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The Dollars and Sense of Culture Change: A Financial Evaluation of the Small Home Model
Terri SultDavid Nolan
Chi Partners, LLC
www.chipartners.net
Chi Partners’ Experience
Strategic planning, financial modeling, market research, business planning
Developed the financial feasibility model used by Green House projects
Provide financial analysis to Green House projects for the national office
Conducted a staffing study of: Green House projects and Traditional high-quality nursing facilities
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Chi Partners’ Experience
Evaluated Green House feasibility in CA for the CA Healthcare Foundation
Coordinate the development of a financial benchmarking program for Green House
Consult with providers interested in developing culture change models
Board President CA Culture Change Coalition Work with retired religious Multi-cultural – ANTHC, POW, Fremont Adaptation of small home model to other groups
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Learning Objectives
Financial feasibility of small homes Current research regarding staffing of small
care homes Development and operational costs Financing and funding (stimulus)
mechanisms
[Focus on Green House model]
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Renovation
Myriad of forms: Cosmetic – create spa, get rid of nursing
station, transition doubles to singles, etc. Major changes – convert to neighborhood
model, substantial changes to the physical structure
Significant variation in cost
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Renovation – Typical Household
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New Construction: Small House / Green House
Build one or two homes Expand private pay market Strategic repositioning in market “Test the waters” (minimize financial risk) Increase occupancy in IL and AL (CCRC)
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New Construction: Small House / Green House
Replace “some” beds in existing facility Antiquated wings of an older facility Allow transition to private rooms Add beds to existing facility – greater
penetration in the market
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New Construction: Small House / Green House
Replace an entire facility Need to have available land Allows for significant repositioning Capture increased share of private pay
market with higher rates Can build rehab “house” to maximize
Medicare revenue
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Presbyterian Villages of MichiganRedford, Michigan
Green House – New Construction
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Green House – New Construction
Presbyterian Villages of MichiganRedford, Michigan© Perkins Eastman 2009
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Construction Cost Caution
Architect and General Contractor Working together from the very beginning Value Engineering – materials,
equipment and design (short term and long-term savings)
Perfect versus good
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Construction Costs (?)
Estimates (18 months ago) -$325/square foot
Today revised to $225/sf Investment banker - $272/sf (CA) CA difference (seismic) Columbia County, NY - $157/sf (AL) Anchorage, AK - $450/sf
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Construction Costs
Bovis Lend Lease, Inc. General Contractors
• Existing SNF to Cluster $85 - $125/sf
• Cluster SNF $ 225 - $300/sf
• Greenhouses $145 - $184/sf
Faithful + Gould Cost Estimators
• Existing SNF to Cluster $100 - $140/sf
• Cluster SNF $ 330 - $350/sf
• Greenhouses $280 - $310/sf
Land Cost or Site Development not included
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Components of Financial Feasibility: Staffing Patterns /
Personnel Costs Non-Personnel Expenses Revenue Development Costs Sources of Funds / Financing:
Applicable Research Studies: 2 Green House staffing studies An evaluation of the feasibility of the
Green House model in CA
Financial Feasibility of Small Home Models
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Green House Workflow Study: Background
Completed in June 2009 by ISIS/ICOR & Health Management Strategies
Objective – to track: Shahbaz (CNA) and nurse workflow Levels of support from other departments Cost and clinical implications
Data collected over 8 months at 27 sites: 14 Green House homes 13 traditional nursing homes (8 main bldgs and 7 comparison sites
NOT engaged in significant culture change)
Used on-site observation, CMS census & condition data, & surveys
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GH homes vs Comparison Sites: Similar ADLs: No difference in overall
ADL acuity scores Similar Locations: 43% vs 50% urban,
29% vs 17% suburban, 27% vs 33% rural
Similar Quality: deficiencies, severity and 5-star ratings
Similar Payer Mix: % Rehab vs Long-Term Care
Green House Workflow Study: Participating Sites
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Position Green House Sites Traditional FacilitiesHousekeeping 0.09 0.53
Laundry 0.06 0.22
Dietary 0.08 1.16
Dietician 0.03 0.08
Activities 0.04 0.28
Staff Education 0.02 0.04
Admin /Clinical Lead 0.34 0.46 – 1.07
LPN and RN 1.15 0.99
CNA 4.16 2.54
Total 5.97 6.30 – 6.91
Green House Workflow Study: Hours per Elder/Day
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Conducted in 2009 by Chi Partners
Objective:
To document staffing levels by position at Green House and traditional facilities
To develop FTE recommendations for future Green House projects
Green House Staffing Study: Background
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Green House Staffing Study: Background (con’t.)
