable, operators gain new confidence in their strategic plan and their ability to track its progression.
Maximizing your recovery
Transformation can be daunting, but you don’t have to pursue it alone. Our restructuring experts can quickly assess your situation, stabilize your operations, and develop a future-forward strategy designed for your specific needs.
