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2015 LeadingAge Annual Meeting

Operational and Actuarial Strategies for Success

Session 73-ETuesday, November 3, 20153:30p – 5:00p

Operational and Actuarial Strategies for Success

There are two rules for success.....1. Never reveal everything

you know

Roger H. Lincoln 1

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Speakers: Contact Information

Danny Eischen AV PowellChief Operating Officer/Executive Director PresidentConcordia Life Care Community AV Powell & Associates LLCdeischen@concordiaseniorliving.com av@avpowell.com

Dan Gray Kathie HarrisPresident PresidentContinuum Development Services K Harris Consulting LLCdgray@consulting-cds.com kharris@kharrisconsulting.com

Our Journey

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Background Lutheran Senior Citizens formed in 1959 Concordia opened in Oklahoma City in 2007

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Concordia Life Care Community

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Background 96 IL, 37 AL, 16 MS, 30 NC Fairly rapid fill-up to 90% occupancy Charter members – 95% refundable lifecare;

most others 90% refundable lifecare Struggle to meet financial ratios each year Expansion plans considered

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Operations Review Annual expense $10M Negative operating margin NOM 21%

110 FTEs Grounds, security, dining in-house Therapy, HR outsourced Management contract – accounting & marketing

support

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Operations ReviewFavorable benchmarks/practices: AL productive hours of care/resident day < 2.2 AL with level of care packages; lifecare at base CMS 4-star rating NC private room differential > $50/day Average RUG rate > $425 Therapy Part B caseload > 5% IL, 10% AL, 20%

LTC NC

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Operations ReviewFavorable benchmarks/practices: Square feet maintained/FTE > 50,000 Grounds costs/acre < $5,000 Square feet cleaned/FTE > 25,000 IL; 20,000

AL/commons; 8,000 NC Raw food costs/meal < $4 IL/AL; $3 NC

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Operations ReviewUnfavorable benchmarks/practices: MS productive hours of care/resident day > 2.6 NC total hours of care/resident day > 4.7 Meals/labor hour < 2.25 IL/AL; 4.0 NC; 5.0 other Activity staffing > 1:50 AL; 1:35 MS/NC

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Operations ReviewUnfavorable benchmarks/practices: Marketing cost % of expenses > 3% Perpetual monthly fee discounts Fundraising revenue < 4 times expense Employee turnover significantly > 30%

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Key Recommendations Reduce employee turnover Onboarding, mentoring On-site HR

Increase fundraising Resident gifts to improve quality of life Job training grants Website stories and ability to donate

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Key Recommendations AL/MS Reduce licensed nurse position on day shift Schedule med techs 12 hours/day rather than 16

Activities Reduce staffing, share among levels of care,

cover 7 days a week Part B vs Outpatient therapy Bill IL/AL residents under Part B license

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Key Recommendations Dining services Reduce labor in NC by using nursing staff Share wait staff in IL/AL dining rooms Increase guest meal prices to cover meal costs Increase employee prices to cover raw food costs Reduce table linen usage Obtain liquor license Expand dinner hours to address capacity issues

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Key Recommendations Lifecare contract Provide semi-private room in NC rather than

private room Actuarial study Assess financial impact of monthly fee discounts Test current contract pricing and develop

alternative contract options NC availability for short-term rehab

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• Board objectives• Actuarial modeling results• Current situation• Related non‐financial issues• Pricing recommendations• Implementation strategy

ASOP#3 + OR Process to Resolve Financial Challenges ASOP#3 + OR Process to Resolve Financial Challenges

ASOP#3 + OR Process:Step 1ASOP#3 + OR Process:Step 1

Culture &Philosophy

Marketplace

ActuarialLiabilitiesand Costs

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Board Sets Philosophical Objectives for SolutionsBoard Sets Philosophical Objectives for Solutions

• Adopt ASOP# solvency criteria• With sensitivity to marketplace

• Price new entrant contracts to mitigate risks Minimum refund  Prepaid health care

Management Decisions are Aided by Actuarial ScienceManagement Decisions are Aided by Actuarial Science

• Develop alternative contracts that are actuarially equivalent

• What is the impact on projected health care usage?

• Will new contracts support transition from predominately 90% refundable contract

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ASOP#3 + OR Process:Step 2ASOP#3 + OR Process:Step 2

ActuarialLiabilitiesand Costs

Culture &Philosophy

Marketplace

Current Situation:CCRC “not” in ASOP#3 SAB Current Situation:CCRC “not” in ASOP#3 SAB

78%106%

90%102%105% 110%

115%

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250%

Funded Status Pricing Margin UFS Cash FlowsCase study AVP targets

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Current Situation:Management Recognized Pricing Issues Current Situation:Management Recognized Pricing Issues

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50%

75%

100%

90% Refund 50% Refund 0% Refund

Residents Preferred 90% Refundable

90% Refund 50% Refund 0% RefundLegacy spread Actuarial spread

Refund Relationship Biased

Will New Pricing Options Support Cash Flows?Will New Pricing Options Support Cash Flows?

90% Refund

50% Refund

0% Refund

Baseline: Tier I Current 5.8% 11.0% 14.0%

Type A with couple equalization

Type B with 2 Options for MF After Transfer

Type C (fee‐for‐service)

Type D (Rental)

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Price Actuarially Equivalent:Will higher margins be marketable?Price Actuarially Equivalent:Will higher margins be marketable?

90% Refund

50% Refund

0% Refund

Baseline: Tier I Current 5.8% 11.0% 14.0%

Type A with couple equalization 20.3 17.2 15.0

Type B with 2 Options for MF After Transfer 21.8 19.0 17.0

Type C (fee‐for‐service) 23.8 21.3 19.5

Type D (Rental)

Must Validate Contract Options with Cash FlowsMust Validate Contract Options with Cash Flows

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250%

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Baseline Sensitivity #1 No change 90/80 Lifecare 90/80 FFE

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SNF Capacity is Adequate:5 to 8 Beds Available for Direct EntrantsSNF Capacity is Adequate:5 to 8 Beds Available for Direct Entrants

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ALU/MSU SNFCurrent Projected AVP 25th AVP 50th AVP 75th

ASOP#3 + OR Process:Next StepsASOP#3 + OR Process:Next Steps

ActuarialLiabilitiesand Costs

Marketplace

Culture &Philosophy

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Actuarial/Operational Issues Increase 2nd person MF on original lifecare contracts

to generate actuarial surplus comparable to couple equalization Require additional $820/mo (80% increase) Projected 10-year reserve factor increase from 1.49 to

1.71 ($2M increase) if 50% convert to couple equalization benefit and 50% take fee increase

Address perpetual MF discounts Projected to decline from $400K annually to $290K in 2

years and $140K in 5 years28

Actuarial/Operational Issues NC bed availability is limited

IL contractholders are priority #1 AL/MS direct admissions are priority #2 Frequently turn away LTC private pay applicants

Continuum management Review health screening process Consider home care options to support residents in IL to

slow down transfers

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Positioning for Future Success

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Positioning for Future Success Contracts priced appropriately Expenses managed with best practice targets In-house HR, marketing expertise Board educated and engaged Continuum management philosophy must be

addressed

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Audience Q/A

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