5 Senior Living & Care Trends to Keep an Eye on in 2023
Today’s blog is by Stephen Taylor, CLA Principal and Segment Leader, Senior Living & Care
As we assess 2022 and look to see which trends may become more profound themes of 2023, here are five topics we believe Senior Living & Care owners and operators should know and consider as they determine 2023 strategy and priorities.
1. State of Economy
Recession is a word that comes up consistently in conversations about the 2023 economy. While higher interest rates may lead to a slowing of economic growth, CLA Wealth Advisory does not see a repeat of the severe downturn last seen during the Great Financial Crisis (2007 – 2008). In fact, CLA Wealth Advisory foresees companies maintaining healthy profitability in 2023 Economic Outlook.
For the broader economy, there are both tailwind and headwind economic indicators as we enter 2023.
Positive Tailwinds
- Many Wall Street analysts are forecasting growth in business profitability.
- Robust consumer spending (approximately 70% of GDP) is expected to continue, while inflation is likely to continue to trend lower.
- In November, unemployment rates continued to drop from the prior year.
- Through November, national jobless rates remain at 50-year lows.
- Attractive valuations in equity, fixed income, and alternative markets continue to be available.
Concerning Headwinds
- Slowing GDP growth is expected in 2023.
- Tight labor markets and the rising cost of capital may challenge unprepared business owners.
- The average 30-year mortgage rate was 6.9% in October, representing the largest rate over the past two decades.
- More restrictive credit conditions are expected as the Federal Reserve continues to withdraw liquidity in a bid to fight inflation.
- Asset values are expected to decrease in 2023 with weakening fundamentals and higher cost of capital.
Within Senior Living & Care, the positive and concerning headwinds look like this:
Positive Tailwinds
- Continued gains in occupancy across all care settings in 2022 and slowing of construction, supports positive signs of demand.
- Cap rates have been maintaining, despite the margin pressure.
- There is significant consumer demand for home health and behavioral health.
Concerning Headwinds
- Margins will continue to be pressured, primarily driven by inflationary increases in supply costs and wage pressure.
- The inevitable end of the Public Health Emergency – resulting in discontinuation of revenue and operational support. There is also some anticipation that lenders and capital providers may take that into consideration when assessing concessions.
- While a clearer picture should emerge in 2023 on the terminal federal funds rate, easing some uncertainty, all indications support continued increase in interest rates in the first half of 2023.
What can Senior Living & Care owners and operators do?
- As pressure on labor and direct supply costs increase, embrace operational assessments to identify efficiencies to be gained.
- Despite higher interest rates and slowing economic growth impacting areas such as housing, consumer spending and labor, markets are resilient. Be intentional and calculated with your rate increases – rate increases in the high single and low-to-middle double digits.
- For skilled nursing facilities (SNFs) in particular, some states are responding to the well-known economic challenges with rate rebasing and changes – ensure you are informed about methodology and optimizing variable aspects.
- Businesses that can weather a “liquidity crunch” brought on by the Federal Reserve’s continued tightening of credit conditions may be rewarded in 2023.
- Investment decisions should incorporate a holistic approach that considers all factors of the economy – business, industry, policy, and markets. A multi-faceted outlook can make a significant difference in investment decisions
2. Labor
Senior Living & Care continues to lag other health care segments. While the utilization of contract labor may have peaked in 2022, there are still many operators utilizing expensive contract labor. Skilled Nursing Facilities (SNF) are suffering the most due to higher direct care nursing requirements and looming potential minimum staffing mandate CLA estimated would cost $11.3 billion to hire 191,000 additional caregivers. Even if this number of caregivers were to exist in this labor market, the reality is that to date the Biden Administration has made no mention of additional funding or economic support.
While the caregiver labor environment is front-and-center, the business environment is getting more complicated, putting pressure on owners and operators. Embrace outsourcing solutions to create capacity to focus on strategy and the things only you can do (i.e., less time with data input, more time with data analysis and decision making).
3. Merger and Acquisition (M&A) Activity
There will be several themes driving M&A activity in the senior living & care space in 2023, notably:
- Strategic Partnerships – A pressing need for innovation, succession of leadership teams and within the execution of strategic plans and business models, there is increasing value on speed to market, specific knowledge, and capital allocation factoring into the value proposition of acquire vs. develop.
- Core Market(s) – There will be a continued trend toward realignment and consolidation to form strong regional organizations vs. large national–striving to achieve improved leverage on labor, alignment of resources, operational expertise and capacity, knowledge of local payors and market opportunities.
- Diversification – Payors and consumers are demanding options, there is increasing demand for non-facility-based care, a growing demand for behavioral health, the full continuum model proved favorable to consumers, plus during uncertain financial times, diversification of well-managed and integrated revenue streams is favorable.
Expect private investors to be the most active in all these categories.
4. Data/Digital
Senior Living & Care industry has a lot of valuable data; however, we have not historically spent time drawing insights. Sure, the perfect all-encompassing solution may be developed at some point in the future, however until then, operators and owners need to invest in their ability to use the data they already have (consistently, simply, and from multiple systems). Essentially Senior Living & Care owners and operators need a data strategy—one that involves more time drawing insights and supporting decision making, and less time creating and tinkering with spreadsheets. CLA Digital Services Overview
5. Care Coordination
The new era of consumers is focused on wellness and solutions. There is an increased emphasis on wellness – improving and maintaining health and lifestyle. The number of ‘solutions’ to prevent and treat ailments are increasing at an exponential rate, however our health care system is fragmented, and the number of options is overwhelming. Therefore, coordinated solutions need to be provided.
Providers, focus on optimizing your strengths (i.e., what capabilities are within your company’s ecosystem to offer the most comprehensive plan and ability to execute seamlessly). Consumers want seamless solutions not fragmentation – embrace your ability to coordinate care.
Focus on quality and use data to validate your mission and tell your story. For example, hospitalizations compared to peers; know these metrics and communicate these metrics to potential consumers in the sale cycle and/or to your potential referral sources. At the end of the day, what really matters is the care provided. Especially in the current tight labor market, do not compete based on your direct care nursing ratio alone. Compete based on your outcomes, care model, wellness plans. That is where your true value lies.
There is an opportunity to elevate your game in this market, capturing more of the health care and wellness economy. This may require innovation, strategic partnerships, embracing alternative payment models, and investment of capital and talent. However, seniors are the highest consumers of health care and the Centers for Medicare & Medicaid continues to shift risk to private plans (Medicare Advantage) and alternative payment models. The future is now.
How we can help
It may seem overwhelming, but you don’t have to go it alone. Our Senior Living & Care practice has the insights and resources to help you.
Jennifer Boese is the Director of Health Care Policy at CLA. She is a highly successful public policy, legislative, advocacy and political affairs leader, including working in both the state and federal government as well as the private sector. She brings over 20 years of government relations and public policy knowledge with her to CLA. Well over half of her career has been spent dedicated to health care policy and the health care industry, affording her a deep understanding of the health care market and environment, health care organizations and health care stakeholders. Her role at CLA is to provide thought leadership, policy analysis and strategic insights to health care providers across the continuum related to the industry's ongoing transformation towards value. A key focus of that work is on market innovations and emerging payment models. Her goal is to help CLA clients navigate and thrive in an increasingly dynamic health care environment.
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