A mop and a café might not sound innovative to most seniors housing operators. But when presented with the product development strategy that conceived the successful Swiffer® cleaning tool and the Capital One® banking cafés, attendees at the 2019 NIC Fall Conference learned that the process for true innovation applies across all industries.

Maria Nadelstumph, vice president of organizational development and program excellence at Brandywine Living, moderated the session “Activating Consumer Insights: Lessons from Other Industries,” while Heather Reavey, head of innovation delivery, EPAM Continuum, and Jennifer Windbeck, managing vice president, market experience, Capital One Cafés and Branches, described the processes used at their companies to generate breakout innovations.

Reavey and Windbeck work in different industries, on very different products, yet the product innovation process they employed to launch the successful Swiffer WetJet™ mop and Capital One Cafés, respectively, involved a common thread—consumer insight. They shared thoughts on how consumer insights can, and should, be used in the seniors housing industry to develop fresh ideas that go beyond iterating current offerings.

Consumer insight research often guides product development in industries like hospitality and consumer products. Yet it is not as prevalent today in seniors housing. While there is consensus that the baby boomer generation desires a different seniors housing experience than their parents have, there is no consensus on what they want. And that’s where innovation comes in. 

Reavey and Windbeck shared the business success achieved at their companies by investing in consumer research as a first step in the product development process. The research allowed them to better anticipate consumer needs, and allowed insights to drive innovative ideas.

According to Reavey, generating ideas is easy. “The real challenge of innovation is getting things out into peoples’ homes,” she said. She advised that the first step in successful product innovation is to define and deeply understand the problem your product will solve. 

“The only way that we really have confidence in our ideas, is if we know the problem that they’re solving. And we feel confident that the problem is really relevant to people. If we can solve that problem, people are going to buy our product instead of the competitive products. It’s going to be differentiated.”

EPAM Continuum, a global innovation, design, and development firm, practices human-centered design. They spend time with people in order to really understand what they care about and what the meaningful challenges are in their lives. In their consumer insight framework, they focus on a person’s emotional side rather than functional needs.

“Usually when people tell us about their functional needs, it will give us clues on how to iterate something that exists today,” noted Reavey. “What we like to focus on is the emotional side, because that’s what drives innovation.”

Reavey used the example of asking a person about a blender. She described how a person will default to talking about their functional needs for a blender—a quieter motor or a blade that is easier to clean, for example. But she maintains that if the conversation starts at a broader level—talking about what the person cares about in life—it may lead to answers that indicate the person cares about preparing healthy food, or even that they don’t want to use a blender at all and prefer to eat out.

“That’s where the innovation comes from. It’s really understanding what your audience cares about in life and not in the category that you’re exploring. Your job is to then connect what they care about in life to your category.”

Windbeck’s experience at Capital One followed a similar process—speaking to consumers about personal preferences.

“We decided to start from scratch in reimagining the in-person banking experience. We threw out everything we ever knew about branch banking,” she said. They started with a “what if” perspective in their consumer research, rather than a focus on what already existed.

Capital One also knew that not every customer would be drawn to the café concept. “We were okay that this would not be the bank for everyone. We were designing for a very specific persona and a very specific behavioral identity group.”

In both cases, the teams at EPAM and Capital One designed successful products that the consumers didn’t necessarily know they wanted.

Reavey suggested that to apply these methods in seniors housing, companies should start by speaking to consumers who aren’t involved with seniors housing now. We should talk to potential future users, with no preconceived ideas. She noted that employees can provide thoughtful insights as well.

The panelists then offered advice on the potential time and expense involved with consumer insight research. “When you think about things like innovation and user experience, it can feel a little bit fluffy. That’s not the case here. We are doing [this] to differentiate ourselves from competitors,” said Windbeck. “We are a for-profit company and so we are doing this in order to drive profits.”

Reavey also noted that there are ways to innovate without huge expense, “Sometimes we make innovation much bigger in our heads than it needs to be. We think that it’s going to take years and we’re going to need millions of dollars in investment. You can do a lot of iteration really fast and cheap just by being creative about figuring out how to fake it before you make it.”

She applied that thinking to seniors housing and suggested that instead of believing you need to innovate a whole complex or building, start with a pamphlet and get feedback on your ideas on that scale. Windbeck also suggested allowing workforce teams to go beyond surfacing ideas, and give them parameters within which they can innovate and test ideas on site.

