Assisted Living Concepts, Inc.
Assisted Living Concepts, Inc.
11835 NE Glenn Widing Dr., Bldg. E
Portland, Oregon 97220-9057
Telephone: (503) 252-6233
Fax: (503) 252-6597
Sales: $139.4 million (2000)
Stock Exchanges: American
Ticker Symbol: ALF
NAIC: 623311 Continuing Care Retirement Communities; 62311 Nursing Care Facilities; 621999 All Other Miscellaneous Ambulatory Health Care Services
Assisted Living Concepts, Inc. owns, leases, and develops free-standing assisted living residences for moderate income older adults who need assistance with the activities of daily living, such as bathing, dressing, and shopping. Its facilities are designed to allow residents to “age in place”—to maintain a fairly independent lifestyle as long as possible while being able to take advantage of healthcare services as needed. The company builds its residences primarily in rural and suburban communities with populations ranging from 10,000 to 40,000. In addition to housing, the company provides personal care, support services, and nursing services according to the individual needs of its residents and as permitted by state regulation. While the company receives 80 percent of its revenues from private pay sources, it also participates in Medicaid waiver programs.
Capturing a Profitable Market Niche: 1982-93
When her elderly mother complained about living in a nursing home in the early 1980s, Keren Brown Wilson did more than feel guilty or speak with the staff. Wilson, a West Virginia coal miner’s daughter, helped pioneer the idea for what was to become a new industry: assisted living facilities.
To be sure, although she had never taken a business course or headed a major company, Wilson was prepared for the job. Her idea was the expression not just of filial duty, but of years of professional experience. Wilson had completed a Ph.D. in urban affairs and gerontology at Portland State University, earning a fellowship at a time when the federal government was channeling individuals into careers in gerontology. Later, she consulted on privately funded assisted living projects, and worked in the field of public policy for the aging in a dozen states.
Wilson became convinced, as she described it in a 1997 Oregonian article, that “we were on the wrong path” in providing care for the aging. “Everything we knew, academically, every bit of theory was not being carried out in practice.” The elderly were being denied independence, privacy, dignity and control—all crucial ingredients to longevity and prolonged quality of life. “They had no control over their environment. They had no control over their care. They had no control over decision making.”
Beginning in 1982, Wilson went to work to finance her first assisted living facility, despite resistance from bankers and bureaucrats. At the time, nursing homes were not homes, but healthcare holding tanks, where the top priorities were patient safety and 24-hour nursing care for people considered too ill to care for themselves. Unlocked doors and kitchenettes in small individual apartments—the things Wilson foresaw including in her facility—meant danger, not independence. “Conventional lenders thought the product was too different to be sellable,” she was quoted as saying in a 1997 Oregonian article. “They said, ‘That’s not how it’s done.’ “Fortunately, she was able to secure financing to build apartments for the elderly under an Oregon bond program for senior housing. With $900,000 in the bank, Wilson applied to a different state agency and received a license to provide residential care. Park Place Living Center, the resulting 112-unit development for the elderly, in Tigard, Oregon, a suburb of Portland, provided radical innovations, such as private apartments with kitchens and locking doors, along with staff to help residents perform daily living activities, such as eating, bathing, and shopping.
Three years later in 1985, Wilson convinced Richard Ladd, who ran the Oregon Senior and Disabled Services Division until 1992, to conduct a Medicaid demonstration project in assisted living. Ladd, who had laughed at Wilson’s idea back when she first proposed it, was so impressed with the practice of assisted living after touring Park Place that he arranged for permission to let 20 Medicaid patients move into Wilson’s second facility, Regency Park Living Center. In 1986, Oregon permanently amended its rules to allow any qualified Medicaid patient to receive care in an assisted living facility instead of a nursing home.
Spinoff in 1994
By 1994, assisted living was an acknowledged new industry that was attracting imitators and gaining attention on Wall Street—close to a $15 billion industry overall. Wilson’s Concepts in Community Living, Inc. (CCL), which had incorporated in 1988, drew the attention of Peter Sidoti, senior equity analyst at NatWest Securities and Andre Dimitriadis, former executive at Beverly Enterprises and American Medical International. The two men approached Wilson with the idea of forming the first publicly traded assisted living company. Wilson resigned from CCL, leaving her husband, Michael DeShane, to run the company’s consulting business, and Assisted Living took shape as a CCL spinoff in November 1994. The fledgling public company had six residences in operation and 1994 revenues of $2.1 million. It netted approximately $18.5 million in its initial public offering of two million common shares, putting the proceeds toward buying one residence and leasing another.
