Aging in Place and the Impact on Senior Care

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“I Just Want to Say One Word to You. Just One Word. Demographics.”

Source: U.S. Census, NIC 2

Proven Demand Elasticity: A Clear Need

Source: NIC MAP Data & Analysis Service; MBAA; REIS; STR 3

Strong Institutional Investor Interest in Senior Care

Source: NIC, 2012 Plan Sponsor Survey; Kingsley Associates; Institutional Real Estate, Inc. 4

Increasing Transaction Volume & Size

Note: Size of circle proportional to transaction price. Analysis prior to HCN acquisition of SRZ. Source: NIC MAP Data & Analysis Service; RCA

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Comparative Advantage: Low Cost Provider  SNF is a lower cost setting compared to other clinical settings

Note: This does not account for differences in readmission rates. 6

But…We have an Unenthusiastic Customer…  Recent study on private pay SH indicated that 15% of residents were very satisfied, 45% satisfied and 40% neutral or worse. Therefore, unsatisfied outnumbered those very satisfied by over 2.5 to 1.

 Implied “net promoter score” is -25%, lower than any industry tracked. Note: See SAT Metrix and www.netpromoter.com for more details. Leading consumer brands, like Apple, Amazon and Trader Joe’s, have a net promoter score of approximately 75%. Source: “Residents Financial Survey” by Center for Retirement Research at Boston College, 2011; NIC MAP; Federal Reserve 2012 study from data from 2007 to 2010.

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…Who Would Prefer to Age in Place  Consumers have a strong preference to age at home rather than in an institutional setting – nearly 90% prefer home (AARP, 2010)

 As a result and with greater options to age in place, consumers are delaying moving into institutional care. Key implications include: □ □

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Older Residents Higher Levels of Acuity in Lower Care Settings Shorter Length of Stay Greater pressures on staff Losing Appeal to Younger Residents Different Value Proposition

Note: “Aging in Place” refers to the desire of seniors to stay in a particular residential setting as long as possible, even as health care needs increase. Note: Additional information on aging in place can be found within the white paper. “Why Aging in Place Matters”. A one-page executive summary is available at www.pointforwardsol.com. 8

… Who has Different Buying Habits Silents vs. GI Generation:  Expectation of Choices, Options

 Value vs. Just Price  Greater comfort with Technology  Less Trusting of Institutions, Marketing Source: “A Voice to the Silent Generation” by Morrison Senior Dining, 2007.

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… Who is Less Wealthy & Fearful  Average Net Worth Decreased from 2007 to 2010 by 39% to levels from early ’90s (Fed Reserve 2012) □

Less of an impact for 65+ cohort but still negatively impacted

 Seniors (65+) have an Increasingly Negative View of the Future □

66% have a pessimistic view outlook on the economy in 2011 vs. only 44% in 2009 (Zillner 2012)

 Boomers (cohort 50 to 64) are Fearful of the Future (AARP 2012) □ □ □

Ranked highest of any group on AARP’s “Anxiety Index” 65% have little confidence that they will have the means to live comfortably in retirement May need to add 4th leg of retirement stool: Pension, Savings, Medicare/Social Security and, now, Working Longer 10

… Who is Dependent on Fixed Income

Source: “Housing an Aging Population” by Center for Housing Policy, based on data from U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplement, 2009.

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… Where Gov’t is Unlikely Able to Save the Day Specific Examples:  $3B of Fed Budget set aside as part of ACA to match Medicaid for programs that keep seniors out of nursing homes (March ‘12)  TennCare in TN is making it more restrictive to move into SNF (July ‘12) Source: State Budget Shortfall data from Avalere Presentation at NIC Conference, 3/12

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… And, BTW, Maybe SNF isn’t Low Cost Provider  Home Health and Community settings can be a lower cost solution

Note: This does not account for differences in readmission rates. 13

… And, Demographics May Not Help for a While  If average age of move-in to LTC is mid-80s, baby boomers will not factor into demand until 2031.

Source: “Independent for Life: Homes and Neighborhoods for an Aging America” by Henry Cisneros, Margaret Dyer-Chamberlain, and Jane Hickie, 2012

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Entering an Era of Disruptive Innovation 

“Disruptive Innovation” is an innovation that helps create a new market and value network, and eventually goes on to disrupt an existing market and value network, displacing an earlier solution.

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“Sustaining Innovation” does not create new markets or value networks but rather only evolves existing ones with better value, allowing the firms within to compete against each other's sustaining improvements.

Source: Various materials and presentations from Clay Christensen including his website: http://www.claytonchristensen.com; Wikipedia on “Disruptive Innovation”

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Case Study:  Integrated system to better manage the chronically ill  Utilizes a primary care practice within retail clinics and in-home technology to track and support members  Team based with physicians, nurse practitioners and medical assistants  Offers Medicare Advantage Part C and several special needs plans  Superior health, financial and consumer satisfaction scores  Acquired by WellPoint in Aug ’11 for $800M with plans to rollout beyond initial footprint of CA, AZ and NV. Source: Associated articles found on www.caremore.com, including those by The American Geriatric Society Journal and The Atlantic Monthly.

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