After sharing A Senior Living Learning Journey with you, I really wanted to quickly deliver a series of short, highly readable, informative articles and stories to help you understand and navigate the senior living landscape as I come to understand it. My perspective is shaped by dual roles: as an investment manager for seniors and their adult children, and as a son of divorced, remarried parents with a personal interest in the end-of-life care of four family members in their mid-seventies and older. As I deepen my research, however, I am finding that even some of the more basic senior living questions defy quick, breezy explanations. Treating the subject and the issues fairly and usefully simply requires more time, space, and depth of research than I first imagined. As time consuming as it can get, every hour I spend on the topic and every interaction I have with clients, family, friends and readers, I find myself increasingly convinced of its importance. Meanwhile, I also find myself feeling more surprised, confused and puzzled by the complexity of the industry. I am turning into two selves - an investment manager self and a concerned son self.

Investment Manager Steve’s Questions - Adverse Selection and Financial Condition

My professional self, Investment Manager Steve, has perused senior community offering documents the size of hardcover books. He has encountered unresolved industry debates about terminology used to describe their communities to the public. He has found himself diving deeper into the financial statements of various communities and their sponsors to better understand the industry landscape and potential trouble spots. This version of me thinks about the adverse selective nature of the senior housing market.

In an adverse selective market, one side has a substantial information advantage over the other. With that information advantage, one side maintains an edge over the other by being able to hide problems. The owner of a used car, for example, will know more about how she drove and maintained the car during her ownership than a prospective buyer will, giving her the advantage of knowing more about the true value of the car in its current condition. In a similar way, the management and sales representatives of a senior living community will know far more about the quality and upkeep of facilities; budgeting of expenses; quality, morale and turnover of staff; occupancy rates and trends; satisfaction and happiness level of residents; and the financial condition of their community than will a prospective resident. Many prospective residents and their families will not even know the right questions to ask; many will also be facing the emotional pressure of a crisis requiring an immediate placement. Imagine yourself trying to make a well-considered, informed decision for an ailing parent after being presented a set of regulatory and contract documents like the one I was sent by one senior community on behalf of a client that was about an inch and a half thick. 

My experience thus far touring senior communities has shown me that, at best, it appears to be a sales-driven market. I have seen some beautiful-looking dining and activity facilities, swimming pools, exercise equipment, and comfortable living areas. While what meets the eye is designed to dazzle the visitor, and often hits its mark, the list of things I cannot learn during a tour, however, is long and potentially very concerning.

Beyond the smile of the sales manager and the outward sparkle (or lack thereof) of the building and facilities, Investment Manager Steve wants to understand the financial condition of the community to better assess its long-term viability. He has requested financial statements from communities run by nonprofit organizations. As a Bloomberg terminal subscriber, Investment Manager Steve can access bond ratings for taxable and tax-exempt entities, which will give him a useful benchmark and an ability to ask additional questions of management should he wish.

In his research for his client Mrs. Li, Investment Manager Steve learned that one of the communities she was considering had issued bonds rated BB by a major rating agency. As defined by the agency that issued the rating, the bonds carry “an elevated vulnerability to default risk.” A financially distressed community trying to avoid default and bankruptcy, like a financially distressed family, will look for ways to cut expenses in order to maintain its financial footing and keep lenders or bondholders happy. A community could cut the quality of the food. It could reduce staff. It could reduce activities programs. As a prospective resident, Mrs. Li would derive no benefit by accepting an elevated vulnerability to default risk, and might well in fact suffer from it if the issuer’s financial status were to decline at any point during the years she would live there. This does not seem like a risk worth taking, but how many prospective residents would even think to look at a community’s bond rating and ask tough questions of the management?

Concerned Son Steve’s Questions - Quality of Life, Quality of Care

My personal self, Concerned Son Steve, wants his loved ones to be comfortable, engaged and autonomous on days when they are healthy, and attentively cared for on days when their health needs demand it. This version of me, with half a dozen community visits under his belt and more appointments on the calendar, believes that the healthy days should be the easiest for all to consider and understand. Communities typically publish a monthly calendar of activities that a prospective resident can peruse and imagine themselves participating. One community my mother and stepfather visited near Albany featured among its activities bus trips to Tanglewood, summer home for the Boston Symphony; several trips to the horse track at Saratoga; and an excursion to New York to visit the Metropolitan Museum of Art, with all activities rated E (easy), M (medium) or D (difficult) so residents could gauge their fitness to participate.

