Wisconsin Governor Jim Doyle’s budget proposal for 2005-2007 calls for a 25 percent reduction in the state’s nursing-home population over the next eight years by shifting residents to alternative “assisted living” settings – a move he says would save the state $9 million over the next two years.

While the governor’s proposal might improve the state’s bottom line, it could worsen the financial squeeze already being felt by Wisconsin’s nursing-home operators. Many facilities no longer receive adequate reimbursement to cover their costs; some are losing as much as $30 or $40 per patient, per day.

Thanks to these funding shortfalls – as well as a continuing shortage of quality staff – many nursing-home operators have downsized their facilities in recent years. At the same time, many are searching for additional revenue generators, including assisted-living facilities.

Assisted-Living Facilities in Wisconsin: A Primer

Assisted-living facilities are designed to provide residential environments that combine independence with personal care in a warm, dignified community setting. Wisconsin currently has about 2,400 assisted-living facilities that provide services to more than 31,000 residents with diverse needs, from relatively independent adults and seniors to those with Alzheimer’s Disease and other forms of dementia, developmental disabilities, physical disabilities, and other disabling conditions, according to the Wisconsin Assisted Living Association.

In many ways, assisted living is a logical business extension for nursing-home providers, which already have the nurses and other specialized staff required to provide assisted-living services.  By offering a continuum of care, providers can better serve their communities while smoothing the transition from assisted living to the nursing home. Many organizations take the continuum a step further to offer independent living as well, in a structure commonly referred to as a “campus” setting.

Wisconsin law provides for three basic types of assisted-living facilities: Adult Family Homes (AFHs), Community Based Residential Facilities (CBRFs), and Residential Care Apartment Complexes (RCACs). All three types are regulated by the Wisconsin Department of Health and Family Services.

Adult Family Homes (AFHs)

Adult Family Homes are intended to house 3 or 4 adults who are not related to the licensee. AFH residents must live and sleep in the home and receive care, treatment or services above the level of room and board. However, each resident can receive no more than 7 hours per week of nursing care.

AFHs can admit people of advanced age and persons with dementia, developmental disabilities, mental health problems, physical disabilities, traumatic brain injury, AIDS, and other illnesses. Payment for this type of service usually comes from private parties, county funds, and Medical Assistance (MA).

Community Based Residential Facilities (CBRFs)

Community Based Residential Facilities are designed to provide care, treatment, and 24-hour supervision for 5 or more unrelated adults. CBRF residents may require intermediate-level nursing care, but they can receive no more than three hours of nursing care per week.

CBRFs are intended to provide a relaxed, homelike living environment. These facilities typically offer private or semi-private bedrooms with shared living and dining areas.  Services include meals, snacks, activities, and assistance or supervision with activities of daily living. CBRFs can admit the same types of residents as AFHs, and they rely on funding from similar sources.

CBRFs are generally smaller than skilled nursing facilities. They are categorized by size: small (5-8 residents), medium (9-20 residents), or large (more than 20 residents). They are also rated by “class” (A or C) depending on resident ambulation and physical and mental capabilities.

Residential Care Apartment Complexes (RCACs)

Residential Care Apartment Complexes consist of five or more independent apartments, each of which has an individual, lockable entrance and exit; a kitchen, including a stove; and private bathrooms, bedrooms and living areas. RCACs can provide residents up to 28 hours per week of nursing care and/or personal services, which may include

• health monitoring, medication administration, and medication management;
• personal assistance with dressing, bathing, eating, and grooming;
• meals (typically two per day);
• housekeeping and laundry services; and
• transportation and medical appointment arrangement.

RCACs cannot admit persons who are incompetent, have Alzheimer's-related dementia, or have other infirmities that require close monitoring by health professionals. These facilities are most appropriate for people who can live independently with minimal assistance, or for persons suffering dementia who wish to continue living in relative independence with the aid of their spouses.

RCACs must provide 24-hour emergency assistance to ensure the health and safety of residents. An RCAC may be attached to nursing home or CBRF, but it must be housed in a physically distinct part of the structure. Certification is required from the Community Options Program (COP) and MA in order to qualify for reimbursement from these programs.

For a Successful Venture, Follow These Steps

If you’re considering adding assisted-living services to complement your existing nursing-home operation, your first step will be an evaluation of your facility’s current resident population to determine whether some of these residents might be candidates for assisted living.

At the same time, you should also perform or commission an in-depth market study that defines your service area, analyzes local demographic trends, and evaluates potential competitors.

If your market evaluation shows promise, it’s time to estimate the cost of facility conversion or new construction. And since lending institutions will need evidence that your project is likely to be a profitable business venture, financial projections will need to be an integral part of your business plan.

Your projections will need to show anticipated revenues and expenses, backed up by specific assumptions that address fill-up rates, vacancy percentages, anticipated staffing patterns, dietary, housekeeping and maintenance costs, administrative costs, utility costs, and debt service. Tax considerations are also important relative to the tax structure of your organization.

Team Up with an Experienced Partner

Proper guidance in this endeavor can mean the difference between success and failure. To improve your chances, you’ll want to work with a management consulting firm with special expertise in the long-term care industry. The firm you select should have a deep understanding of the assisted-living business and be able to advise you on what has worked for others in the industry.

Tax expertise will also be essential as you determine the proper entity type for your venture. For example, a for-profit entity would want to consult with tax experts regarding the possibility of separating components of construction to take advantage of shorter useful lives for depreciation purposes.

With our seasoned knowledge of the health-care industry and a true passion for seeing our clients succeed, Wipfli is ready to help you explore potential opportunities in the assisted-living business.

Jim Wesson (414-431-9350) is a partner in Wipfli's health care practice.