“Do inexpensive, quick prototyping and use data and hard results to be able to say, ‘Here’s what we tried, here’s how it worked. Here’s what this could look like at scale’,” advised Reavey.

Nadelstumph closed the session by reminding attendees of the value of innovation in seniors housing, “There’s a lot of opportunity here. So let’s stop building on best practices and let’s get a little bit more creative to drive the business.”

Seniors housing properties are aging, and senior consumer tastes are changing. Strong inventory growth in recent years has brought to market new competition for existing buildings—most built prior to the Great Recession. Which markets have the oldest and newest seniors housing stock? Is there a “sweet spot” in terms of building age and occupancy performance? And, what are some of the factors that contribute to strong occupancy in older buildings? To provide food for thought and possible answers to these questions, this commentary dives into the NIC MAP® data for the 31 Primary Markets to explore potential relationships between age and occupancy by geography.[1]

Which markets have the oldest seniors housing properties?

The chart below ranks the average age of seniors housing properties by geography for the 31 Primary Markets as of the third quarter of 2019. The youngest markets, as measured by the average age of the properties in the CBSA, are indicated by blue bars (Minneapolis to Boston), and the oldest are indicated by gold bars (Los Angeles to Tampa).

Source: NIC MAP^® Data Service

In the third quarter, the average age of seniors housing properties in the Primary Markets (denoted by the orange bar) was 21 years old. Minneapolis, Atlanta and Houston had the lowest average age (15 years). Not surprisingly, the markets with the youngest properties also had the most recent inventory growth. Indeed, of the eleven markets with the lowest average age, nine had net inventory growth of 15% or more over the past three years. Two of these markets, Atlanta and Las Vegas, had net inventory growth of 26% and 21%, respectively. This compares with 10% for the Primary Markets.

Los Angeles had the oldest seniors housing properties (averaging 32 years old), followed by Philadelphia, San Francisco, San Diego, San Jose and Pittsburgh (ranging from an average of 28 years to 25 years old). Older markets reported lower rates of net inventory growth, and each of these markets saw growth of 4% or less over the past three years.

Source: NIC MAP^® Data Service

Is there a relationship between a market’s average property age and occupancy?

Conventional wisdom suggests that senior living consumers are attracted to move into new construction with fresh finishes and amenities, and contemporary design. But are these assumptions consistent with the data? The chart below explores the relationship between the average occupancy of seniors housing properties and average age by geography. The Primary Market average age for seniors housing properties was 21 years old as of the third quarter of 2019, and the overall average occupancy rate was 88.0%. The youngest eleven markets are shown to the left of the Primary Market average, and the oldest twelve are shown to the right.

Source: NIC MAP^® Data Service

Contrary to a prevailing assumption that newer properties should garner higher occupancy rates than older properties, there is a notable link between older average age and higher average occupancy—in fact, some of the oldest markets—including San Jose, San Francisco, Portland, New York City, and Philadelphia—had among the highest average seniors housing occupancy rates across the Primary Markets. Compared to markets with newer properties, which showed a weaker connection between average age and average occupancy, older markets had higher than average stabilized occupancy, lower than average rates of annual net absorption (i.e., less change in occupied stock), and lower than average rates of annual net inventory growth.

Is there an occupancy “Sweet Spot?”

Seniors housing has weathered an acceleration of inventory growth over the past several years, which has put downward pressure on occupancy in many metropolitan areas. But, do seniors housing buildings have a “sweet spot” in terms of occupancy performance?

Across the 31 Primary Markets, nineteen reported the highest average occupancy in the 10- to 17-year age grouping, and five in the 25-years or more age grouping. The chart below displays the average seniors housing “all” occupancy rate by age group in the third quarter for the Primary Markets in aggregate, Philadelphia—which exemplifies an older market with above-average occupancy—and Houston, which exemplifies a younger market with below-average occupancy.

As illustrated, in all three instances, the 10- to 17-year age grouping, followed by properties over 25 years old, outperformed the other age groupings in terms of average occupancy. For the Primary Markets, those occupancy rates were 91.6% and 90.6%, respectively. For Philadelphia, those occupancy rates were 93.9% and 91.9%, and for Houston, 85.1% and 85.1%.

Considering the proportion of units by age for each of the three examples, Philadelphia’s overall occupancy rate (90.9%) was buoyed by properties between 10 to 17 and 25+ years old, which represented just under three-quarters of all existing units. Houston’s overall occupancy rate (81.5%), on the other hand, was dragged down by properties less than 10 years old, which represented nearly a third of all existing units.

