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GSA 1998 Poster Presentation Handout
Tracking the Cost of Assisted Living: The Initial Experience of Cost Reporting in North Carolina

Duke Long Term Care Resources Program: S. Bratesman, Jr., S.C. Leak, J.H. Prince, G.L. Maddox, and the AARP Public Policy Institute: S. Hermanson

Abstract

The growth of the assisted living industry has been encouraged by the expectations of private consumers and state policy makers alike, that the assisted living model represents an affordable and cost-effective alternative. Until very recently, though, there has been little or no available information, detailed or otherwise, about the actual costs of assisted living care. This study examines one of the first sources of detailed cost data from a large body of licensed assisted living and board and care homes - the North Carolina adult care home cost reporting database.

In 1995, North Carolina became one of the first states to require a significant proportion of its assisted living providers to submit audited cost report data. The information supplied in the cost reports:

1) Form the basis for the state's annual rate-setting process for Medicaid and SSI supplement payments for assisted living residents; and

2) Could also help the state determine whether providers are adequately compensated for the care and housing they provide, whether state dollars are being used effectively and what proportion of state and private revenues are spent on direct care for residents.

This paper describes the impetus and rationale for the development of North Carolina's cost reporting system, and provides examples of useful and policy-relevant questions that can be answered by analyzing the information collected in the cost reports. These questions include:

What are the reported costs of assisted living care?
What is the distribution of homes by average daily cost, revenue, and profit or loss?
What is the distribution of costs across different cost categories including direct services to residents, property costs, and administrative expenses?

How the Data Were Collected

In 1995, the North Carolina legislature established a formal cost reporting process for all adult care homes receiving SSI supplement payments or Medicaid Personal Care Services funds in support of any residents. All homes were required to file annually and homes with 10-or-more beds were required to have their reports audited annually or bi- annually. (see Table 1)

Table 1: North Carolina Adult Care Home Cost Report Audit Requirements

Number of Beds	Reporting Requirement	Auditing Requirement
1-to-9	Must file annual cost report	Auditing not required on a routine basis. However, all reports subject to random audits by the State
10-to-19	Must file annual cost report	Must file annual cost report Must file an audited cost report every second year
20-or-more	Must file annual cost report	Must file annual cost report Must file an audited cost report every year

Reported costs are broken down by major categories that include personal care services, health services, dietary, recreation, housekeeping/laundry, medical transportation, administrative and general, property costs and others (see Table 2). The major categories are further broken down by wages, benefits, contract services, payroll taxes, travel, supplies and other sub-categories. The homes must also report the number of licensed beds, total number of resident days, number of days for publicly- supported residents, sources of revenue, and other home characteristics. These reports are submitted to the N.C. Division of Facilities Services and entered in a relational database.

As the reporting process has matured, the succeeding waves of data have become more reliable and a greater proportion of homes were required to file audited reports in the third year (see Table 1). Therefore, we chose to focus on reports for 1996-97, the third and most recent wave of data.

Of the 2,367 homes that appear in the 1996-97 cost report database, we selected 519 according to the following criteria:

homes that submitted an audited report;
licensing categories that centered on the frail elderly rather than populations with special needs;
reports that covered a single home, rather than consolidated reports that aggregated costs over multiple homes (note: although owners were no longer permitted to file consolidated reports in the third year, a few still did.); and
whether the report was complete or missing one or more essential data elements.

Table 2: Major Cost Categories for North Carolina Adult Care Homes

Direct Services to Residents	Ancillary Services	Facility Costs	Administration & General
- personal care - health services (minus beauty & barber expenses) - dietary services - mental health - medical transportation	- housekeeping & laundry - recreation - beauty & barber	- property ownership & use - operation & maintenance	- administration & general - initial orientation and aide training

The reported costs for Adult Care Homes ranged from $8.65 to $176.34 per day

The homes in the study reported an average cost of $45.81 per resident day or $1,393 per month (see Table 3). However, there was considerable variation in costs from home-to-home ranging from a reported $8.65 per resident day to $176.34. The standard deviation for all homes in the study was $16.95 per resident day. On average, the assisted living care provided in Nursing Homes with licensed Adult Care beds cost $12.14 more per resident day than care in Homes for the Aged.