Data collected over 6 months at 8 sites:
5 Green House sites with at least four homes each
3 high-quality, culture change traditional facilities
Based on site visits, staff interviews, financial data and HR information
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Department / Position Facility ATraditional
60 Beds
Green House
60 Beds
Facility BTraditional
99 Beds
Green House
100 BedsHousekeeping 5.6 0.8 8.4 1.4Laundry 1.0 0.0 2.8 0.0Dietary 5.7 0.6 15.0 1.0Dietician 0.4 0.3 1.0 0.5Activities 3.6 0.6 2.0 1.0Staff Education 0.6 0.6 1.0 1.0Admin / Clinical Support 8.2 5.2 13.4 9.6LPNs and RNs 8.9 11.2 14.0 18.7CNAs 26.6 42.0 42.2 70.0Other 2.7 0.8 3.0 1.25
Total # FTEs 63.3 62.05 102.8 104.4
Green House Staffing Study: Comparative FTEs
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The Green House Model:
Increases : Direct care staff (CNAs) RNs and LPNs
Decreases: Housekeeping and laundry staff Dietary staff Therapeutic recreation staff
Slightly decreases administrative and clinical support staff
Results in a SIMILAR total number of FTEs
Results in a slightly LOWER cost when national average wages are applied
Green House Staffing Study: Conclusions
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Most non-personnel costs comparable to traditional nursing facilities
Increased costs for: CNA meals as they eat with the elders Ongoing training for new staff
Decreased costs with new construction for: Maintenance supplies and contracts Utilities
Non-Personnel Costs: Comparable to Traditional Facilities
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Small home models can increase revenue by:
Supporting higher private-pay rates (up to a 25% increase)
Increasing the % of private-pay residents
Increasing occupancy levels Increasing Medicare Part B billings
Revenue: Increased From Traditional Facilities
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Revenue: Increased from Traditional Facilities
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Conducted by NCB Capital Impact and the principals of Chi Partners
Objectives included: Identifying the barriers to implementing culture
change in CA Evaluating the viability of four hypothetical Green
House conversions by existing SNFs
Participating facilities: 2 non-profit and 2 for-profit 2 in Southern CA and 2 in Northern CA All 4 in urban locations Recommended by CA Culture Change Coalition and
CA Aging Services for high quality of care
CA Healthcare Foundation Study: Background
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Methodology: Participating NFs provided actual financial information Evaluated 72-bed Green House projects using this data
Revenue: Used each facility’s highest private-pay rate AND a rate 25%
higher Assumed all long-term custodial care (no rehab) Analyzed 3 payer mixes:
80% private-pay, 20% Medicaid 60% private-pay, 40% Medicaid 50% private-pay, 50% Medicaid
Assumed a 7.0% vacancy factor
CA Healthcare Foundation Study: Methodology
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Personnel Costs: Used actual wages plus a 10% increase for
CNAs Assumed Green House recommended
staffing patterns For 12-elder house: 3 CNAs on day, 2 on
eves, 1 on night
Non-Labor Costs: Used each facility’s actual per-bed costs Did not include rehab-related costs
CA Healthcare Foundation Study: Methodology
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Development Costs: Construction costs based on 2010
estimates from 3 sources $225 / sq ft Assumed 7,800 sq ft per house Assumed 30% soft costs Obtained land costs from brokers in
each area: Assumed 1.5 acres Costs ranged from $0.5 to $1.0
million
CA Healthcare Foundation Study: Methodology
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Financing:
Evaluated 5 different financing vehicles: New Markets Tax Credits HUD 232 with tax-exempt or taxable
