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Strategy Of The Month for February 2008

FOCUS ON DIRECT CARE TO CONTROL LABOR COSTS

            Assisted living is very labor-intensive, and is the most critical operational issue for both for-profit owner/operators and not-for-profit sponsors.  Direct care involving those staff members who provide hands-on assistance with the resident’s activities of daily living 24/7 represents the greatest operations challenge in the assisted living industry.

            Let’s look at Figure 1 for some simple, but sometimes sobering direct care demand and supply arithmetic.  An 80-unit assisted living community at 93% occupancy would require baseline staffing of about 12 FTEs (24/7) if you assume  an average hands-on direct care time of 45 minutes per resident-day (PRD) (before higher acuity pricing tiers) and your direct care workers are 80% efficient.  How accurate are those assumptions? Do you really know?  Surprisingly many owner/operators or staff members don’t have these answers.

            What does your typical CNA really cost?  Take a look at the example in Figure 2.  If you accept all of those elements of direct and indirect CNA expenses, he or she could easily cost you $20 per hour or more.  Note that I’ve used a base hourly rate of $8.50 per hour and a fringe benefit factor of 25% (payroll taxes, health care benefits, etc.)  Direct care workers frequently have some administrative tasks and they need coffee and lunch breaks.  You will be doing good to realize 80% direct care efficiency; especially on the 2^nd and 3^rd shifts.

            Regardless of whether you’re selling a product or staff time by the hour, you should allocate a portion of your existing overhead to each element of additional “product” that you’re selling.  Profit can be a controversial issue, especially for not-for-profit organizations.  However, the cost of additional direct care time for higher acuity residents should be assigned a target profit margin.  The hard-to-reach overall profit margin goal for assisted living is approximately 28% to 30%.

            Maintaining clinical excellence, high standards of care and superior resident satisfaction are obviously necessary expected outcomes.  But if you want to survive, prosper and possibly exit the industry successfully, you must keep a sharp focus on your direct care operation.

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