LeadingAge Magazine · March/April 2012 • Volume 02 • Number 02

Successful Turnarounds in Challenging Times

March 13, 2012 | by Jane Sherwin

From right-sizing to mission focus, how CCRCs have weathered today’s economic challenges.

Not-for-profit managers and consultants agree: financial turnarounds are never simply financial, but encompass a full range of challenges, from human resources and organizational structure to mission focus and marketing strategy.

Dan Gray, president of Continuum Development Services, has reviewed 150 continuing care retirement communities’ operations, some in existence for over a century. Though a handful of bankruptcies have gained attention, Gray says CCRCs “are responding heroically to improve their operations and not have to go through bankruptcy.” They’ve managed to face the housing crisis and its effect on both prospective residents and the size of entry fees, along with the banking crisis and severe restrictions on available capital.

[A recent LeadingAge article, "CCRCs Today: How to Respond to Media Inquiries," offers more details on the good health and future of CCRCs. Read it here.]

Through their own stories, three Leading Age members shed light on the essentials of financial stability: financial controls, an awareness of mission, appropriate marketing and pricing, and salary and management structure. Having strengthened these foundations, they have been able to weather the “perfect storm” of economic collapse in 2008.

Kevin Ahmadi took on the job of executive director at Gulf Coast Village, near Fort Myers, FL, in 2004. Gulf Coast Village is a 24-year-old CCRC with 157 independent and 70 assisted living units, along with 85 skilled nursing beds. Gulf Coast’s sponsor, Volunteers of America, hired Ahmadi to help address a significant negative operating margin. Ahmadi quickly turned to questions of over-staffing.

“I asked, ‘Why do we have all these people, and what are they doing?’” says Ahmadi. “We had too many layers, and they were getting in the way. We established a single executive director for health care services, and then it was easier to work with that leadership on cost savings and customer satisfaction. When I arrived we had separate therapists for each different care line. Now we can float residents throughout the continuum of services. It’s much easier to deliver services, and, equally as important, to capture reimbursement accurately.”

Gulf Coast also eliminated the positions of marketing director, associate executive director, and chief financial officer, along with two human resources positions. These changes, along with renegotiated insurances, helped it save $395,000. They outsourced their executive financial work to Greystone Management, which also provided marketing support, while retaining some staff for billing and reporting. They use an outside service for benefits and payroll. By 2005 Gulf Coast had a six percent positive margin, which reached 18 percent in 2010.

VOA also led changes to board membership, moving to strong local leaders and business people who could help effect change.

“New board members face a huge learning curve,” says Ahmadi. “It takes at least one year before things start to click and they fully understand the challenges. My hat is off to VOA, and to our directors. We’ve been able to make significant cost savings and improve our margins without taking away one service from residents. We didn’t do anything that any normal business shouldn’t do. We had the strength we needed for the economic downturn in 2008.”

While the Village’s challenges had far more to do with expenditures than with lack of revenue, they did find several ways to increase revenue. For example, Ahmadi says, “We were able to continue to grow health care services to meet community needs, to offset our vulnerability in entrance fees. Most of our margin improvement in 2004-2008 came from health care.”

The Village also shifted its pricing to meet economic conditions. “In independent living we offered several contracts: 80, 50, and 0 percent refundable, plus rental units. Options like these gave our target market the ability to afford our services—and marketing was able to help consumers evaluate the real worth of their own houses.”

With its finances intact, the Village has been able to invest $8 million of its own operating funds to improve the aesthetic appeal of its property over the past seven years. “Every dime was ours. We do have some current debt, but are in a position today to be attractive for refinancing.”

When he joined National Lutheran Communities & Services in 2009, CEO Larry Bradshaw immediately saw the need for a tightening of expenditures, particularly at NLCS’ flagship community, The Village at Rockville. “We shouldn’t have been losing money, and we had no debt,” says Bradshaw, “but we had a $4 million deficit. Getting rid of that wasn’t magic, but just paying attention.”

NLCS, located in Virginia and Maryland, has four communities in place or in development, ranging from independent and assisted living, including rental units, to a planned multigenerational residential and mixed-use project. The first National Lutheran community, called The National Lutheran Home, was established in 1890 in Washington, DC.

Bradshaw and the board reduced overtime from 20 percent to one percent. Working with human resources, they created a salary structure, and found that they were 40 percent over market levels. “We didn’t cut, we planned. Most changes were through attrition, and through hiring with an appropriate salary structure. Our median [salary] is still five percent higher than nursing salaries in the region, and we’ve been able to restart our 401(k)s with a contribution of six percent.”

