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PhotoThe elements of operational expenditure are discrete, quantifiable, and eminently manageable. Labor. Food. Energy. Each can be addressed as a unique problem set. The brightest operators—along with the sharpest vendors—have come up with a whole menu of options when it comes to managing costs in each of these critical areas, from waste in the kitchen, to LED lighting, to hiring strategies that help shrink overtime.

Labor Costs

Just as people are at the very heart of the senior living enterprise, labor costs lie at the heart of operational expenses. Senior living is a hands-on endeavor; it’s labor-intensive, which means that managing the “people” cost can make a sizable difference to the bottom line.

It’s not a line item that is easily finessed since labor comprises multiple factors. Regular hours may appear relatively easy to control, but this often proves more complex than one would suppose. Pay rate is determined not just by what you’re willing to offer but by external factors such as prevailing market demand. And overtime is the wild card, the fluctuating factor that often sends labor costs spiraling upward.

In all, labor presents a complex phenomenon, one that demands especially close attention in the effort to manage operational costs. The issue is especially urgent at a time when senior living communities are extending shifts in order to cover for hiring gaps. In the first half of 2017, the average work week among assisted living employees jumped 6.7 percent, according to the “Key Economic Indicators: 2018 Trends and Forecasts for Labor, Food, Utilities” report published in Argentum Quarterly Issue 3 2017, based on data and analysis from various U.S. federal government agencies. This was on top of a 4.5 percent increase in 2016. This trend marches right alongside escalating overtime expenses.

“It’s a challenge,” admits Earl Parker, chief operating officer at Commonwealth Senior Living, which operates 22 communities in Virginia with a mix of independent living, assisted living, and memory care. “And it becomes more and more challenging as the demand for people wanting to fill those positions grows, and the supply shrinks.”

Just as with other aspects of operational expense, automation can help. Shifting pharmaceutical management from paper to digital processes, for instance, has saved some communities significant work hours around medication audits and related tasks.

But Parker’s first line of attack comes not by way of automation but, rather, through a creative hiring scheme that he says has significantly lowered the starting wage in his communities and substantially reduced costly turnovers.

Parker’s “Hire for Heart” program courts future caregivers from the ranks of Target and Chick-Fil-A employees, people who may lack experience in caring for seniors, “but who have the desire to do more and to make more of a difference,” he said.

Average Employee Work Week ChartCommonwealth spends $300 to $500 per person to train the “Hire for Heart” staff up to direct care associate certificate status. The small up-front cost gets recouped quickly. “We are not paying for the highly-experienced caregiver who would demand a higher rate. On average, it’s probably 15 percent lower than someone with a CNA, and we also get a 50 percent better retention on those people, versus people who come to us already with those certifications,” Parker said.

The hires feel a sense of loyalty to the company that gave them a chance. They also are less favored by skilled nursing communities and hospitals that tend to recruit Parker’s more experienced employees, helping to keep turnover expenses low.

While Commonwealth uses hiring strategies to manage labor costs, others look to reduce big-ticket overtime expense, especially through the use of digital technologies.

Take for instance PointClickCare Technologies, whose cloud-based software helps manage the senior living workforce. The company aims to address an efficiency gap that is prevalent across senior living: That is, the failure to align staffing with resident acuity.

Many senior living providers allot staffing based on resident headcount—an ever-changing, and often inaccurate measure. “If you staff based on occupancy, you are saying that every resident has the same needs, and we know that is not the case,” said Travis Palmquist, vice president and general manager, senior living at PointClickCare. A better plan is to build schedules around a service-level assessment, and that’s something software can do more effectively than the conventional spreadsheet.

“You should have an idea how many minutes each service requires. Most communities have a pretty good idea: the average bath requires 25 minutes, the average medication management takes so long, room cleaning takes so long,” he said. With an accurate assessment, “you get an idea of how many services they are scheduled to deliver, how many are billable, and then you are literally aligning staffing with acuity.”

With greater clarity, a senior living community can fine-tune staffing levels on a given shift, and also ensure it is billing for all services delivered.

While his company emphasizes the values of a digital approach, Palmquist also advocates for a people-centric focus, recognizing that cost controls on the labor side require not just great software but also great management skills.

