Reinventing Care: Assisted Living in New York City

4. Markets, Margin, and Mission

83 4 Markets, Margin, and Mission The great American dream of serving humanity while making large profits flourished as a driving force behind the development of assisted living in the 1990s. Yet even missionaries unconcerned about profits need a margin of income greater than expenses. “No margin, no mission,” as they say in the nonprofit sector. This chapter describes how developers try to achieve both. It looks inside the killer application described in the previous chapter. Conceiving of assisted living either as a profitable large business or a missionary social reform movement required a fertile imagination prior to the 1990s. The boarding home sector seemed to have little earning potential and a bad reputation. Boarding homes made headlines when fires killed elderly residents. The operators often made a marginal living . Some were widows who rented out rooms. One provider in New Jersey was a poultry farmer whose chickens stopped laying eggs when a drag strip was built next door. He converted the chicken coop to rooms for discharged psychiatric patients and elderly persons covered by Supplemental Security Income (SSI). Some were kindhearted and well meaning, others callous and crooked. At best, residential care for the frail elderly was a small-time mom-and-pop business. Envisioning a service industry that would combine the characteristics of the hotel and fastfood chain franchises of the 1950s, the hospital and nursing home chains of the 1960s and the upper-income retirement developments of the 1970s took imagination. Envisioning that service industry as part of a social movement bent on radically altering the existing health system took an even more fertile imagination. In this chapter I describe how assisted living works as a business. It is divided into two sections. The first provides an overview of the basic strategy of the business. The second section examines the mission of assisted living. 84 Reinventing Care Markets and Margin Assisted living is a competitive business. Competition produces winners and losers. The winners in the assisted living business pick the right locations; get adequate, affordable financing; and effectively manage the myriad of day-to-day details involved in operations. These achievements are easy things to say, but harder to accomplish, particularly in an urban environment. Picking the Right Locations Location, location, location, as the cliché goes, are the keys to success in sales. Developers do market feasibility studies to pick the right sites. They look for areas with a growing, affluent population. Many will target areas not with affluent elderly households but with a concentration of affluent forty-five-to-sixty-five-year-olds. They are looking for successful two-career professional families likely to assume responsibility for an aging parent soon. National developers start by scanning demographics for likely regional targets. Some local developers, more familiar with an area, will scan real estate ads and prowl promising neighborhoods and then put together demographic statistics almost as an afterthought to give a degree of comfort to skeptical and often remote potential financial backers. If the numbers or the developers’ instincts suggest promise, then the developers, or the consulting firms they hire to assist them, look at potential competitors. They look at existing nursing homes and adult homes as well as other assisted living facilities. They may talk to hospital discharge planers and home health agencies about their referral patterns and placement problems. Newly opened facilities absorb more local demand as they fill up. This will affect other facilities that enter the market, since they face deficit financing until most of their units are rented. They either meet projections during the “fill-up” stage or face absorbing unanticipated deficits. Mistakes will jeopardize financing of future projects; too many mistakes will force a developer into bankruptcy. The nature of the business is such that filled facilities don’t compete headto -head on a day-to-day basis. The average length of stay of residents may be three years or more, so a one-hundred unit facility will generate on the average only two or three openings a month. Unlike families with elderly relatives on waiting lists for retirement communities, families looking for an assisted living placement typically cannot wait. The op- Markets, Margin, and Mission 85 erator of a facility filled to capacity is often willing to refer prospective clients to other facilities on the assumption that the favor will be returned in the future. A developer will try to do a thorough job of sizing up...