“We also implemented a management structure where employees felt responsible and empowered, and accountable for their budgets. Today we offer merit raises that help to enhance performance.” Bradshaw also emphasizes communication. “It’s a key component, helping our employees understand what we are trying to do.”

National Lutheran also improved business operations, such as billing and documentation. “We focused on our documentation procedures, which resulted in higher Medicare reimbursement and the increased revenues added up to nearly $4 million.”

National Lutheran also began to take a close look at its marketing, from price and rate structures to the very name of the organization. “We received some significant pushback,” says Courtney Malengo, director of public relations, “but the parent name, National Lutheran Home for the Aged, was not helpful for market response—among other things, it didn’t reflect the richness of services we now offer. We also changed our Rockville community’s name from The National Lutheran Home & Village at Rockville to The Village at Rockville, A National Lutheran Community. We felt that the new name helped us better articulate how we are enhancing services to seniors and are offering more than just extended long-term care.”

With a new marketing team in place at The Village at Orchard Ridge, Bradshaw and his team also made changes to pricing. “We became more flexible by removing a purchasing barrier, a 10 percent down payment. In 2011 we had 101 gross sales—unbelievable in this economy.”

Sunnyside Communities, a Presbyterian ministry since 1912, with its corporate office in Harrisonburg, VA, along with three Virginia campuses, offers a full spectrum of independent, assisted living and health care services.

When he arrived on the Harrisonburg campus in 2008, Executive Director John Dwyer tackled the familiar challenges of cost-cutting, improved financial reporting, and operational restructuring. An operations review in 2009 for the entire corporation was also of benefit in resolving these issues.

“We also faced the challenge of ‘service creep,’” says Dwyer. “We were running a full-time satellite clinic in our independent living apartment building, separate and apart from our main clinic, that cost in excess of $100,000 a year. We were giving away foot care for free to our independent living population to the tune of $120,000 a year. We needed to focus on delivering on our mission and our contract, and if we did that and did it well, then happiness would follow. Sometimes you have to say ‘no’ and always strive to serve all residents equally.”

“Some residents pushed back, but many agreed that it was time to stop using their monthly fees to pay for special services. We began to draw some boundaries—we cut the satellite clinic to 10 hours a week, set up a fee schedule for podiatry—and gradually started to regain our footing. We would go to the mat for our residents, but they also needed to hear us say no. We are not here for a popularity contest.”

To ease this process, Dwyer says he gave each department director a copy of the residency agreement for review: “Several of them were amazed at what the contract did not include. They expected to find stuff that in fact we have no legal obligation to provide.”

Sunnyside, like National Lutheran, also took a close look at pricing. In 2008, Dwyer found that Sunnyside’s entrance fees varied widely rather than being geared to square footage.

“Ranch-style cottages and bigger houses and villas had much smaller monthly fees than most of our apartments, despite their size. There hadn’t seemed to be an urgency to change this since we were at 98 percent capacity in our village community. But we determined we could expect to increase income from updated entrance and monthly fees, pegged to square footage, by approximately $1 million a year over the next 10 years and still be within range of the local market pricing—this definitely helped us begin to right the financial ship and put us on course to steadily improve our bottom line year over year.”

Strategic planning, as always, remains an important tool in financial stability, as the CCRC Task Force pointed out in its 2010 report, Today’s Continuing Care Retirement Community. CCRCs that both follow and update their strategic plans are more likely to experience long-term viability.

“We had a 2007 strategic plan,” says Sunnyside’s Dwyer, “but we recognized it needed updating only four years later, and we shared it with staff as well as senior leadership. We wanted to make sure they knew all about it. We also changed the mission statement—in place since 1890. We didn’t want to lose our heritage, but we did want a statement reflecting the times—and our array of services.”

Having stabilized their financial situation, CCRCs are turning to the future and what the market is beginning to demand. Sunnyside has begun to explore in-home care services. In its skilled nursing area it has launched programs for sensory stimulation, to improve quality of life for patients, including those with dementia.

Working with VOA, Gulf Coast Village is continuing to explore new strategies for comprehensive care, including aging in place. “We are the first and only CCRC in Florida to deliver a comprehensive continuing care contract in home,” says Ahmadi. “Our work with LeadingAge and the state legislature made this possible.”

Finally, Gray suggests that CCRCs consider PACE as a concept that is currently experiencing record growth. These joint ventures between providers, state, and federal government “give a nonprofit CCRC the ability to grow, enhance and fulfill its mission of providing quality care to seniors in need.”