“It starts with staff engagement and culture, having committed staff where people don’t call in sick, forcing other people to take on extra shifts and take on overtime. When you have a sound, stable culture and people who want to come to work, that saves you a ton of money and pays off in quality,” he said.

Building a solid culture also trims turnover costs. “Communities are competing ferociously for the best staff and the best leaders, and you need to keep the best when you find them. If you can get the right group in there and keep them, that’s where you reduce your labor cost,” he said.

Parker, meanwhile, is equally ready to embrace the virtues of the automated solution. Even as he focuses on hiring and training, he sees a place for software in the labor equation.

Following a successful pilot in five communities, Commonwealth recently implemented OnShift software for scheduling. “Our goal is for overtime to be below 3 percent of total hours, and in one community they reduced it from 6 percent to around 2 percent,” he said.

The automated solution gives schedulers visibility into each worker’s status, so you can tell at a glance who is creeping up toward overtime hours. When a shift needs to be filled, “you can see who is available and how close they are to being in overtime. Then you push that shift availability to those who are less close to overtime. It gives real visibility to the person who is managing that schedule so that they can make better decisions,” Parker said.

The communities also are using care assessment software to better align staffing with resident needs. This allows managers to more precisely hone each shift. “They can look in there and see the peak times of the residents’ needs. Is it around getting people out of bed, or is it shower time? Then we can add partial shifts based on that assessment software, rather than just adding eight hours in the morning when maybe that isn’t what is needed,” he said.

Paired with thoughtful hiring and training practices, he said, this kind of software-based scheduling can significantly reduce both regular hours and overtime expense.

Measuring Commodity PricesFood Costs

In order to better manage food costs, don’t think about food costs. For senior living dining directors, the key is to approach the cost equation from a resident satisfaction point of view. Everything else flows from there, said Gottfried Ernst, vice president of hospitality for Harbor Retirement Associates.

To trim food expenses, it’s important to determine what residents like to eat. Then, build menus off of that and cost drivers like waste, spoilage, and over-ordering all begin to fall away.

“You start with smart and effective menu planning. The menu is the roadmap to success, just like the care plan drives success in the community,” Ernst said.

Menu choices drive the bottom line. “You need to have a menu that is well-balanced, with highs and lows in terms of items that are more or less expensive. You need a menu that allows you to cross-utilize products: You can have broccoli one day and broccoli-cheese soup the next day,” he said.

The menu likewise determines what you keep in the cupboard, but to make the most of a good menu, you need to keep a close watch on that inventory. “You have to keep very good control on what you purchase versus what you are serving. So you check product when it is being received to be sure food is in proper condition. Then you make sure product is stored at the right temperature, so you get the longest shelf life out of every product,” Ernst said.

Date product when it comes in and rotate oldest product out. This may sound like basic kitchen methodology, but many dining services operations are careless in these areas, and it costs them.

All of these details are significant at a time when food costs are on the rise. After registering five consecutive annual increases between 2009 and 2014—a total increase of 25 percent—the “Producer Price Index for All Foods” declined in 2015 and 2016, but prices are climbing again. The “Producer Price Index for All Foods” rose in six of the first seven months of 2017, according to the “Key Economic Indicators: 2018 Trends and Forecasts for Labor, Food, Utilities” report.

Good inventory practices can pare back waste. It helps, too, for the staff to have an overall awareness that waste is an issue.

Morrison Community Living is a food vendor to over 350 senior living communities. In addition to product, the company provides its clients with a “Waste Not” program that encourages waste awareness.

Each kitchen station gets a receptacle to gather waste, which is weighed and reported at the end of the week. “If the produce waste this week is 10 pounds, by next week or a month from now you want it to be five pounds,” said Calvin Neal, senior vice president of culinary and retail for Morrison Community Living. “This keeps waste front of mind for every employee, which makes people more cautious to not overcook the bacon, and to make sure that things are wrapped, labeled, and dated properly.”

Food tracking likewise helps cut down on waste; it’s that resident satisfaction piece again. If you track what people are eating (or what food is being returned uneaten) you can better manage quantities across the food service process. A modern point-of-sale system can help with this, or a dining director can keep a tally on a traditional spreadsheet. The important thing is to keep the record. “A lot of people don’t do this. They just eyeball it,” Ernst said. “The people who don’t track end up over-ordering and food goes to waste.”

