What Skilled Nursing Could Learn from the Manufacturing Sector

As skilled nursing occupancy continues to notch record low after record low, strategies to capitalize on the shrinking pool of residents remain top concerns for operators and investors.

And at least one analyst says providers should look to the kind of operational improvements that have helped keep afloat another struggling industry: manufacturing.

“It’s your labor cost that’s your biggest component of your cost,” Mario McKenzie, a partner in the Charlotte, N.C. office of consulting firm CliftonLarsonAllen, told Skilled Nursing News. “So how are you going to reduce your labor? The only way you’re going to do that is revisit how you do things.”

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For instance, McKenzie gave the example of a long-term care client that saw a slight drop in census at its nursing wing. While other industries, such the restaurant and hospitality space, can respond to decreased demand by adjusting staffing levels down, that isn’t an option in the long-term care world.

“It’s not like they can go in and tell a CNA to go home that day,” he said.

But some kind of dynamic staffing strategy may be necessary to fight the industry headwinds, with the most recent occupancy metrics from the National Investment Centers for Seniors Housing & Care (NIC) showing that U.S. SNFs are just 81.6% full, on average.

“If you go back to the old manufacturing days, when they really started bringing in performance-improvement management techniques around efficiencies, you don’t quite see that level of zeal in the nursing industry, or the health care industry,” McKenzie said.

Providers could look toward more flexible staffing strategies that focus on ways humans and technology can interact, according to a recent report on the senior living and care industry from CliftonLarsonAllen.

“Organizations will need to determine how to best leverage their human resources for high-touch, high-impact consumer interactions as they stretch their service capacity through artificial intelligence and robots,” the advisory firm noted in its report. “Operators can also benefit by recognizing the resource potential of older adults interested in remaining part of the workforce.”

Developing more efficient staffing models could play a vital role in SNFs’ ongoing survival, as McKenzie predicted that occupancy would have to hit the low 90% range in order for the current model to be sustainable — and the other ways that operators could fight the ongoing negative trends are no less certain.

In addition, Bill Kauffman, senior principal at NIC, cautioned that there’s no hard-and-fast occupancy threshold at which the industry will magically recover.

“I think that it is a bit more nuanced, and would depend on the operator and their particular business model — e.g., the market they operate in, the expense structure of the operations, the acuity level they serve, their reimbursement rates, etc.,” Kauffman told SNN in an e-mail.

To that point, McKenzie noted that more private pay residents would also help ease the burdens on nursing homes, but Medicare and Medicaid are likely to maintain their dominance under the current health care model.

“The one thing we do know is that the reimbursement levels for those categories will continue to drop,” he said. “How long and how deep, it’s unknown, but clearly there is some level of erosion around the government payer side.”

Joining an accountable care organization — and specifically volunteering to take on additional risk in exchange for potentially greater cost-sharing upsides — could also work, but navigating the contracts and shouldering potential losses can also put a significant strain on providers, particularly the smaller ones.

And then there’s also the idea of adapting to the flexible options that the growing ranks of aging baby boomers increasingly demand. In its report, CliftonLarsonAllen pointed out the trend of some nursing homes toward a more “residential” care model after losing ground to assisted living facilities.

“At the same time, nursing operators are positioning themselves to be the value option (low cost, high quality) for specialized programs, sometimes partnering with integrated networks to ensure better coordination of care,” the firm observed in its report.

But until operators can get a grasp on their fixed costs, including through staffing, the going will be tough.

“There clearly are efforts to do it, but there’s clearly not the science you see in other industries around the idea of reducing your fixed costs,” McKenzie said.

Written by Alex Spanko