Evidence of the declining market for age qualified residents of nursing homes and assisted living residences continues to mount, including low occupancy and closures. While some marketplaces have been immune to these dynamics in a few insulated markets where demographics and job growth are strong, the pressure will continue to build across the country.
In a declining market, where the barriers to exit are so high, the remaining providers are forced to behave in highly competitive ways at both the front door by aggressively accepting residents or patient and the back door, by doing everything possible to keep residents or patients. As these market forces play out, the weaker competitors will be forced to close, often abruptly and unceremoniously.
Most operators have not had the experience of managing through a declining market. The steps necessary to survive in these circumstances are not by running television ads, or by cutting the staff to the bone. There are four strategic pillars to succeeding in a down market: 1. Fortify, protect and defend your current market share. Since gaining new market share is difficult and expensive, keeping what you’ve got is critical. This means managing for loyalty versus managing toward satisfaction. 2. Improve productivity and efficiency of your staff and systems, not by cutting staff but by increasing and improving their “outputs”; 3. Innovation is necessary whenever market circumstances change dramatically. The nursing home sector learned of this in the mid 1980s when, in response to startling rises in per day hospital costs, more and more patients were discharged to nursing centers for rehabilitation and follow-up care. Nursing centers quickly learned to innovate through their staffing, training and clinical programs. Such is required again, even if this time it’s in response to a negative dynamic in the market; And 4. Differentiation is critical with in a marketplace area so that customers (hospitals, healthcare systems and consumers themselves) are able to tell the difference between and among Golden Age Nursing & Rehabilitation Center, Blue Hair Assisted Living, and Happy Geezers Retirement Home. Right now, customers in many marketplace areas are unable to differentiate these “products”, and an excellent example of this is residential services for persons with dementias. While it’s clear that there is growing demand for residential care for persons with Alzheimer’s and related disorders, I would challenge anybody in any marketplace area to show me a well differentiated solution for this demand.
These responses are not hypothetical, but built on best in class examples of organizations which have survived declining markets. Unless this sector learns quickly, there will be more shuddered buildings, disrupted seniors, distraught family and friends, further damage to the sector’s reputation and balance sheets with too much red ink.