bonds USDA Community Facilities Loan Conventional Financing Cal-Mortgage
Current (2010) terms were used in the analyses
CA Healthcare Foundation Study: Methodology
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Financing Vehicle
Rate Amortization Equity Provided
Debt Service Coverage
Comments
New Markets Tax Credits
7.0% 25 years 25% 1.15 Interest only through yr 7Debt forgiveness of 25% and refinance at year 7
HUD 232 5.0% 35 years N/A 1.10 Term from 30 to 40 years90%-95% Loan-to-Value based on HUD valuation
Conventional 7.75% 20 years N/A 1.25 May be re-priced every 5 years
Cal-Mortgage 6.5% 30 years N/A 1.20
USDA Community Facilities Direct Loan
3.5% 40 years N/A 1.10 Based on USDA’s direct loan program; limited funds available on a state-by-state basis
CA Healthcare Foundation Study: Financing Assumptions
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60 different scenarios were developed
The most favorable are those with:
Higher %’s of private-pay residents
An increased private-pay rate
USDA Direct Loan, New Market Tax
Credits or HUD 232
Would be even more favorable if Medicare beds
were included
California Healthcare Foundation Study - Findings
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With New Markets Tax Credits:
Equity requirements ranged from 0% to 31%
(assuming 60% private-pay, 40% Medicaid)
This financing structure provides 25% equity
through tax credits
Is available only in qualified census tracts
California Healthcare Foundation Study - Findings
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With HUD 232:
Equity requirements ranged from 0% to 35%
(with 60% private-pay and 40% Medicaid)
Favorable terms : Interest rate of 5% for taxable or tax-
exempt 30-40 year amortization Debt coverage ratio of 1.1
California Healthcare Foundation Study - Findings
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With USDA’s Community Facilities Direct Loan:
Equity requirements ranged from 0% to 24% (with 60% private-pay and 40% Medicaid)
Favorable terms : Interest rate of 3.5%, 40 year amortiz.,
debt service coverage ratio of 1.1 Limited funds available on a state-by-state
basis USDA loan guarantee and grant funds also
available
California Healthcare Foundation Study - Findings
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With Cal Mortgage: For-Profit Facility C had an equity requirement of
17% (with 60% private-pay; 40% Medicaid) Assuming an interest rate of 6.5%, 30 years and
1.2 debt coverage ratio
With Conventional Financing: Unfavorable terms at this time
7.75% interest, rate 1.25+ debt coverage, 20 yrs max term
May re-price every 5 years Not financially viable
California Healthcare Foundation Study - Findings
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Stimulus Funds
Sheridan, WY – Green House,$5 million, USDA Community Facilities (loan)
Columbia, NY – $5 million (bank qualified @ 4% over 25 years)
New York – HEAL $9.6 million (grant) Craig, CO - $3 million FQHC (grant)
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Small home new construction models can be
financially feasible
Equity requirements of 20% - 25%
possible
Up to 50% Medicaid viable for some projects, with
an increased private-pay rate
A financial analysis can determine what is doable
for interested organizations
Conclusions
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Next Steps
Strategic Planning/Feasibility Analysis Market Assessment – Possible
repositioning Physical Plant Evaluation (renovation) Financial Feasibility Analysis
Development/renovation costs Maximizing revenue Changing staffing assumptions Non-personnel expenses
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Next Steps (cont.)
Financing options Business Plan
Sources of funds: equity, debt (soft secondary and conventional), fundraising
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