Consolidation and Outsourcing Ahead

Consolidation and Outsourcing Ahead: The Genie in a Bottle

Many experts believe a wave of consolidation and outsourcing is going to sweep healthcare providers, including senior living CCRCs aka “life plan communities.” Healthcare Industry Executives Expect Massive Consolidation Ahead

Maintain Margins, Grow Revenue and Hold Down Costs

Leading causes of consolidation and outsourcing are cited as the need to maintain margins and grow revenue and in the face of rising costs. Third-party payers, both government programs like Medicare and Medicaid and private insurers, are both changing the rules for payment and holding the line on payment increases. That means communities must hold the line on costs (do the same or more with less), or charge consumers/residents/patients more.

Consolidation and Outsourcing

The senior living market is highly fragmented compared to the health insurance or hospital markets. That means many senior living providers with low market share looking for revenue growth.

Sometimes it pays to have some historical perspective. This isn’t the first market to experience such pressures. Banking and insurance or financial services and hospitals have been here before. Constrained reimbursements or income means new revenues and high higher margins have to be found through new business lines by offering new or additional services or greater efficiencies in current offerings.

Aggregate Revenue

One solution is to aggregate revenue by buying peers or competitors and consolidate back-office or behind the scenes operations.

Outsource Key Functions

Another solution is to outsource key functions to a consolidator of that function who then provides efficiency behind the scene across providers often under the front line provider’s brand unbeknownst to consumers.

An example is big national banks had an early advantage in online banking websites, that they developed early and internally. Now even the smallest community bank or credit union offers online banking as a necessity, but they do so by outsourcing the information technology role to firms specialized in such websites and the security and electronic data interchange required. You, the consumer, only see the bank’s brand when on the web. The online banking service is a so-called “white label” service provided by a contractor with the bank’s brand slapped on.

Health & Wellness Data and IT Drives Mergers

Big Organizations have a Competitive Advantage

Senior living communities have a similar problem to those community banks. Information technology gathering health status information is an accelerating trend. To succeed when payers require data or only pay on results not volume of services means information technology is an essential function going forward for CCRCs. Information technology and data analytics have big economies of scale, another way of saying big organizations have a competitive advantage. Part of this is the short supply of qualified talent to design, implement and intelligent interpret the data. We will have the power with continuous biometric remote monitoring to see warning signs of an impending medical crisis that will allow timely and effective intervention before the hospital emergency room. But reacting to the data will require complex, expensive IT behind the scenes.

Like banks, that will either happen through mergers and acquisitions (think Bank of America) or through outsourcing to a shared expert that serves many communities behind the scenes (the community banks’ online banking contractors).

Value of Big Data: Used To Predict the Future

When data is important, more data gives more statistical power. Stated another way, the value of data is it’s ability to predict the future based on past data. More data yields better future predictions. It’s why so-called “Big Data” firms like Google or Amazon have so much market power. Data becomes a valuable commodity. Data mining as a term hints at the idea that, “there’s gold in them thar hills.” He or she with the most data wins. That argues for consolidation.

Consolidation can be used to Reduce Risk

Another argument for consolidation is that payers want senior living (and other health providers) motivated to actively manage population health. Risk-based payments require larger populations for risk-spreading, forcing consolidation. In smaller groups, the random variation of risk is greater in effect than the power of good management. Only in larger risk pools or groups is the random variation averaged out enough so that good management of health status is what determines profit or loss, financial success or failure.

Offering new services to increase revenue will encourage specialization and concentration in those new service lines, like post-acute care or rehabilitation. Outsourcing management of these new services will be common.

 Consolidation (is) being triggered by two factors, primarily driven by the “tremendous” growth in activity from real estate investment trusts (REITs) and the operators with whom they partner. — Ed Kenny (Senior Housing News)

Senior Living on the Verge of a Technological Revolution

So, our conclusion? Senior living services including CCRCs are on the verge of a technological revolution. Controlling the technological genie will require consolidation both in mergers and acquisitions of community owners or managers, and in increasing outsourcing of key functions to a handful of technologically sophisticated organizations behind the scenes.

For consumers, this means choosing winners who are good at change, technology, and data analytics. Ideally, consumers want to pick communities with management partners that will lead in the use of information technology, lead in risk and health management, and lead the consolidation. We’ll be asking about the back-office providers of key services. The benefits of doing all this well will be enormous. The risks to residents of communities that do it poorly are also real. We’re back to our original mission, helping consumers find the best in Senior Living Communities and avoid the worst.


7/11/2021 Senior Housing News: Mid-Year Senior Living Report: Uneven Recovery Proceeds, Struggling Operators Face Trouble

8/15/2015 Senior Housing News:Consolidation Continues: A Shrinking Universe of Senior Housing Operators


Add yours

  1. Good read! it’s enlightening, thanks for sharing this.

Leave a Reply

Your email address will not be published. Required fields are marked *

CommentLuv badge

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Copyright © 2015-2021 Aging With Freedom, LLC. All Rights Reserved.

%d bloggers like this: