Installment #1: An Overview
It’s always the right time to plan for your organization’s future. Just like planning for your own retirement, the strategic actions you take today will ensure your organization’s success tomorrow, no matter where you are in your campus life cycle.
The average age of plant ratio measures the relative age of campuses — the older the campus, the higher the number. As the following graphic indicates, the average age of plant ratio for CCRCs has increased 25 percent in the past five years, reflecting a trend of limited reinvestment and new construction.
Graphic: Average Age of Plant
This is primarily due to a combination of limited access to capital and uncertainty from the real estate downturn. In other words, we know you wanted to invest; you just couldn’t!
Well, that was then, and this is now: A tremendous opportunity exists today for
not-for-profit senior living providers in the current capital markets. So what does an aging physical plant mean to you, and what should you do?
First, consider the risk of doing nothing. Operating with an outdated care and business model is a threat to your core business. For example:
- Independent living and assisted living units that do not satisfy current market demands and result in a declining census over time.
- Skilled nursing facilities with few private rooms and inadequate therapy facilities that result in a less favorable payor mix.
- Together, these may force you into a reactive mode, making operational model sacrifices to meet lower revenues.
With new competition, and less desirable units, you risk becoming the facility of last resort in your market. In short, your competitors will eat you for lunch.
So what should you do to protect and enhance your position in your market? It starts with a disciplined strategic process:
• Who’s driving your bus? In a consensus-driven organization, spending time creating excellent ideas but getting nowhere is a real risk. It’s critical to identify who will drive the execution of your process.
• Put first things first. Start with understanding you, your market and your organization’s financial constraints. In other words, don’t start with design.
• Okay, so you don’t have enough financial capacity to complete your project. Don’t give up. Consider phasing your project goals to align future revenue opportunities with your financing capacity.
- Creates opportunities to meet new market expectations, such as introducing specialized care services and dedicating wings tailored to your market’s needs.
- Enhances your existing facilities through updates such as improved curb appeal and improved living environment and taking advantage of operational efficiency opportunities.
- Results in the potential to improve financial performance through new revenue potential, including increased occupancy, improved payor mix, and an increased price point.
Taken together, the critical benefit is investing in a sustainable business model to take you through the next life cycle of your organization.
In our next installment, we have great examples of peer organizations that engaged in a focused strategic process and are now executing plans that are tailored to who they are, addressing their market needs, and are within their financial capacity.