Food is very important to most of us. Fortunately, it is not difficult to peruse menus and understand various dining options, and one can ask to sample the food. Concerned Son Steve made a note to take photos of the menus in each community he visited. A healthy person moving into a community in their mid seventies might expect to live there for fifteen years or longer. Thirty years is rare but not unheard of. You better like the food.

Beyond the basic quality of life issues for the healthy days, the whole point of senior living is providing high quality, effective health care when it is needed. It is impossible to gauge how well a community delivers on this promise from an initial contact with a sales director. Until earlier this week, Concerned Son Steve had no effective way to evaluate this, but further research uncovered the Centers For Medicare and Medicaid Services Five Star Quality Rating System for what it calls nursing homes. This is an online searchable system that provide star ratings in categories they call Health Inspections, Staffing and Quality Measures, along with an Overall Rating. While he can glean that five stars are better than one star, he needs more time to read and understand the meaning of the rating system. He takes heed of the caution noted on the website that “no rating system can address all of the important considerations that go into a decision which nursing home may be best for a particular person.” He’s a little surprised and thankful that a portion of his tax dollars have been spent this way, but disappointed that nothing he has read and no conversation he has had to date pointed him to this resource. Concerned Son Steve takes some comfort knowing he will be forearmed with at least this level of data before his next community visit.

Integrating Both Steves’ Concerns Into a Game Plan

Both Steves’ concerns are important. Part of my challenge, beyond a personal vow to try harder to avoid referring to myself in the third person in subsequent writing, is to temper the two Steves’ more instinctive needs and wishes while considering the wishes of the client or family member contemplating a move to a senior living community. Investment Manager Steve wants to make the perfect decision. He wants to wait to carefully collect all the information and analyze it thoroughly. He is terrified of facing the consequences of making an error in judgment that could set his family or clients back financially, or could lead them to experience life in a community facing financial distress or even bankruptcy. He would rather wait and collect more information than act. Concerned Son Steve wants a quicker decision that will bring a feeling of peace and certainty to himself and those he cares about. He just wants it taken care of so he doesn’t have to deal with the uncomfortable feelings associated with decisions that, if he is honest with himself, are not in his control.

At the time of this writing, my family is not facing an imminent crisis. No client has made me aware of a crisis in their family. I continue to assist Mrs. Li in thinking about and evaluating her options. At the moment, I have the luxury to continue reading, researching, visiting communities, talking to people and learning, and I will continue to do so. If, today, I did encounter a crisis, I would start by examining the financial resources of the person needing care, which might eliminate many options. I would then do the best I could within my personal network to solicit opinions from families who have experience with the communities the person needing care was able to consider. While the research I have already done might prompt me to take an educated look at a community’s financials, a crisis would likely not afford me the time to do so.

This is precisely why it makes so much sense to start exploring senior living communities in your area for yourself or with a parent, even if you have no intention or interest in moving today. In any situation with adverse selection, information is power. Visit communities. Ask about the food. Sample the food. Ask about staff turnover. Check the community’s CMS ratings - if any categories show fewer than five stars, ask why and see what management is doing to improve their rating. Ask about whether a nurse or a security guard answers the call button in the room if it’s pressed in the middle of the night. Ask to talk to current residents. Request financial statements and copies of contracts. Don’t be afraid to ask for help from an attorney and/or your investment adviser.

Early in our conversations, I told Mrs. Li that I thought she should visit fifty communities before she makes a decision. I’m not sure how serious I was when I gave her that number, but as one visits more communities, one can get a better sense of what one likes and dislikes. As the case would be with buying a house, entering a senior living community represents a major change and commitment, and will have a great impact on the financial and emotional lives of yourself and your family. It is worth the effort to research, even if you or your parents wish to be taken from your house feet first. Living long enough means learning that life does not always give you what you want. My efforts to continue lifting the substantial fog I find around the senior living industry continue.