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Why Senior Living Operators Are Warming Up to Moving Away from Private-Pay

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As the senior living industry grapples with high expenses and depressed margins, some are embracing a once-unthinkable idea: Having taxpayers foot the bill for some or all of assisted living and memory care costs.

While the industry has long resisted the allure of public dollars to help pay for operations, Medicare or Medicaid reimbursements could potentially pave an affordable – even profitable – path to serving the middle market.

Senior living operators already take dollars from state or federal programs, but the industry at large still does not see them as a big revenue source. Critics of the idea have long said they worry about government oversight, and often point to the skilled nursing industry’s regulatory woes as an indication of what will happen to the senior living industry.

But, “there’s already government regulation” of the senior living industry, at least in piecemeal, according to Embassy Health Care Services Chief Operating Officer Prentice Thompson, who cited the need for licensing to operator assisted living and memory care communities. And, for senior living operators with a footprint in skilled nursing — like Embassy — dealing with federal and local governments is just part of the process, and they think senior living operators can mitigate those challenges.

The industry has long prided itself on not using government dollars, but in 2023 the industry’s long-running challenges are making doing so a reality, according to Solera Senior Living Founder and CEO Adam Kaplan.

“Up until the pandemic, senior living tried to do everything that it could to stay out of the limelight,” Kaplan said. “It’s always been a big part of our narrative – that we’re private pay.”

It’s still early days in the debate to make Medicare/Medicaid reimbursements a reality in senior living, but operators like Embassy Health Care Services, Innovation Senior Living and Solera Senior Living are advancing the rhetoric and pushing for more and better access to funds that could take some of the cost burden off of operators and help make senior living more affordable for residents in the end.

‘It’s better for seniors’

At the core of Kaplan’s argument is that operators embracing reimbursements the way skilled nursing providers are not only good for operators, but also the older adults who reside in their communities — and ultimately, state and federal governments.

Kaplan champions the idea of Medicare reimbursements for assisted living for a number of reasons, the most prominent being that “a lot of the services we provide in senior living are already being reimbursed in other places,” Kaplan said. That includes care coordination, for example.

He noted states like Illinois, “where the state requires that medications be administered by an LPN.”

“So, we’re paying $40 per hour to have nurses pass meds – it’s extremely costly and medical techs may be more effective,” he said.

Kaplan believes that, if senior living operators already care for older adults in a cost-efficient way, why shouldn’t they be compensated for that work?

“It’s better for our federal government, which is spending 18.5% of our gross domestic product (GDP) on health care,” he said. “It’s better for seniors.” 

While in the past older adults or their families might have chosen a nursing home because they didn’t understand their options, senior living in 2023 is now a much bigger part of the conversation. That has helped to push up acuity levels in senior living over time — another reason senior living is a suitable choice for receiving federal reimbursements.

Value-based care is yet another trend that is helping to prime the pump for more acceptance of new payment sources in senior living. As more operators look for ways to provide new services without an added upfront cost, some are finding success with plans that draw funds from Medicare Advantage.

One big example of this trend at work lies with Perennial Advantage, a health plan that prioritizes preventive medicine and chronic care management.

Embassy Health Care Services is an owner/operator that started in rehabilitation and skilled nursing but has expanded into IL and AL.

Thompson echoed Kaplan’s sentiment, and he praised the recently proposed Ohio budget that would include new spending in assisted living communities with the specific goal of delaying a move to the much costlier skilled nursing level of care.

Thompson and Embassy Health Care will soon open the doors at its first community in Virginia – a rehabilitated senior living community that will charge between $4,000 and $6,000 per month.

“There’s definitely going to be a need for some Medicaid reimbursement as you look at how many people in the population can afford to pay $7,000-$8,000 per month,” Thompson said.

For a company with roots higher up the acuity chain, the move to tap into Medicare/Medicaid is an obvious one, starting with memory care.

“Especially with the costs of labor going up,” Thompson said. “Pre-covid, we could hire a dementia specialized provider for about 11 bucks an hour. Now, we’re looking at about $18 an hour for someone like that.”

‘The whole industry suffers’

As the cost of caring for senior living residents rises with the cost of other goods and services, many operators have responded by raising rates. While that is helping to keep operations running in the short-term, operators also can’t raise rates forever and expect to attract a wide swath of residents.

At the same time, the senior living industry is facing a demand wave in the future in the form of the millions of older adults in the “forgotten middle” demographic.

When residents who can’t afford senior living and don’t qualify for assistance start aging, they “stay home,” according to Innovation Senior Living Founder and CEO Pilar Carvajal.

“The industry has done a poor job of creating a middle market option which has in turn stigmatized the industry,” she told SHN.

She added: “Our offerings have all been luxury,” Carvajal said. “So then that middle-market American thinks it’s not for them and the whole industry suffers.”

Innovation Senior Living operates a portfolio of seven low- or middle-income senior living communities in Florida with an eighth community entering the fold at the end of June.

To Carvajal, the industry is ignoring a wide swath of residents that otherwise want and need senior living, but she stopped short of calling for full federal reimbursements for senior living.

Carvajal noted that she has “successfully operated affordable and middle market assisted living communities without memory care for years.” And in her mind, operators just need better access to certain programs that could supplement their operational budgets.

For example, Illinois’ supportive living program, which enables operators to offer affordable assisted living through “project-based Medicaid waivers,” is not seen elsewhere in the country.

“Expanding this idea would be very interesting,” she added.

She also believes that Medicaid should be an entitlement in assisted living, “just like it is in nursing homes.”

“Why do we need to fight so hard to get our residents a subsidy to pay for their services in a more cost effective and less restrictive environment?” she said. “Our Medicaid reimbursements should be much higher to lure other providers to care for these individuals.”

Other ideas Carvajal supports include considering Medicare for middle-income seniors; creating special financing for those wanting to get into the middle market; and tax credits for middle-market communities, just like affordable housing.

She also believes the industry must get more comfortable with adult day — places where older adults can get a meal or participate in activities before going home at the end of the day — as a way to meet the middle market.

“I am also looking to develop a service-enriched housing model where IL residents can live and age in place,” Carvajal said. “Adult daycare would be an offering in these buildings and a central hub for services, much like PACE but without the regulations around it.”

Carvajal’s mission extends beyond the success of Innovation Senior Living, and she is willing to help move the collective ball forward with the rest of the industry.

“I want to partner with others to solve this societal problem,” she said.

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