Rising Costs Keep Operators Up at Night

by Jeff Shaw

LOS ANGELES — Seniors housing has been an ever-changing industry since the COVID-19 pandemic began in 2020.

“I look back a few years ago and we were seeing curveballs coming at us I never thought we would be pitched,” said David Eskenazy, CEO, Cogir Management USA. “Now the smoke is clearing a little bit and we can look inside the organizations and see how we can run our businesses in this new environment. I think we’re going to get used to what this new environment is going to look like.”

That new environment was caused by disruptions. First, it was the pandemic but, as John Cochrane, president and CEO of HumanGood points out, the changes didn’t stop there.

“We’re still sorting through all the disruptions,” he said. “We had enormous disruptions in labor, consumer sentiment, and capital, inflationary and margin compression pressures.”

The comments were made during the “Power Panel: CEOs Discuss the State of the Industry” discussion at France Media’s InterFace Seniors Housing West conference, held Feb. 2 at the Omni Los Angeles.

Added costs, added pressure

Panelist Justin Dickinson, president of Anthology Senior Living, noted that the rate of inflation is slowing, but that hasn’t tempered some cost hikes.

“There’s been a 5.25 percent increase in labor costs, and about 60 percent of our expenses are labor,” he said. “Food costs went up 20 percent in 2022 and that’s not stopping this year.”

Naturally, these added costs spill over to the consumer, which is partially to blame for the consumer sentiment disruption.

“Residents are very vocal about the rate increase,” said Dickinson. “I’ll meet with them and they’ll say, ‘What are you doing? You’re pushing rates 10, 12, 13, 14, 15 percent. You’re just putting that money in your pocket.’ I look back in their eyes and say, ‘I’m definitively making less money now than I was making three years ago.’”

As a result of these increases, Isaac Scott, principal at Anthem Memory Care, said affordability is one of the biggest issues in seniors housing right now.

“We pushed rents big going into this year,” he said. “When you look at the impact of affordability, we’re facing a lot of hard questions with our staff and families because of that jump. It hasn’t separated us and made our margins jump back to where they were at in 2019.”

Scott added that these rate hikes could shorten stays, in addition to creating another reason for people to remain at home altogether.

An obvious solution, Eskenazy said, would be to tighten the budget and reduce costs. But how? And where?

“I don’t know how to deflate our costs,” he said. “I haven’t figured that out yet.”

The solution, he said, then becomes ensuring the market can sustain the current rates, even if you’ve hit a ceiling.

“The only thing we can do is hope we’re in a good enough demographic market to charge what we need to charge,” he said. “And that’s sad for a middle market. I don’t quite know how to solve that. It’s hard enough when you’re in a good demographic market.”

Do more with less

Not only can technology allow seniors housing operators to reach a wider audience by offering virtual services, but it can also ease some of the staffing and cost issues that have plagued the industry.

For example, Dickinson noted his company uses video monitoring, which lowers insurance costs. He has also tried robotic food servers, but noted they don’t work well in a space that isn’t purpose built.

Where robots do work well, said Scott, is in fall management. It’s the No. 1 risk for many seniors housing operators.

“We are exploring any type of fall management technology that allows us to be better in that spot, whether better means that we’re smarter or that we actually reduce falls, so that’s where we’re putting a lot of time, effort and energy,” he said.

Though technology can’t fully replace physical staff in such a hands-on industry, many of its uses can provide an extra set of eyes, ears and, in some cases, hands to help with the current labor pains.

Cochrane noted there’s less volatility in the labor market than there was a year ago but, in many instances, stiff competition for staff has driven wages even higher.

“We have a property in Boise and a year ago we were competing for frontline workers with McDonald’s,” he said. “McDonald’s is a mile away. Their starting wage went from $11 to $14 to $18 an hour in a six-month period of time. I’ve never seen that in 35 years in business.”

Even today, Cochrane noted he has communities in the Bay Area where he’s paying temporary nurse aides $25 an hour.

“If we think labor’s going back to where it was five years ago, we’re utterly mistaken,” he said. “It is a new operating environment. We’re not going back to where we were five years ago.”

Rather than shy away from these hard facts, Dickinson believes the industry needs to embrace the fact that it is a for-profit endeavor.

“Care should be a profit center,” he said. “We shouldn’t be bashful; it’s what we do. If we deliver great care, why would we not feel like we can charge for that? Apple never apologizes for what it can charge. They just say, ‘not everyone can afford it, I get it.’”

These higher costs may have taken a bite out of operators’ bottom lines, but those who have survived are optimistic that a bright future is ahead. After all, the worst most surely has to be behind them.

“I think it’s going to be one of the best and most transformational years in the history of our company,” said Cochrane. “I feel more optimistic than I’ve felt in the last 10 years in the future of our business. I think we’ve survived the gauntlet we’ve been running for the past two years and I think we know what needs to be done and we’ve learned some skills to make those changes.”

— Nellie Day

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