By 1995, Assisted Living had six facilities in Oregon, ten in Texas, and three in Washington. The company lost money that year, as expected—$575,000 on revenues of $4 million—but finished 1996 in the black with a total profit of $149,000 on revenues of $19 million. By the end of 1996, Assisted Living had more than 50 licensed assisted living facilities in six states—Washington, Oregon, Idaho, Texas, Ohio, and New Jersey—and more under construction. These out-of-state residences, part of Assisted Living’s national expansion program, undertaken with Chicago-based Walken Development Co., added 65 facilities to the company’s total in Indiana, Ohio, South Carolina, New Jersey, and Georgia from 1996 to 1999.
Even as it grew, Assisted Living continued to seek to serve the low-end of the private pay assisted living market, as had its predecessor agency, CCL. Costs to the resident averaged $1,600 a month, about 65 percent of the average nursing home rate. The company focused on states where Medicaid paid for assisted living or waivers were pending so that once residents had spent down to Medicaid eligibility they could remain at Assisted Living facilities, or “age in place.”
Assisted Living placed a premium on keeping costs sufficiently low to make a niche for itself among the lower-end private pay residents and so that residences could operate profitably even if all revenues were derived through Medicaid reimbursements. To hold costs down to $55,000 to $70,000 per new unit, the company typically built in smaller towns, which it perceived as an underserved market, and looked for residential, rather than commercial, locations to minimize on raw land costs. Its facilities were all small—in the 25-to-50 unit range—and single story to avoid the necessity of elevators or stairs. There were no common spaces, such as private dining rooms and exercise rooms, and the laundry room available to residents doubled as the facility laundry during off hours. Over the years, Assisted Living developed a standard architectural plan that varied only in finishes by region. It avoided dual occupancy designs to eliminate management time spent pairing roommates and mediating situations when individuals did not get along. Most of the company’s development was outsourced, with fixed prices and “not to exceed” bidding the rule.
On the operating side, Assisted Living instituted three practices. Its “universal workers” were trained to perform multiple tasks, such as personal care, housekeeping, food services, laundry, and medical assistance, which enabled them to schedule other tasks during slow times, while simultaneously ensuring residents’ continuity of care. Building small enabled the company to eliminate middle managers. Cluster management, the construction of grouped facilities, allowed it to achieve economies of scale in such areas as maintenance.
In 1997, Assisted Living began to acquire other assisted living companies, the first of which was Carriage House Assisted Living of Nebraska. Shortly thereafter, it acquired Home and Community Care, Inc. (HCI) and merged both companies’ operations to add home health and hospice services to the company’s offerings. In anticipation of the merger, the company reorganized its executive ranks; HCI’s chief executive, William McBride, replaced Wilson as Assisted Living’s CEO, and Wilson became president and COO of the company. In addition, Assisted Living also formed a subsidiary to manage health, hospice, and durable medical equipment operations. A second stock offering was held in 1997 to finance purchases. The company saw a 157 percent jump in revenue to $49 million that year, and income skyrocketed to $4.21 million.
By the end of 1998, Assisted Living owned and operated 173 residences in 15 states. The company closed its home healthcare operations and reached an agreement in November to be purchased by American Retirement Corporation (ARC), a company that concentrated on affluent residents in urban markets, for $242 million, The transaction would have created one of the largest housing and healthcare service providers in the United States. Then trouble struck; the deal with ARC fell through when auditors questioned Assisted Living’s accounting methods.
To provide affordable, quality housing and services which reflect and support independence, dignity, choice, privacy, and individuality in meeting the needs and preferences of all tenants in a home-like setting.
Legal Woes and Changes Within the Industry: Late 1990s-2000s
According to the auditors, the way in which Assisted Living accounted for loss reimbursements from its joint ventures made what were loans look like income. As a result, two years of losses had become two years of profits. In February, Assisted Living reduced its income for 1997 by $1.6 million and its income for the first nine months of 1998 by $3.4 million. In the wake of this recalculation, Assisted Living’s stock plunged to less than half its former value, and shareholders filed a securities fraud class-action lawsuit. Wilson replaced McBride as president and CEO in March 1999, the month Assisted Living said it would also restate its 1996 earnings. In April 1999, the American Stock Exchange halted trading in Assisted Living’s stock when the company missed its 15-day deadline for filing reports with the Securities and Exchange Commission. Trading stopped at a little less than $3 a share, significantly down from the stock’s December 1997 high of $22.