In addition to managing inventories and minimizing waste, dining directors also can exert some control over the actual cost of food. Most prices are set by the marketplace, but there is still some wiggle room.

Morrison Community Living runs an “Imperfectly Delicious Produce” program, selling at a discount the fruits and veggies that aren’t pretty enough to make it to the top shelf. “Because the produce isn’t perfect, we purchase it at a much-reduced cost and that definitely reduces the produce cost for our customer,” Neal said. “Ninety-nine percent of the time we are chopping it up and doing something with it, so who cares if the carrot is crooked?”

In fact, Ernst looks at produce in general as a big potential cost saver. It’s a simple fact of agriculture and a longstanding truth in the food industry; when the crops come in, prices go down.

“You need to know what is in season and work with vendors to get a special price list. Your produce vendor should give you a list every week of what is a good price and a smart buy. All of our vendors give us weekly smart buy lists and our chefs make seasonal menus to go hand in hand with that,” he said.

While Harbor Retirement Associates buys from a national vendor, chefs also have relationships with local produce and meat suppliers, to whom they can turn for seasonal deals and other special needs. This keeps costs down and foods fresh.

“Our communities don’t have a lot of storage space, so you have to have multiple deliveries a week, if not daily. Local suppliers can do that,” and they often can do it cheaper, Ernst said. “It can sometimes take more manpower and more work for a big national provider to get something to you, where going local simplifies things and brings down the price. There’s less travel cost, less warehouse expense.”

Much of this falls on the shoulders of the dining director—ordering, planning, and tracking—but food service staff members across the board have a role to play in cost savings.

“If you have people in the kitchen washing dishes, they see all of the food that comes back, so when I talk about waste I start with them. They can tell you exactly how much people are eating. This is a key person in detecting and tracking waste,” Ernst said.

Servers play an equally vital role. “They can tell you what residents like or dislike. You can tell them about selling special items that are in season or that you need to get rid of because the shelf life is expiring,” he said.

This issue of what the staff sees and knows takes us right back to the starting point of food service cost management: resident satisfaction.

“I went into a community in Florida where we were losing money; we were missing our food budgets, and in fact were almost spending double what we allotted,” Ernst said. “We did a full inventory, checked all the systems, and found that things were not being done properly. The menu wasn’t planned based on what residents actually liked, so you couldn’t predict what you were serving, which led to over-ordering and waste.”

Food costs and resident satisfaction go hand in hand. If one of these metrics is askew, chances are the other one is too, and it’s probably time to make some adjustments.

Energy Costs

Senior living communities have good reason to be mindful of energy expenses. Already a major cost center, power is expected to get more expensive in the coming year, with electricity rising 1.2 percent nationally and as much as 4.2 percent by region, according to the “Key Economic Indicators: 2018 Trends and Forecasts for Labor, Food, Utilities” report.

In order to minimize energy costs, Brightview Senior Living swaps in LEDs for conventional lighting any time a property comes up for renovation. The senior living provider does this not only because it makes economic sense, but also to secure LEED certification, a mark of a green-friendly building.

“They last longer and use far less energy than traditional lighting, and the market has changed to where they are now competitively priced,” said Kristian Spannhake, project director at Brightview. “As an owner-developer, we look at the cost today against the replacement cost. We want a building that runs as cost-effectively as possible and LEDs accomplish that. They are energy efficient now, and because they have a 20-year lifespan, we are not spending money later on new bulbs or the labor associated with replacing bulbs.”

Energy experts say it makes sense to go after lighting first—it’s a big line item on the energy bill.

“Five years ago, people assumed energy efficiency meant you had to have a glaring blue light in the hallway. Three years ago, LED solved that,” said Kevin Siebrecht, president of Greenleaf Energy Solutions, noting that in addition to delivering a 30 percent return on investment, today’s LED replacement projects also provide high-end features such as dimming capability and improved light quality.

These enhancements to lighting quality have made LED significantly more attractive to operators like Brightview. “As you develop for seniors you need to be cognizant of the impact of light on their eyes, which may be more sensitive than younger eyes,” Spannhake said. “With LED you can get different temperature lights, and they are dimmable now, so you can really find that warmth.”

