“Creative solutions” as a buzz phrase has taken on new life after it was revealed costs for nursing homes and adult care rose a whopping 2.4% in July, according to a report from the Bureau of Labor Statistics issued Thursday.
The jump is the largest single-month gain since 1997, but it could be a “one-time aberration,” cautioned Beth Mace, an economist and senior advisor at the National Investment Center for Seniors Housing & Care.
“We will need to wait to see if this [is] … part of a longer-term trend,” she told Yahoo Finance, adding that before the huge jump there were three months of decline in April, May, and June.
Unlike most other businesses, though, nursing homes are limited in how much they can adjust the prices. Medicaid reimbursements lag inflationary pressures and the smaller population of private-paying or insurance-paid residents can only pay so much before prices become out of reach.
“They have a finite amount of resources that is compensating for their care until such time that they run out of funding and that burden typically moves over to the state Medicaid program,” Darrin Hull, executive vice president of Consulting at Health Dimensions Group, told McKnight’s Long-Term Care News on Friday.
Rising costs and the need to increase wages have hit nursing homes with a one-two punch, and the resulting pressures are putting facilities into a financial bind. Patrick McCormick, a partner at Plante & Moran PLLC, told McKnight’s that wages generally account for two-thirds of a facility’s cost structure. He said that some facilities are switching from one large, annual rent increase on private payers to biannual hikes to keep the percentage lower and make it easier on seniors or their families to absorb that increase.
“This high inflationary environment is part of the cause of what you are seeing in this data,” he said. “I don’t expect this trend to continue on a monthly basis, but the next rent increase is likely to happen on January 1. The private pay increase is still inadequate compared to the overall cost structure increase a nursing home provider is experiencing.”
What can providers do?
Since they operate in a fixed environment in which private payers cannot cover their costs, Hull said providers need to get creative and try to set outside of daily operations to take a holistic view of their situation.
“The day-to-day grind is extremely taxing,” he said.
Providers can leverage technology such as automated systems for staffing management, which would eliminate human labor costs for that function. While many providers have been slow to transition to these systems, that may accelerate as a way to control costs, he said. Additionally, they can consolidate positions and responsibilities among the non-caregiving roles of department heads and higher. Efficiencies can also be found by integrating social services into recreational services.
Renegotiating fixed contracts for dietary, laundry, and housekeeping services is another area in which providers could look to save on costs. Facilities that have closed wings should try to lower costs with cleaning companies since the entire building is not being serviced, Hull said as an example of how owners can renegotiate contracts.
“Cost control, cutting costs, managing the pennies – that’s the not-so-fun part of what we do,” said Hull, who has a background in facility operations. “Providers aren’t focusing on the fixed contracts that are in place for the delivery of products and services. They fail to look at how they can better leverage their contracts. In most cases I’ve seen, vendors are very accepting when challenges force them to get creative.”
