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Nursing Homes Change their Business Model to Stay Profitable

by Derrick

The nursing home business sector is beginning to change direction as homes deal both with low Medicaid reimbursement rates and a new generation of people requiring care. The economic downturn and government debt/spending levels is putting a strain on nursing homes that are heavily reliant on Medicaid reimbursement. Couple that with everyone’s strong interest in living at home as long as possible, and nursing homes are suffering. New businesses are stepping in to fill the consumer care needs that exist between full independence and nursing home level of care.

The Associated Press ran an article on this subject and stated:

Even as the number of older Americans surges with the aging of the massive baby boom generation, demand for nursing homes is decreasing. The Centers for Disease Control and Prevention estimate that the number of nursing home residents fell from 1.63 million in 1999 to 1.49 million in 2004, the last year for which data is available. Meanwhile, the number of nursing homes decreased by nearly 16 percent over the two decades ending in 2004. Demand for services like assisted living, in-home care and adult day care, meanwhile, is booming.

Ecumen, a large senior housing and nursing home corporation changed focus from nursing home care to more “assisted living” care, care that helps someone remain independent. The move has paid off.

Ecumen derived more than 80 percent of its $99 million in revenues from traditional nursing homes. Five years later, revenues climbed to $126 million while nursing homes’ share fell to less than 60 percent, as Ecumen markedly expanded assisted living complexes that allow seniors to be more independent. A $2.5 million loss in 2005 became a $937,000 profit last year.
“We were heavily invested and reliant on a product that wasn’t very popular,” said Mick Finn, one of the company’s a vice presidents. “That’s a no-win proposition for any business.”

Meanwhile, managers of its facilities were challenged to find new ways to make money off their existing services.

One began offering meals from its cafeteria pickup service to community members. Another started an online business selling incontinence products. A third opened its fitness classes to nonresidents.

“It was either diversify or die,” said Eric Schubert, another Ecumen vice president.

The long-term care business environment is on the verge of significant changes. Baby Boomers will have a significant impact. Their needs, desires and expectations are vastly different than those of their parents. Yet most nursing homes are still catering to Boomers’ parents. Nursing home care won’t go away, but those businesses will also need to diversity or die.

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