Experts say it makes sense to move an entire community to LED lighting rather than changing out bulbs one at a time. By taking a property-wide inventory and doing a wholesale changeover, it’s possible to get the bulbs at a lower price and also take advantage of incentives and rebates from state and federal sources.

“It’s relatively low risk, which means that there is financing readily available through third parties, so that the end user often will not be out of pocket a nickel. Or you can lease it,” said Mike Payne, executive vice president and corporate counsel at energy consultancy APPI. “There are lots of ways to structure the cost and it’s worth exploring.”

In deregulated states, it makes sense to comparison-shop among vendors. “Every Argentum member who can, should do this. If they have one or more locations, either they should internally explore whether they can save money in the competitive market space, or else engage a consultant,” he said.

In states where power is regulated, it can pay to review the distribution tariff or transmission tariff. These tariffs are not negotiable but you’re supposed to pay according to a fixed set of rules. Most communities are properly classified, but if yours isn’t, you could reap big benefits through a reclassification.

Payne sees lighting as an obvious first step, but he stresses that there are other important measures that operators need to look into in the push to drive down energy costs.

There are some incremental wins to be had beyond lighting. Heating, ventilation, and air conditioning (HVAC), for instance, is where a big percentage of energy dollars are spent. But this gets tricky. An HVAC upgrade can be very expensive and can disrupt resident life during the transition, and the returns on such projects aren’t always very high.

Still, it makes sense to look at heating and cooling as a possible place to cut costs.

Brightview, for instance, is transitioning from Packaged Terminal Air Conditioner (PTAC) technology to more modern Variable Refrigerant Flow (VRF) in its new buildings. The systems are expensive—$6,000 to $9,000 more per unit compared to PTAC—but require less hardware, are more aesthetically pleasing, and cost far less to operate.

Less expensive, and intriguing to some, are intelligent control systems, the rising variety of sensor systems that help to automatically regulate the interior environment.

“There is a higher level of sensor technology, and there is better metering technology to track the performance of the unit,” Payne said. Then, immediate real-time data is sent back wirelessly to a cloud-based tracking portal. “The monitoring helps with your maintenance costs, knowing how long a piece of equipment has to wear and when it should be serviced. That can make a big difference,” according to Payne.

While maintenance teams have always kept a watchful eye on equipment, monitoring technologies are closing the time lag between a problem and the solution. “It used to take days for someone to notice an issue,” Payne said. “Now I am getting a read all the time, and I am getting benchmarks, so as soon as I am outside of those benchmark parameters, I hear about it. That allows me to be much more proactive.”

While sensor systems have improved in recent years, Spannhake is still treading with caution. “Some are easier to use than others. The platform may be more straightforward for the maintenance director to manage. Some are far more convoluted and require more training,” he said. “Some also lack the ability for us to control at the actual local level. Say the residents are playing Mahjong in a different room tonight. At the room level, at 8 p.m., is the system smart enough to let me take control back?”

Still, he’s looking to automation to yield big returns over time. “In the past, you might have had lights full on, 24/7. Now you can leave on those lights, but you can dim them. Or a light that someone used to forget in the library and it stayed on all night, now it goes off automatically,” he said. “That has to be an improvement.”

Across energy, food, and labor, it’s clear that controlling operational expenses is no small task, nor it is easily achieved. But it’s also clear that with the right technologies, with thoughtful management and diligent oversight, it is possible to make incremental improvements that ultimately bolster the bottom line. 

More Research Available in Argentum Quarterly  Issue 3 2017

Argentum Quarterly Issue 3 2017, “Key Economic Indicators: 2018 Trends and Forecasts for Labor, Food, Utilities,” analyzes the trends and forecasts of key U.S. economic indicators with a focus on senior living’s biggest cost drivers—labor, food, and utilities. The analysis highlights national, regional, and state data related to assisted living and continuing care retirement communities based primarily on sources from U.S. federal government agencies including the Bureau of Labor Statistics, Department of Agriculture, Department of Energy, Federal Reserve, and Census Bureau.

Download Argentum Quarterly Issue 3 2017

Argentum members can download the full report.

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