Meanwhile the trend in senior housing moved from rapid to modest expansion in 1998 and 1999, in part because of the strained availability of capital and because expansion had led to a housing oversupply. Critics began to accuse public assisted living companies, such as Assisted Living, of being more interested in meeting Wall Street’s high growth-and-earnings expectations than in serving clientele. They said that facilities were accepting seniors who should really have been in nursing homes where they would have received better care. Assisted Living was not immune to such charges. In 1998, investigators temporarily banned new residents from two Assisted Living homes in Oregon after they discovered several instances of seriously substandard care; the Vancouver, Washington facility was charged with endangering residents by disregarding physicians’ orders. It remained open, but under state monitoring. In Oregon at the time, assisted living centers were required to meet the needs of residents on a 24-hour basis, but there was no mandate governing level of staffing. Further, while the state required a week of training to become a facility administrator, it did not screen for unqualified applicants.
However, in spite of its legal troubles and net losses—almost $29 million in 1999—Assisted Living continued on a growth curve, ranked eighth in the Business Journal of Portland’s list of the 100 fastest-growing companies, based on revenue growth from 1996 to 1999. In 2000, Assisted Living agreed to a $30 million settlement in order to avoid litigating the class-action suit filed by investors. In October, Wilson stepped down as president and chief executive, replaced by William James Nicol, a longtime healthcare industry professional.
By the year 2000, assisted living companies nationwide provided housing to as many as a million people. Despite its popularity, the industry was experiencing growing pains and struggling to fulfill its dual mission of providing autonomy and quality managed care. But with the number of Americans over age 65 certain to nearly double to almost 70 million by 2030, the future of assisted living seemed assured. Publicly traded assisted living operators accounted for about 10 percent of all assisted living units in the United States and about 35 percent of all freestanding assisted living facilities of more than 30 units in 2001. According to Wilson in an article that appeared in the Oregonian in May 2001, assisted living companies were undergoing a period of transition in which they “have to act more adult … Those who don’t learn how to manage what they’ve developed to deal with ongoing problems and do it efficiently won’t be in business.”
Assisted Living Concepts Services.
Alterra Healthcare Corporation; American Retirement Corporation; Beverly Enterprises, Inc.; Brookdale Living Communities; Life Care Centers; Sun Healthcare Group Inc.; Sunrise Assisted Living.
- Keren Brown Wilson secures funding for her first assisted living facility.
- Concepts in Community Living is incorporated.
- Assisted Living Concepts, Inc. is organized as a spinoff from Concepts in Community Living.
- Assisted Living acquires Carriage House Assisted Living and Home and Community Care (HCI); HCI’s chief executive, William McBride, replaces Wilson as Assisted Living’s head.
- An audit forces Assisted Living to recalculate past earnings.
- Wilson replaces McBride as president and chief executive in March; the American Stock Exchange halts trading in Assisted Living’s stock in April.
- Assisted Living agrees to a $30 million settlement in order to avoid a class-action suit; Wilson is replaced by William James Nicol.
“Assisted Living Captures Profitable Market Niche,” Modern Healthcare, May 8, 1995, p. 72.
Gamzon, Mel, “Back to Basics,” National Real Estate Investor, March 15, 2000, p. 85.
“Making Senior Housing Affordable,” Journal of Property Management, July/August 1997, p. 29.
Mayes, Steve, “Assisted Living Offers Elderly Autonomy and Care,” Oregonian, May 23, 2000, p. Al.
Smith, Ray A., “Assisted-Living Firms Grapple with Oversupply—Construction Falls Sharply and Operators Offer Incentives to Fill Space,” Wall Street Journal, April 18, 2001, p. B12.
Woodward, Steve, “Assisted Living Expands Reach into Health Care with Triple Play,” Oregonian, September 10, 1997, p. Fl.
——, “Proving Conventional Wisdom Wrong,” Oregonian, June 22, 1997, p. R4.