Source: NIC MAP^® Data Service

Why does it appear that the “sweet spot” for building occupancy is in the 10- to 17-year age range? Is it possible that by this time in a property’s life, operators had built strong reputations in and around the neighborhoods they serve? Had they mastered staffing and other operational efficiencies translating into high levels of resident satisfaction that augment word-of-mouth marketing power? Or had they perhaps begun to spend earmarked maintenance and revenue-enhancing capital expenditure dollars to improve, refurbish, or reposition units or common spaces within buildings for higher and better use—all of which may allow them to build or maintain market share, and effectively compete with the latest offerings?

As the NIC MAP data indicate, on one hand, markets with the youngest seniors housing stock generally had seen recent, and in some instances ongoing, high levels of inventory growth, coupled with lower average occupancy rates, and greater competition resulting from supply and demand imbalances. On the other hand, markets with older seniors housing stock generally had maintained strong occupancy rates, in part due to barriers to entry keeping inventory growth in check, and higher levels of stabilized occupancy.

In analyzing the 31 Primary Markets, the NIC MAP data revealed that the strongest average occupancy performance was most frequently seen in the 10- to 17-year age range. Possible reasons for higher average occupancy among older properties are multi-faceted and market specific. As seniors housing properties age, the capex burden naturally increases, and industry data suggest that capital expenditures begin to accelerate around year 10 of a building life. It is possible that capital expenditures for refreshing an older property may be encouraged by new supply, and sustained expenditures may allow an older property to boost or maintain its occupancy for many years. Unspent or unwisely spent capex could result in diminished returns, so it is important for operators to appropriately time and budget expenditures based on their unique market conditions.

[1] Note that the property age data tracked by NIC is based on the date in which the building was originally opened. That said, if a building was torn down and subsequently rebuilt, the property’s age would reflect the new building open date. However, the age of a property is not adjusted for expansions or repositioned units, which are considered part of the original building.

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As many visitors to www.seniorcare.nic.org already know, NIC has been curating links to news articles relevant to the new partnerships, innovations, and business deals that are reshaping America’s seniors housing and healthcare landscape. We’ve posted over 150 articles so far this year, from a wide variety of outlets, including the Wall Street Journal, The New York Times, NPR, Forbes, The Boston Globe, every seniors housing and care sector journal, several medical journals, and a growing number of healthcare industry outlets, such as Modern Healthcare, Fierce Healthcare, and Home Health Care News, among others.

Judging by the quantity and size of deals being announced just in the past few months, it appears that numerous organizations, including some of the nation’s largest businesses, are taking steps to adapt to a changing landscape. Many stories highlight the innovative new business models, technological advances, and emerging business strategies which are having an impact on the world of healthcare – and on seniors housing and care. Below are a few journalistic highlights from the past several months, each of which illustrates a key trend that is reshaping housing and healthcare for America’s seniors.

Big Deals:

Many business relationships are being formalized, largely in response to the new challenges and opportunities presented by an evolving healthcare system, shifting demographics, advancing technologies, and the overarching need to improve outcomes at lower cost. A review of the past few months’ headlines reveals new deals and partnerships, big and small, all of which may potentially impact the sector. Major recent deals include:

• Walmart and Doctor on Demand and Amedisys
• CVS and Aetna
• Maplewood Senior Living and Penn Medicine
• Leverage Health and WellBe Senior Medical
• Amazon and PillPack and Health Navigator
• Microsoft and Humana
• Medica, Genevive, Presbyterian Homes & Services – and 9 other Senior Living Companies
• Welltower and CareMore and Senior Resource Group and Belmont Village
• Best Buy and GreatCall and Critical Signal Technologies
• Sam’s Club and Humana and 98point6

New Partnerships:

Forbes senior contributor Bruce Japsen recently outlined the newly announced partnership between Microsoft and Humana. The headline, “Microsoft, Humana Partner To ‘Reimagine’ Healthcare For Aging Boomers” reflects growing awareness of the opportunity inherent in a huge population that is growing older and will otherwise stress the current system to its breaking point.

“With an estimated 10,000 people joining the Medicare system daily, we have a tremendous opportunity to address the growing demands on the health care system by improving health outcomes and lowering costs,” Microsoft corporate vice president of health technology and alliances, Dr. Greg Moore, said in a statement announcing the partnership.