Table 3: Total costs per resident day for homes in the study - 1996-97.

	Homes for the Aged	Adult Care Beds in Nursing Homes	Both Categories
Average	$42.85	$54.99	$45.81
Median	$39.68	$51.67	$40.98
Min	$8.65	$30.31	$8.65
Lowest 10%	$32.13	$35.74	$32.93
Highest 10%	$54.51	$83.70	$62.55
Max	$176.34	$123.38	$176.34
Count	390	126	516*

* Three of the homes reported revenues, but no expenses.

Homes that spent less per resident reported higher profits.

The homes that spent the least amount of money per resident per day tended to report the highest dollar profits per resident per day and the highest profit rates as a percent of total revenues (see table 4). The 20% of homes in the highest cost category averaged a loss, while homes in the other four quintiles averaged a profit, and those profits rose as the amount of money spent per resident declined. On average, homes in the lowest cost quintile spent less than half per resident per day ($31.37) as homes in the highest cost quintile ($70.81) and reported profits that averaged $6.16 per resident per day or 16% of total revenues.

Table 4: Homes in the study that spent less per resident reported higher profit rates in 1996-97 (n=516)

Homes Grouped by Average Total Cost per Resident Day	Ave. Total Cost per Resident Day	Ave. Total Revenue per Resident Day	Ave. Profit per Resident Day	Ave. Profit as a Percent of Revenue	Ave. % of Residents Receiving State Support
Highest Cost Quintile	$70.81	$61.82	($8.99)	-15%	50%
4th Quintile	$47.80	$48.83	$1.03	2%	60%
3rd Quintile	$41.32	$42.45	$1.12	3%	75%
2nd Quintile	$37.76	$39.76	$2.00	5%	85%
Lowest Cost Quintile	$31.37	$37.53	$6.16	16%	83%
Average	$45.81	$46.08	$0.27	1%	71%
Median	$40.98	$40.60	$0.94	2%	79%

Direct resident services account for less than half of total costs.

On average, the homes we studied reported spending:

$21.07 per resident per day (46% of total costs) on direct services (personal care services, health-related services, ;
$3.87 per resident per day (9% of total costs) on ancillary services;
$6.83 per resident per day(15% of total costs) on administrative and general costs; and
$13.51 (30% of total costs) on facility costs.

Chart 1: N.C. homes in the cost report study - 1996-97

The percentage of total spending devoted to direct resident services varies considerably between homes.

As did all the other variables found in the cost report database, the reported percentage of total costs spent on direct services varied considerably between facilities:

the home at the 10th percentile of spending on direct resident care reported spending 34% of its total costs on direct resident services, while
the home at the 90th percentile reported devoting 60% of its total costs to direct resident services.

We used a multiple regression model (see Table 5) to test hypotheses on characteristics associated with the dependent variable, the percentage of total costs spent on direct resident services. Not-for-profit homes, homes that served a larger proportion of private pay residents, older facilities, and the adult care wings of nursing facilities tended to devote a larger share of total costs to direct resident services. While controlling for the other variables in the model:

on average, for each ten percent increase in the proportion of private pay residents there was a 0.7% increase in the reported direct services share of total costs;
not-for-profit homes spent an average 5.2% larger share of total costs on direct resident services than did for profit homes;
the adult care wings of nursing homes spent an average 8.8% larger share of total costs on direct resident services than did homes for the aged; and
for each 10 years of age, older facilities reported spending an average 1.1% larger share of total costs on direct resident services.

Table 5: Not-for-Profit Homes, Homes with Larger Proportions of Private Pay Residents, and Nursing Homes with Adult Care Wings Spent a Larger Share of Their Total Costs on Direct Resident Services (N=485, R-Square=0.201).

Independent Variables		Coefficients	Standard Error	t Statistic	P-value
***	Intercept	49.98	1.90	26.261	0.000
***	Percent Private Days	6.88	1.85	3.709	0.000
	Number of Licensed Beds	0.01	0.01	0.795	0.427
	Vacancy Rate	-2.47	2.80	-0.884	0.377
***	Facility Age in Years	0.11	0.03	3.787	0.000
***	Not-for-Profit (yes=1)	5.23	1.67	3.135	0.002
***	Licensing Category (Nursing Homes=0 Homes for the Aged=1)	-8.80	1.20	-7.304	0.000
***	Total Cost per Resident Day	-0.05	0.03	-1.643	0.101

*	Significant at the 0.10 level
**	Significant at the 0.05 level
***	Significant at the 0.01 level

Direct Services Costs by Sub-Category

We also looked at the distribution of direct services costs in more detail. Of the average $21.07 per resident per day spent on direct resident services, over half that amount ($10.39) was accounted for by personal care services. The 488 homes in the study that reported dietary costs averaged $7.76 on dietary spending per resident per day. The raw food component of dietary costs averaged $3.62 per resident per day. The remaining 13% of direct resident services consisted almost entirely of health-related costs and Medicaid medical transportation.

In Table 6 below, we took 504 homes (those in the same group that reported more detailed cost items in full) and then sorted and grouped them in the same order as we had in Table 4. We then examined differences in facility costs, administration and general, ancillary services, direct services, and the smaller components of direct costs.

The homes in the lowest total cost quintile reported spending about 3/8ths as much per resident day on personal care services and on all direct services as did homes in the highest cost quintile.

Homes in the lowest total cost quintile reported spending about 1/8th as much per resident day on health-related costs as did homes in the highest quintile. (Because of the lack of data on health and functional status, there is no way of determining whether the lower health-related spending reflects differences in the level of need or differences in the quality of care.)

There was much less variation between the highest and lowest total cost quintiles in dietary and raw food spending.

Table 6: Direct Resident Care Costs by Sub-Category (n=504)

Direct Services
Homes Sorted & Grouped in Order by Total Costs
	Personal Care Services	Health-Related Services	Medicaid Medical Transport	Total Dietary	(Dietary: Raw Food Only)	All Direct Services	Ancillary Services	Admin. and General	Facility Costs
Highest Cost Quintile	$15.27	$7.07	$0.21	$10.93	$4.42	$33.53	$6.92	$10.05	$20.15
4th Quintile	$12.00	$2.36	$0.24	$7.92	$3.62	$22.52	$4.07	$7.20	$13.79
3rd Quintile	$9.43	$1.40	$0.47	$7.20	$3.62	$18.54	$3.92	$6.15	$12.59
2nd Quintile	$8.65	$0.78	$0.50	$6.32	$3.26	$16.24	$2.82	$6.29	$12.04
Lowest Cost Quintile	$6.49	$1.18	$0.46	$6.13	$3.18	$14.26	$2.79	$4.66	$9.51
Average	$10.39	$2.58	$0.38	$7.71	$3.62	$21.07	$4.11	$6.88	$7.78

Direct Services

Conclusion

The most prominent feature of the North Carolina Adult Care Home Cost Reports is the great variation in costs between homes. This variation also extends to the way costs are apportioned between different services and other cost categories.

In general, homes that serve higher proportions of private pay residents, not-for-profit homes, and older homes spend a higher proportion of their total costs on direct resident services.

The North Carolina cost reporting process is still quite new. While the N.C. Division of Facilities Services has been taking steps to improve the accuracy and reliability of the cost reporting process for state rate-setting purposes, it would also be very useful to combine home-level cost data with reliable assessments of resident's health and functional status. Without reference to indicators of level-of-need or quality of outcomes, it is impossible to make meaningful comparisons between homes. It is difficult to know, for example, whether one home spends significantly less than another because its residents are less frail and more functionally independent, or if the home spends less because it skimps on the quality of care and facilities. The collection of reliable resident assessment data would improve care planning and care management, permit state regulators to develop a case-mix or risk-adjusted rate system, and allow the development of evidence-based policy decisions on the relative affordability and desirability residential and assisted living care in comparison to other care settings.

Acknowledgments

This study was funded by the AARP Public Policy Institute. We would like to thank the North Carolina Division of Facility Services for their kind cooperation in providing the data and answering Prof. Elise Bolda of the Muskie School of Public Service for her insights, suggestions and advice.

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