“The next step for medical records is to go beyond the collection of information to the delivery of insights,” Humana chief medical and corporate affairs officer Dr. William Shrank said. “Microsoft technologies offer Humana the ability to apply sophisticated analytics to our members’ records, and in turn, provide clinicians and care teams with the opportunities to make a difference in patients’ health.”

Senior Housing News highlights another recent partnership in Tim Mullaney’s article, “Welltower, CareMore Initiative Drives Senior Living Integration with Medicare Advantage”. As Mullaney writes, “The participating organizations anticipate that the initiative will lead to improved health and wellness for senior housing residents, which in turn will reduce hospitalizations and other costly interventions and increase length of stay.” CareMore, which is affiliated with Anthem, one of the nation’s largest health insurers, was looking to scale its successes working with senior living providers on a facility-by-facility basis, according to Dr. Sachin Jain, CareMore’s president and CEO:

“As we started to think about how we could make an even greater impact on American health care and further refine this model, we started to look for broader national partners,” Jain said. “Welltower was an obvious choice.”

For its part, Welltower, a REIT with a portfolio of about 1,300 properties nationwide, is pursuing a strategy that anticipates healthcare increasingly moving out of hospitals and into residences. It is building closer relationships with healthcare systems and payers, while shifting the focus of care – and value – into the senior living realm.

As Welltower Senior Vice President of Business Strategy and Health System Initiatives Mark Shaver said, “We believe this will make our sites of care more consequential.”

New Models:

Within the space of a week, three of America’s biggest retailers announced plans to leverage health care’s move to the home. The Home Health Care News article, “Best Buy, Amazon and Walmart Leading Retail’s Race into Home-Based Care”, by Bailey Bryant, summarizes the separate plans, all of which place big bets on a major shift in the delivery of healthcare in America.

Best Buy announced its goal of supplying “5 million seniors with health monitoring services in five years.” Analysts at Morgan Stanley said of the company’s plans that, “Looking ahead, we believe Best Buy’s deeper push into health monitoring, related efforts to reduce medical expenses for insurers, and right to share in the cost savings represent a significant revenue and profit opportunity in the long term.” The company’s healthcare moves could bring in an additional $46 billion in long term revenues – which is more than Best Buy’s current annual revenues of $43 billion.

The article goes on to point out that, “When it comes to in-home care, Amazon is getting its toes wet with employees first. Last week, the company announced the rollout of Amazon Care, a new virtual care clinic pilot available to Seattle-based employees and their dependents.”

Walmart is also mentioned, “Finally, Walmart is getting in the home-based care game with a prototype of its new Walmart Health clinic, which features an Amedisys Inc. (Nasdaq: AMED) kiosk designed to help educate customers and potential patients on home health services.

Innovation:

A recent HealthLeaders article by Christopher Cheney, “Walmart, Doctor on Demand Join Forces in Primary Care Telemedicine Deal,” discusses how the retail giant plans to use telehealth to deliver quality primary care to its employees, who pay a $4 copay.

As Cheney writes, “The new partnership provides primary care and behavioral health services via video-based telemedicine to Walmart employees and their dependents in Colorado, Minnesota, and Wisconsin.

According to Doctor on Demand CEO, Hill Ferguson, “We can help patients manage chronic conditions from the comfort of their home, keep them out of the emergency room, and make sure that if they need in-person care that we can route them to the right place where they will optimize for quality and cost.”

Modern Healthcare recently published Shelby Livingston’s article, “CVS’ first HealthHUBs driving more prescriptions, clinic visits,” delving into what appears to be a major early success for the pharmacy giant’s innovative new pilot program.

As Livingston summarizes, “The HealthHUB locations cater to everyday needs, with a special focus on chronic disease management, offering services like blood draws, sleep apnea assessments and diabetes care. Patients can access one-on-one and group counseling with a dietitian in the store. The stores also feature a care concierge to educate customers about the services and connect them with in-store providers.”

Venture “Catalyst” firm Leverage Health and WellBe Senior Medical announced a strategic partnership to “provide specialty geriatric care to frail, polychronic seniors in Medicare Advantage health plans.”

A McKnight’s Long-Term Care News piece, titled “Leverage Health backs WellBe concept in new partnership,” by Kimberly Marselas, quotes WellBe founder and CEO, Jeff Kang, “Building a deep relationship with our patients and physically being in the home allows our team to address both clinical and social determinants of health directly. The result is immediate, dramatic improvement to the person’s overall health and wellbeing as we follow the patient across every care setting.”

In last week’s NIC Notes, we shared three highlights from the October NIC MAP® Data Service webinar on key seniors housing data trends during the third quarter of 2019. Two additional key takeaways are detailed below.

Takeaway #1:  Increase in seniors housing occupancy from an 8-year low.
Takeaway #2:  Slight increase in assisted living occupancy.
Takeaway #3:  Slowing of assisted living units under construction.

Takeaway #4:  Wage growth continued to exceed rent growth.

• Since 2017, same-store asking rent growth for assisted living has been decelerating and this pattern continued in the third quarter when annual rent growth slipped back to 2.3% from 3.8% in late 2016, and from 2.8% one year ago. This can be seen on the orange line below.
• For independent living, the pattern is not as consistent and, in the third quarter, annual asking rent growth was 3.0%.
• Compared with the growth of average hourly earnings for assisted living in the second quarter, which increased by a very strong 5.9% from year-earlier levels, asking rent growth has been lagging. Based on anecdotal comments from operators, the BLS estimate of 5.9% seems to be more accurate than past readings of the upward pressure they have been experiencing for wage growth.
• For many operators, labor expenses amount to 60% of their expenses so this is taking a toll on their ability to maintain and grow NOI.
  

Key Takeaway #5:  Wide distribution in price per unit (PPU).

• The chart below represents a snapshot of the pricing distribution of seniors housing and skilled nursing properties as of the third quarter of 2019.
• For perspective, the average price per unit for seniors housing was $184,000, which represents an increase of 9.2% from the second quarter when it came in at $168,500. Compared to a year ago, the price per unit increased 17%.
• There is a wide range of pricing, however, as this chart shows, with the upper decile at $324,000.
• For skilled nursing the upper decile is $200,000 lower at $134,000. 

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The Labor Department reported that there were 128,000 jobs added in October, despite the GM strike, which reduced the jobs count by about 50,000.  This beat the consensus estimate of 75,000 and marked the 109^th consecutive month of job gains. Excluding the drop in auto-related jobs, payrolls were up by a strong 170,000 positions.

Revisions also added a significant number of new jobs to the prior two months.  The change in total non-farm payroll employment for August was revised up by 51,000 from 168,000 to 219,000 and the change for September was revised up by 44,000 from 136,000 to 180,000.  Combined, an additional 95,000 jobs were added to original estimates.   Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.  After revisions, job gains have averaged 176,000 over the last three months.

For the ten months through October, the average monthly increase in total employment has been 167,000, below the average monthly gain of 223,000 in 2018 (note that this will likely be revised down based on the recent preliminary benchmark revision estimate which indicates that private payrolls were over-counted by 43,000 per month in the twelve months ending in March 2019).  Health care added 15,000 jobs, and has added 402,000 jobs in the last 12 months.

The October unemployment rate inched up 10 basis points to 3.6%, still near a 50-year low.  A broader measure of unemployment, which includes those who are working part time but would prefer full-time jobs and those that they have given up searching—the U-6 unemployment rate—rose to 7.0% from 6.9%.

Average hourly earnings for all employees on private non-farm payrolls rose in October by six cents to $28.18. Over the past 12 months, average hourly earnings have increased by 3.0%.  For 2018, the year over year pace was 3.0% and in 2017 it was 2.6%.

The labor force participation rate, which is a measure of the share of working age people who are employed or looking for work was little changed at 63.3% in September, very low but up from its cyclical low of 62.3% in 2015.  The low rate at least partially reflecting the effects of an aging population.

The October employment report will support the Fed’s recent indications that it will hold off on further rate reductions unless there is new evidence of a weakening economy.

Earlier this week on October 30th, the Federal Reserve lowered interest rates by 25 basis points to a range between 1.50% to 1.75%.  This was the third cut in as many months.  But Chairman Powell indicated that it may be the last cut, at least in the short term.  In his opening remarks, the Chairman emphasized that the baseline outlook for the economy remain positive, helped by the recent cuts in interest rates.  He also said the Fed “will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.”   This suggests that the Fed will not cut rates further at its next FOMC meeting in December unless upcoming economic indicators show a slowing economy. 

Wednesday’s rate decrease should push down borrowing costs for credit cards, home equity lines of credit, auto loans and adjustable-rate mortgages but also hurt savers in the economy such as seniors and others on fixed incomes.  

Its notable that interest rates have now fallen 75 basis points since July and equate to about a third of the Fed’s nine rate hikes from late 2015 through last year.  They also equal the reductions in rates the Fed enacted in the 1995-96 periods and in 1998.